Prologue

As we reflect on our 25th anniversary year of serving the software games industry, we would like to share our knowledge of how the industry—and its pay practices—have “grown up.”  Along with the changing nature of gaming formats, we have seen both the companies and the players that make up industry evolve.

The companies have changed from garage-style startups to huge, diversified multinational giants.  Ownership of software games companies had evolved from private to independent publicly owned to large parent-owned.  Early gamers were largely 12- to 15-year-old boys whose games were bought for them in large stores by their mothers.  Gamers have matured  with the industry itself, and demographics have changed to include both older players and many more women active game players.

Game formats have changed from limited levels, single-person games to massively multiple online player games where gamers interact globally through complex, multilevel games.  The development of smartphones has resulted in a major shift in the manner in which people play software games…moving from PCs and dedicated gaming platforms to handheld smartphones.

Throughout the history of the industry, one thing that is largely unchanged is the role of software games companies as leaders in the creation of employee-friendly work environments, with which the rest of the world is only now catching up.  While the fortunes of the software games companies have gone up and down, salary, incentives and long-term awards and benefits provided to employees usually have exceeded practices prevailing in general industry.

The Croner Company has been the primary resource for comprehensive compensation data and practice trends for 25 years.  Croner’s Software Games Survey results are a trusted resource used by over 50 major companies in the industry.  Croner has followed and described development and practices in this trend setting industry.  We continue to endeavor to be “the” resource for compensation data for the industry.

Early History

There was not always a software games industry.  The industry traces its beginnings to the early 1970s with Ralph Baer inventing and patenting interactive game concepts and Nolan Bushnell creating his arcade game, “Space War,” that was marketed as “Computer Space.”  Since the 1970s, the fortunes of software games companies have waxed and waned even as the industry has grown into its current size of about $90 billion worldwide[1].  The industry’s first hit, “Pong,” was the brainchild of Al Alcorn who joined Nolan Bushnell at Atari.

In 1977, Atari released the VCS (Video Computer System) console, later known as the 2600. This cartridge-based system became the industry standard for years and resulted in the largest library of software for any console during the Golden Age of video games.  In addition to small startups like Atari, early entries into the software games markets included global companies such as Magnavox (now a brand of Phillips), Mattel, Fairchild, Bally, Konami and Sega.

In the 1980s, major international companies, mostly Japanese, entered the software games market.  The industry’s progress was evidenced by Time Magazine in its January 18, 1982, cover declaring “Video Games are Blitzing the World.”  Sony released PlayStation in the United States in 1995, selling for $100 less than Sega’s “Genesis” platform.  The lower price point, along with the arrival of Nintendo 64 in 1996, weakened Sega’s home console business.  When the Sony PlayStation 2 debuted in 2000, it became the dominant home console; and Sega exited the home console business.

In 1989, Brøderbund, a Marin County, California, software publisher founded by Doug and Gary Carlston, producing such software games as “Where in the World is Carmen San Diego?” and “Myst,” was contemplating an Initial Public Offering.  The Carlstons hired Ed Auer, an accomplished executive from the record business, as Chief Executive Officer.

Auer then telephoned Mel Croner, the founder of The Croner Company, then a 10-year-old consulting firm also based in Marin County, to discuss developing a comprehensive compensation administration plan for Brøderbund.  Croner knew Auer from their joint service on the Board of Trustees of Dominican College of San Rafael, California.

Mel and his daughter, Hali Croner, who is now the CEO of The Croner Company (“Croner”), developed a comprehensive compensation plan for Brøderbund.  The project entailed interviewing key personnel, creating job descriptions and clarifying organization relationships.  When Croner started to address pay levels, it became clear that there were no compensation data available for jobs in the software games “industry.”  A competitive compensation administration plan needs valid data on prevailing pay rates.

Croner discussed with Auer that an industry compensation survey was needed.  The management of Brøderbund identified about 10 software publishers and agreed to pay for the entire survey.  Croner contacted the targeted companies and most agreed to participate.  Brøderbund determined all of the jobs to be surveyed and the survey was underway.  Croner prepared a questionnaire that included the job descriptions which it had developed for the Brøderbund project.  The participants completed the questionnaire and Hali Croner followed up to ensure good matches with Brøderbund’s jobs.  Based upon the survey data, Croner was able to create a market-based compensation structure for Brøderbund that included base salary, incentives and long-term compensation elements.

In early 1990, Patsy Murphy, the Head of Human Resources at Brøderbund, contacted Croner.  Brøderbund had made a commitment to maintain a competitive pay program.  Brøderbund wanted Croner to conduct another survey of the “industry.”  Over lunch at the Savannah Grill, a local Marin restaurant, we mutually agreed that a cooperative compensation survey in which all participants had a voice in determining what jobs and what elements of compensation would be surveyed would be preferable.  Each participant would pay part of the cost of the survey and it could be conducted every year.  Brøderbund was in total agreement.  Thus in 1990, the Croner Software Games Survey was born.

