Hiring software engineers has become increasingly difficult this year, particularly in New York. If you’re like many of the startups we’ve worked with, there seems to be a widening divergence in hiring-manager target pay and candidate expectations, leaving both recruiters and startup leaders wondering how to respond. Should you raise pay to compete with major tech firms? By how much? What about internal equity for the employees already at the company?
A Few Compensation Trends to Give Some Context
Back in 2015-2016, you could hire a mid-level software engineer for roughly $140-150k. Over the next couple of years, the pay shifted upward normally and held steady around the $150-160k mark. In the middle of 2018, we saw a jump that outpaced the usual increases seen in years prior, with the same profile commanding up to $180k. (The mid-level profile is what we’d see at a mid- or later-stage startup and can vary based on years of experience or expectations for a given role. We wanted to give a numerical estimate to show the general trend but do not want to imply that this is an absolute standard.) While this overall increase is clearly a large jump, we could make a straightforward recommendation to our clients to raise base pay by a certain percentage.
What’s happening now is different. Base pay has remained relatively steady in the past year. The main gap we’re seeing now is the bonus and/or equity (so much equity!) being offered by public companies. Just from market data, we know that only about a third of startups even offer bonuses, and that the value of options to employees at any stage startup likely can’t match the value of stock offered at the larger tech companies.
Here is what we think are major drivers of the spike in engineering compensation:
VC investment in NY has increased. New York in particular has seen an increase in VC money, leading to a great startup ecosystem but has likely led to more competition when securing engineering hires.
Silicon Valley has landed. The big firms are officially anchored in NY and they are growing. Facebook and Google in particular have grown substantially and will continue to do so over the next few years (with Amazon likely growing its presence as well). Startups often have to contend with candidates who have an offer from one of these companies, or have employees from these companies as candidates. In both cases, the issue becomes striking a balance between an offer that is reasonable for their stage, and one that meets candidate expectations.
The salary-history question. At the end of 2017, it became illegal in New York to ask a candidate their salary history. While we believe it’s having the positive and intended effect on pay equity across gender, software engineers are likely getting larger jumps than they would have otherwise if their previous pay was used as an anchor. Because the market for tech is tight, companies are meeting their pay requests with less pushback. We have not seen any corresponding increase in non-tech pay.
What Startups Can Do to Remain Competitive
While startups may not be able to compete directly with some of the packages offered at these companies, they have still been successful at hiring. Here are some strategies we’ve seen tip the scales:
Focus on recruiting process. From the initial screen through the offer stage, a positive candidate experience can make a huge difference. Make sure interviewers are prepared, can fairly assess candidates, and can communicate the opportunities of working for your team. Speediness in the recruiting process is also important. Many candidates are lost because the team “just wants to see” if there is someone with one more bullet point on their resume. If you could train someone to do something in the amount of extra time it will take to start the recruiting process over, hire the first one. In addition, many large tech companies are known for their long interview processes, so speed can be a competitive advantage.
Communicate your value proposition. Pay is not the only motivation for accepting a new position. The ability to perform high-impact work, take on new responsibilities, or work for a company that aligns more with their values are all things that can heavily influence an offer decision. Teams should communicate (and be proud of!) the defining features of what the team and company can offer.
Offer remote or flexible work. The ability to work from home or remotely in some capacity has become expected in the engineering world, and the demand for it has increased. Not only are there productivity and retention benefits in working from home, but offering flexibility increases the likelihood of having a more gender-diverse team and more adequately supports employees with families in general.
Consider your qualification filters. If all candidates have to come from a certain tier of company, have a specific degree, or have three years of experience in a language that’s only been around for four years, you’re narrowing an already small pool (and narrowing your diversity potential as well). Another strategy here would be to consider hiring an engineer into a role that would be a great stretch position. While we recognize that this isn’t possible for all hires, doing so takes some of the pressure off compensation, provides an attractive opportunity for the candidate, and ultimately has higher potential retention upside.
Evaluate compensation & rewards. It may go without saying, but make sure the pay rates and benefits you are offering are in fact competitive. While a startup can’t offer the same in total comp as the big tech companies, you should have pay practices and benefits that you feel confident are right for your size and stage.