The Perfect Storm Causing an Insane Tech Hiring Market
We are in the most heated tech hiring market of all time. Here’s what you need to do and what companies do which are still growing.
👋 Hi, this is Gergely with an originally subscriber-only issue of the Pragmatic Engineer Newsletter. The post was written in September 2021 and represents the market back then. This post summarized the heated tech market as the first among all publications, and six months before The New York Times covered the same topic in February 2022 - repeating several of the points this article made.
To date, this Pragmatic Engineer article is the most in-depth overview of the tech hiring market of 2021 for software engineers. I made this post public to read for everyone in July 2022.
This post was the first article in what would become The Scoop series: a regular bonus column, published most Thursdays, covering patterns and trends I observe and hear about within Big Tech and high-growth startups. Subscribe to get this newsletter - and The Scoop - every week 👇
Since publishing this article, I published more data on the hiring market:
Follow-Up: the Insane Tech Hiring Market (Sep 2021)
More Follow-Up on the Tech Hiring Market (Nov 2021)
The Scoop: the Hiring Market (Dec 2021)
The Soop: #11 - The Tech Boom is Over (May 2022)
The Scoop #17: Dotcom Bust Vibes (Jul 2022)
I have been debating writing about the elephant in the room; hiring in tech and how hot the market is. I’ve talked with dozens of hiring managers across all continents. All say the market is burning hot everywhere. This newsletter issue covers:
Observations on what is happening in the tech hiring market, with quotes from hiring managers and job seekers.
Root causes as I see them on why the tech market is hotter than ever before, even more so than during the Dotcom Boom.
Numbers on what this all means for compensation and demand for senior tech talent pay increases. Many of these numbers are approximations, but they give an idea of where we are.
Advice for hiring managers on how to stay afloat. How to retain your staff, and what to do if you want to hire, and also the sensible approaches of companies which keep growing in this environment.
Advice for tech workers on how you can use the current situation to your advantage.
What is Happening?
If you are a hiring manager who needs to hire, you’ll know what I’m talking about. There is a fraction of the usual candidate applications, closing is more difficult, candidates ask for compensation outside target levels. You might have had people verbally accept and then turn around and decline for a better offer. A few quotes from hiring managers describing the current market:
“Never before has it been this challenging, and in all regions. I remember seeing a heated market before in India a few years back. However, the current environment is many times magnified. We are seeing the same type of intensified competition in the US, UK, EU, Eastern Europe, South America... Heck, just about everywhere. We are predicting this to last into late in the year.” – a tech company with offices on most continents.
“We are finding the market to be superheated for all of our geographies. Candidates often come to interviews with more than one offer and/or have very high compensation expectations. Many are unwilling to hang around for a lengthy interview process.” – a company with EU HQ and offices across US, Europe, India.
“It’s very difficult to find senior engineering talent. We have had a fullstack position open for two weeks and got 5 applicants in total. In the past, we’d easily get 20-30 in a week.” – a B2B unicorn in the Netherlands.
“Our interview process is very short, yet we are still seeing people drop out, because they already have multiple offers. We've also lost a person that went to Twitter to work for them remotely. The competition has intensified with more Silicon Valley companies allowing remote work.” – a scaleup in Germany.
“We are finding the market – and compensation expectations – so heated in India that we have started to ramp up recruitment in South America and Eastern Europe instead.” – a company with US, Canada, and India offices.
If you are not a hiring manager, but have a few years of professional experience, there has never been a better time to make a job change for a significant raise, or to get an internal raise. When I say “significant” raise, I got messages from engineers with raises from 50% to 2.5 times their current compensation when switching jobs. This is happening across all regions.
A few quotes relevant for employees:
"I cannot believe the compensation numbers non-senior folks get. We offered $125K+ equity for an engineer with 3 years of experience. They were about to accept when Reddit came in with a $230K offer that they took ($160 base + $70K stock/year). The crazy thing is that as an engineer with 4 years of experience, I made $140K ($105K salary, $35K stock) as an L4 at Google in 2010. Inflation-adjusted, this is $185K, but this was the very top of the market. The current market is truly insane." – a hiring manager on the US East Coast.
“Startup compensation is crazy. I got a full-remote offer of €135K + 0.5% in a seed-stage US company and a €210K offer (€135K base + €25K bonus + €50K/year stock) from a US public company with a hybrid office policy. I liked the startup better, but I told them I’d take the higher offer from the public company. The startup came back with €200K salary and 0.2% stock offer“ – a staff security engineer in Germany.