There were about 12 participants in the original survey.  (Most of these companies are now gone or have been acquired!)  We held our first survey planning meeting in the private dining room of the Savannah Grill.

Industry Compensation Practices

To characterize the growth and development of the software games industry, we group the industry into the following “eras,” which reflect compensation practices as they have evolved.

  • Wild West Era (early to mid-1990s)—most publishers and developers were independent companies.
  • Corporate Invasion Era (late 1990s to mid-2000s)—ownership began to shift to parent owners with great infrastructures and management processes and international reach.
  • Going Mobile Era (late 2000s to present)—industry is comprised of a mix of independent and parent-owned companies; international reach has expanded.

Money Considerations

Market capitalizations (the value of a company as computed by multiplying the total number of shares outstanding by the fair market price of the company’s stock) flew high then crashed during the latter days of the Wild West Era (early to mid-1990s), from 10 plus times revenues to less than two times revenues.  This lowering of values reflected increased competition, the transition to new software and platforms and the increasing costs of product development and marketing.

During the Corporate Invasion Era (late 1990s to mid-2000s), market caps were from less than one to nearly four times revenues.  Overall, U.S. parent-owned software games companies performed the best.

In the Going Mobile Era, the range of market caps has narrowed with the range from three times to less than one times revenues.  International parent-owned software companies performed least well during this era, ranging from two to less than one times revenues.

Platforms

Like the industry itself, platforms for software games have changed during each era.

  • Wild West—Apple and Windows PCs; early handheld devices, e.g., Nintendo; Sega
    • Sales from cartridges and software
  • Corporate Invasion—evolution of hand-held devices
    • Revenues from software and discs
  • Going Mobile—transition to mobile and smart phone devices
    • Revenues from software, discs and downloadable content

Participants in the Croner Software Games Survey

The number of companies participating in the Croner Software Games Survey has increased over the eras of the industry’s growth.

Workforce Size

Average workforces in the software games survey have gone from about 500 during the Wild West Era to over 1,000 in the Going Mobile Era.

Revenues

Average company revenues have gone from slightly over $100 million in the early years to nearly $800 million in the Going Mobile Era.  Similarly global revenues for the industry have gone from about $20 billion in the Wild West Era to over $25 billion in the Corporate Invasion Era to over $90 billion in the present Going Mobile Era.

Compensation Trends

Compensation practices in the software games industry in the beginning were quite different from “general” industry.  Salary budgets in the industry during the Wild West Era were triple those of general industry.  In 2004, salary budgets were about 1% above general industry, whereas today they equal general industry.

Short-term incentives
were less prevalent during the Wild West Era because of the extensive use of stock options, but have increased in prevalence over the Corporate Invasion and Going Mobile Eras.  Today, in the Going Mobile Era, short-term incentive practices in the software games industry are essentially identical to general industry.

In the Wild West Era, the use of long-term equity, particularly stock options, was highly prevalent with about 80% offering long-term awards.  Approximately two-thirds of companies in the industry offered long-term awards to all employees.  This granting prevalence increased during 2004, but has declined to below early levels in 2014.  Currently, Restricted Stock Units (RSUs) are the most prevalent long-term compensation elements in both private and public companies.  However, the value of software games company stock, as evidenced by market caps, has declined steeply.

Executive and middle management positions have fared better than individual contributors and coordinators and support positions in both total cash compensation (base salary plus bonus) and total direct compensation (total cash compensation plus long-term incentives).  It’s good to be king!

Benefits
 

The software games industry, almost from its beginnings, has been and continues to be ahead of other companies in offering benefits to its employees.  Such benefits as inclusion of domestic partners; health clubs and wellness programs; flex time; paid parking and telecommuting; and, paid professional training courses; candidate referral bonuses and signing bonuses have been provided since the early days.  Additional benefits provided in the software games industry that are growing in prevalence include assistance with adoption and childcare; annual physical examinations and massage therapy; and reimbursement for commuting costs.  As the employee population ages, these family-friendly benefits have increasing relevance.

In the area of flex time, the software games industry has increased the use of a single paid time off approach with about 15% of companies offering unlimited paid time off.

25 Years of Preparing for the Future

 By 2020, it is projected by the U.S. Bureau of Labor Statistics that around 50% of the workforce will be Millennials.  Today the software games industry is well positioned to be competitive. Companies comprising the software games industry have developed infrastructures and management processes to meet the needs of Millennials.  There are numerous opportunities for growth from within.  And, the software games industry is ahead of most other industries with offerings beyond compensation.  These include benefits and amenities; flexibility; cool environments and great projects.

While the software games industry has had its financial ups and downs over the past 25 years, there has been a steady growth of revenues and profits and increasing employment opportunities.  Many of the companies of the Wild West Era have been acquired or have disappeared.  Each company, however, made its mark and contributed to the legacy of the software games industry.

To discuss your company’s compensation planning needs, please contact Lisa Dyakovski, Director, Consulting at the Croner Company, at (415) 485-5526 or lisa@croner.biz.

[1] Entertainment Software Association, Games: Improving the Economy