The market is turning. Tech stocks are slumping — which is bad news for employees — and even industry powerhouses are slowing hiring and laying people off. Tech talent is still in high demand, but compensation packages could start to look different as companies recruit.
“It’s a little bit like whiplash,” compensation consultant Ashish Raina said of the downturn. Raina, who mainly works with startups that have 200 to 800 employees, previously worked as the director of Talent at Index Ventures and head of Compensation and Talent Analytics at Box. “I do think there’s going to be an interesting reckoning in terms of pay increases going forward, how that pay is delivered.”
Sought-after engineers will continue to command large compensation packages. But those packages could start to look different as companies reshuffle the balance of cash and equity.
Keep fighting the war for talent — but don’t be stupid
There’s still a huge shortage of tech talent, and that will push wages up “for the foreseeable future,” said Shankar Raman, global leader for the Technology Industry Group in the Human Capital Business at Willis Towers Watson.
“Compensation levels don’t go down,” Raman said. “What happens is they don’t accelerate at the same pace they’ve been accelerating thus far.”
Raman doesn’t expect a huge, immediate change in pay practices, noting that hiring freezes are more likely as companies recalibrate.
Raina is urging his startup clients to be more conservative and thoughtful about compensation going forward. A relative lack of financial restraints in the last few years, and unprecedented pressure to compete for candidates, left some CFOs “asleep at the wheel,” Raina said.
One client, for example, gave hiring managers too much leeway in deciding how much to offer candidates. Another client’s hiring managers perceived market compensation as “what candidates ask us for,” a mistake when candidates feel empowered to ask for “ridiculous” sums, Raina said.
“There’s a lot of stupidity that was going on that will have to get ironed out,” Raina said. “What gets mistaken for moving fast and being agile and adaptable can then turn into something that looks reckless and loose.”
Companies that have touted geo-neutral compensation — offering similar pay regardless of where the employee lives — might be regretting that decision soon, Raina said, since it gives them one less way to save on pay packages.
In order to stay competitive — and appease investors who will now be more scrutinizing — companies will be looking for other places to cut back, like cushy benefits packages. Raina expects that annual merit increase budgets could also cool off. In the red-hot talent market, those soared from the 3%-to-4% range to between 4% and 6%. But a downturn could reverse that trend back to normal.
What about equity?
Companies offering huge equity packages in hopes of competing against FAANG competitors may want to think again, Raina said. Big Tech companies that are slowing their hiring pose less competition than they did even a month or two ago.
Startups may want to scale back the amount of equity they offer and the number of employees to whom they offer equity as well as the frequency of grants, Raina said. A startup that once offered 60% to 70% of its employees a $100,000 equity grant may choose to cut back, offering half of its employees an $80,000 grant instead.
But there will be variation here. If the market continues to slump, Thanh Nguyen, the co-founder and CEO of the compensation benchmarking startup OpenComp, expects some startups to offer more equity-heavy packages to save on cash. Regardless, companies will need to determine what they can more easily part with: cash or more equity.
Sign-on bonuses are “now gone,” Nguyen said, though Raina pointed out that bonuses could become a bigger lever for larger tech companies.
Technical talent is safer than non-tech roles
Layoffs and hiring freezes are most likely to target non-technical roles, Raina said: sales, marketing, recruiting, HR.
“Some jobs are worth more than others,” Raina said. “If you’re in a more technical role, regardless, you’re probably going to be more insulated and protected, and everyone else is going to get screwed.”
This applies to compensation, too. Tech leaders may allocate more pay raises and equity to employees who are less easily replaced and whose work generates more revenue.
Might be a great time to recruit for startups
Startups that raised funding recently are better positioned than most, Nguyen said.
“If you raised recently and you’ve already banked the money, this is actually a great opportunity to pick up talent,” said Nguyen, recalling Warren Buffett’s advice to get “greedy when others are fearful.”
With hiring freezes in place at some Big Tech companies, Nguyen expects to go up against fewer competing offers when recruiting candidates. As Gem’s Chief Recruiting Officer Rich Cho put it earlier this month, for startups, “recruiting is the most strategic thing you can do right now.”
Pre-IPO companies could lure candidates who don’t see room for growth at their Big Tech jobs, Raina said.
“Startups that have a decent story can actually play this to their advantage,” Raina said.