It all started in March 2020, with the Covid-19 pandemic and the sudden rise of remote work. However, while people might assume that remote work was the trigger that started to push the market up, I disagree. Working from home is just one of the several root causes that came together. But one thing is certain; the trigger was Covid-19.
So, what are the root causes, and how are companies responding who are still able to hire, in the middle of this perfect storm? Let’s dive in and go deep…
1. Covid-19 and Going All-In on Digital
While the explosion in demand for e-commerce is obvious to anyone, Covid-19 went far beyond online shopping. Any business with physical locations felt the shift. I talked with the head of mobile at a major US bank, who shared:
“After the lockdowns started, we began getting an increase in support messages… from people above 70. They never used the app before, always banking in-person. And we never prioritized the needs of this age group. This changed and since then we've secured funding to make the app more accessible for seniors.”
Many digital-only businesses saw an increase in customers and are planning to invest more in their capabilities to keep up with this. Digital whiteboard startup Miro is a good example. It saw customers skyrocket from 3 million to 20 million users in 15 months.
Companies which saw a sharp increase in business due to Covid-19 during 2020, started hiring immediately. Businesses with less of a direct impact would make plans, increase their tech budget for 2021 and join the party later. A good example of businesses spending a lot more on tech for 2021 is Best Buy, from their annual report:
Demand for software engineers has been on a steady rise thanks to businesses that sped up hiring the moment Covid-19 hit, and also those that waited until early 2021. According to data from Djinni, the largest tech marketplace in Ukraine, in the 18 months from January 2020 to August 2021, positions posted grew by 2.5x.
2. Capital Markets, Big Tech, New Big Tech
The stock market has been doing very well for tech companies. The years 2020 and 2021 have seen record-breaking IPOs and outsized fund returns. Much of those returns are going back into the ecosystem in the form of venture funding.
Startups in the US have never raised as much capital as in 2020. Last year, more than 5,000 startups raised $10B in seed rounds, ~3,500 deals of mid-stage funding raised $41B and ~3,500 late-stage deals did $104B. These numbers are, in aggregate, higher than in previous years.
When venture-funded companies raise capital, one of their main goals is to spend it on growth by hiring people, especially software engineers. Gone are the days of early-stage startups not having capital to offer a fair salary, at least at venture-funded ones.
Big Tech keeps growing very fast and is reinvesting profits into more products and capabilities. What this means: firms keep hiring aggressively, and keep paying top-of-market packages. None show signs of stopping.
By Big Tech, I am referring to the publicly traded tech companies; the likes of Facebook, Google, Apple, Amazon, Netflix, Microsoft, Twitter and others. Tech is an enabler for these companies, and they treat it – and pay for it – like a profit center.
“New Big Tech” is also growing aggressively, and is matching the compensation packages of Big Tech. By “New Big Tech” I am referring to companies founded in the 2010s who have either gone public, or are planning to go public soon. They include Zoom, Doordash, Snowflake, Coinbase, Robinhood, Reddit, Databricks and many others.
Venture-funded startups, Big Tech and “New Big Tech” are all pulling the market upwards. Most of these companies fall into the Tier 3 (top of the regional market) or Tier 2 (top of the local market) for compensation they offer. The rest of the market is forced to respond to their impact. Not just in the US, but globally.
3. Pent-Up Demand from 2020
2020 was a turbulent year for all businesses. Between February and April 2020, most companies put emergency plans in place in response to the impact of Covid-19 and global lockdowns on their business.
Most organisations immediately cut back on all new investment for 2020 in the face of complete uncertainty. Google announced a hiring freeze and a slowdown in investments until the end of the year in April 2020, as a response to travel and hospitality ad spending disappearing overnight.
Google is a great example of how unpredictable the landscape was, and how even profitable businesses which would go on to benefit from the chaos, had to cut back on spending for the year. Looking back at 2020, Google’s revenue ended up soaring and their profits doubled, thanks to the increased digital spending during lockdowns.
By the end of 2020, most businesses were confident that 2021 would bring more stability. They also had a large backlog of delayed projects, and many had more profits to invest the next year. Due to the annual planning cycles, the decision to hire more people came with 2021 budget approvals.
Companies directly hit by the lockdowns, which had to lay off staff – like Uber, Airbnb or Booking.com – were also back to hiring aggressively by the start of 2021.
4. Remote Work
During most of 2020, many companies were uncertain how to navigate remote work. Many hoped it would be brief, and then things would get back to how they were. However, the longer remote work lasted, the clearer it became it was here to stay.
