Thomas Barwick | Digitalvision | Getty Images
The downturn in the stock market, and the punishment being punished by tech companies in particular, is set to reshape the pay package despite strong demand for tech talent.
Each day brings a new wave of recession stocks, freezes and recessions, or outright layoffs from companies that a year ago couldn’t hire people fast enough. Earlier this week, Spotify CEO Daniel Ek sent an email to employees informing them that the company was slowing hiring by 25%. Crypto exchange Coinbase announced that it is cutting 18% of its workforce. And within the past month, Stitch Fix terminated 330 positions representing 15% of its workforce, and buy-now-pay-later firm Klarna laid off 10% of its global workforce.
These companies and many others in tech grew headcounts rapidly during the pandemic, but are now pausing or reducing their workforce sizes as inflation and economic uncertainty threaten growth. And even though overall demand for tech talent remains strong — during the first quarter, U.S. employers posted 1.1 million tech jobs, a 43% increase from a year ago, according to information technology trade group CompTIA — along the way. Compensation packages are structured, it is likely to change.
For start-ups and smaller companies, expect to see less cash in the way of equity and in job offers as these companies try to save money in tough times, says Than Nguyen, founder and CEO of compensation benchmarking startup OpenComp.
He says that start-ups – until recently were willing to pay anywhere from 15% to 30% more to find the right candidate – are starting to focus on conserving their own cash, Especially if the last funding round was more than six months ago.
“What we are starting to see now is that phase I companies tend to be less aggressive on cash and more aggressive on equity for job offers because burning their cash is paramount now,” he said.
While a mix of cash and equity has long been the norm for pay packages in tech, this equation seems to be getting a little worse. Companies that issued shares at their peak to lure employees are now getting those shares at a much lower price.
“Either there is going to be a massive employee shakeout or massive losses because companies will have to cancel and reissue shares that are under water, or reissue them and keep the talent on board. cause to be weakened.” Nguyen said.
In May, Brex co-founder and co-CEO Henrik Dubgrass said the company’s $250 million tender offer was a means to give employees “some liquidity to weather this storm.”
Big public companies like Apple, Meta and Google are caught in this dilemma. Nguyen believes there are going to be big implications for these giants, given the massive hiring run with equity grants when share prices were rising. “We’re going to start seeing the implications of this start in our third-quarter earnings report,” he says.
‘big gorilla in the room’
The ongoing strength in tech hiring won’t disappear, but it is likely to diminish. Nicola Morini Bianzino, chief technology officer at EY, says opportunities will continue to be found for people with AI, data, Web3 and cloud architecture skills, describing them as talents that can “take companies to the next level.”
Nguyen adds that individuals with these skill sets are “highly valuable and will be able to demand significant cash and equity.”
The pain will be felt more by technical generalists such as sales, operations or marketing. “As people moved around it, increased compensation from 10% to 15% across the board,” he says. In a recession, labor costs would start to stagnate and people would be likely to hold positions for longer, he added.
“Recession is the big gorilla in the room,” Nguyen says. “It has a big impact on whether people stay or leave a job,” says Nguyen.