Small startups I talked with embraced remote as soon as Covid-19 started. On one hand, this made hiring much more accessible for many. On the other, they had little choice; candidates were less likely to relocate during a pandemic, even less so for a startup with lower job stability.
High-growth scaleups were quick to adopt a remote-friendly approach. Some took a remote-first one. Hopin – founded July 2019 and already valued at $7.7B – has been a fully remote company since day one. MessageBird – a competitor to Twilio, valued at $3.8B – announced a “work from anywhere” policy in the summer of 2020. In the fall of 2020, Reddit – valued at over $10B – announced remote work as well.
Even those not adapting to remote-first have transitioned to a hybrid setup, hiring from across the whole country, instead of only one city. For example, in Poland, both Sumo Logic and Bolt were only hiring in Warsaw, before Covid-19. Today, they are both hiring from across the country, expecting employees to come to the office every now and then, once the pandemic ends.
Big Tech in particular has been a hold-out on allowing full-remote work. Most of these companies consider in-person collaboration essential to their business success. They also pay the top of the market in liquid total compensation, so have the most leverage in getting employees back to the office. Sure, you can leave, but it will likely mean taking a pay cut, or additional risk by joining a not-yet-public scaleup or startup, where equity can not yet be sold.
Some of Big Tech is embracing remote work. Twitter, Square, and Shopify all introduced permanent remote work in May 2020 and Spotify introduced a Work From Anywhere policy in February this year.
Google, Facebook, Microsoft, Uber have all been cautious in mandating returning to the office. Most of Big Tech took a “wait and see” approach, balancing not scaring away employees by demanding they return to the office, but keeping this option open for later.
Apple was the only Big Tech giant to mandate people to return to the office, starting September 2021. This caused resistance among employees. They have since pushed back the timeline to the start of 2022.
Full-remote hiring has a huge impact on both regional tech markets like the US and EU, and the global tech market. Before remote work, a Chicago-based startup was able to hire affordable talent in the Midwest US. With remote work, they suddenly find themselves competing for the same talent as companies in San Francisco and New York. The same is happening at local companies hiring in Poland. They are now competing with full-remote companies in the US, UK or across the EU.
Hybrid work is where I see the industry converging on, outside of fully remote workplaces. Big Tech is increasingly moving in this direction, as are non-tech companies. A few engineering managers shared stories of losing team members who wanted to go to an office occasionally.
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5. “Non-Tech” and “Tech” Difference is Shrinking
Until now, tech companies and non-tech companies were different in culture and compensation. Most engineers working at tech companies would not consider moving to non-tech companies.
However, several traditional non-tech companies are investing heavily to become tech companies. Examples include Macy’s, Target, Walmart (all US retailers), American Express, McDonalds, IKEA, Zara, pharma companies and many others.
All of these non-tech companies are investing to build amazing tech teams and have large budgets to do so. They tend to bring in execs from tech companies with the freedom – and deep pockets – to hire their tech team.
These companies realize this is a “do or die” moment. If they cannot transform into a tech company and make technology their competitive advantage, they will lose out to competition. Covid-19 was the prompt for many of these companies to finally pull the trigger.
6. Fewer Senior Tech Workers
The final pillar is the shrinking of the supply of senior and above tech professionals on the market. Senior tech workers are quitting with no job lined up. Some take breaks of several months, and a smaller percentage leave the hireable workforce.
Inverse market dynamics are at play here. The more a senior tech worker earns, the more likely they will take a sabbatical, or launch a startup, moving out of the hireable pool – at least for a while. These dynamics accelerate due to over a year of remote work, because the hot job market makes quitting less risky, and the very strong capital markets tempt experienced people to start companies.
Burnout is hitting the tech industry hard. After 18 months of working remotely, under increasing pressure and with little social interaction, many people have decided to take a break from it all. Though few tech companies advertise this, many approve sabbaticals on attractive terms for senior employees, hoping they will not leave for good.
The people who are quitting without anything lined up tend to have a financial safety net. I don’t have statistics, but I have received several messages from people in this situation. Here is a typical one from a Head of Engineering:
“I recently handed my notice in as I felt burnt out, and didn't believe in the company mission. The lack of strategy and leadership got me questioning the long-term viability of the business. I am unsure where to go next. I’m taking a 3-6 month break and then will get back on the job market.”
Strong capital markets are resulting in more senior tech people leaving to found a startup, thanks to more plentiful seed-stage venture capital. Y Combinator’s Summer 2021 batch size is at an all-time high, at 377 companies (double of that two years ago). Later-stage VCs are also moving into seed funding, like a16z announcing a $400M seed fund.
A Note on Juniors
Reading so far, it seems like the market is fantastic for everyone in tech. This is, unfortunately, not true. Juniors – with little to no professional experience – are struggling to find positions.
The compensation for juniors has not increased during this tech hiring frenzy. This is confirmed through both anecdotal sources, and the compensation data from Djinni.
Remote work is the main root cause of juniors not experiencing the benefits of a heated market. Companies want to hire seniors because they don’t know how to onboard and train juniors in a fully remote setting. Working in the office, this was less of a problem as juniors had access to the team all day. They got mentorship and guidance, and got up to speed much quicker.
Teams and companies will have to find ways to hire and onboard more juniors. If you’re a hiring manager, I suggest biting the bullet and starting to hire and onboard people with little experience. An engineering director at a full-remote startup shared:
“We hire less experienced engineers with high potential. We onboard with lots of pair programming sessions, and ensure communication is seamless. Remote onboarding and supporting those people is something we’ve been learning to do well for years, as we’ve been full-remote since before Covid-19.”
More juniors on to the market is a secondary cause. More and more people are realizing tech offers an attractive and high-paying career. Bootcamps are signing up students, promising that with little time and money investment, anyone can become a highly paid engineer. At the same time, a large portion of new grads – both from universities and bootcamps – are struggling to get their first job.
How much is the market moving up?
30-50% year-on-year (YoY) is what a global tech company is seeing across their India operations.
15-30% YoY ago is what hiring managers employing contractors across Europe have shared.
30% YoY is what the largest tech marketplace in Ukraine, Djinni reports.
15% raise granted for all staff at the Spanish offices of a tech company, to respond to the market.
35% is what a CTO hiring remote workers in markets like Ukraine, Portugal, India has reported. “The monthly rate in Ukraine for solid senior/staff-level engineers has gone from $5,000 to $8,000 in 12 months”.
50-150% increases are what employees messaging me have reported in total compensation increases when switching jobs. Many of these people have moved “up” a tier in this trimodal context.
Flat salaries across a country or a region, is an approach more tech companies are adopting. Before Covid-19, compensation bands were defined per city. Fast forward to today, most companies pay the same across a country or the region, benchmarked at the previously highest city salary bands. Geographically disadvantaged locations are seeing outsized ranges because of the flat salary approach driven by the spread of remote, and hybrid work.
Numbers from Ukraine I find particularly interesting. This is one of the few countries where I could find up-to-date data, thanks to Djinni – the market leader for tech jobs there – publishing a detailed tech market report, and I spoke with the founder of the site for additional context on the data.
The most interesting numbers from this country are these:
Recruiter inbound requests up 250%. Candidates get 14 messages/month from recruiters on average, up from 6 messages/month in January.
Job applications down by 35%. In January, the average job application was at 3.3 applications. This is down to 2.4 in June.
70% of jobs are remote, up from 20% in January. Djinni predicts the year will end at 80%.
When trying to generalize this Ukraine data for other countries and regions, keep in mind that Ukraine is more attractive for companies abroad to hire from, than many EU countries. It’s easier to hire and let people go, faster to start projects, and poaching for a higher salary on immediate notice is more common than elsewhere.
Advice for Hiring Managers
The past 18 months has been difficult for hiring and retaining people. It’s going to get worse before it gets better. Here are a few things I’d suggest, depending on the type of place you work at.
Prioritize retaining your current team. There are a few ways to do this:
Compensation. Lobby for out-of-cycle increases and spot bonuses. Most nimble companies are giving raises to all their staff. You’ll need to do it at the beginning of the year anyway, but if you wait until then, you will have lost people who would have stayed otherwise. Assume the compensation data you buy is outdated and that the market could be up 15-30% on last year.
Be flexible on remote work. A very easy way to lose people is to order them back to the office. There are so many remote options with the same or greater compensation; staff just need to start looking.
Be more flexible on promotions. Many companies have been rigid on promotion cycles and processes that are as infrequent as once per year. They expect people to operate at the next level for 6+ months. Consider out-of-cycle promotions to recognize, reward, and retain these people. Simplify your promotion process. Expect that rejected promotions will result in attrition, unless you offset this negative message.
Reduce work stress. Burnout is a big reason many people quit with nothing lined up. Can you take steps to ease pressure? A common way many companies deal with this is by offering additional holidays.
Company-wide additional holidays to give employees more time to recharge after a difficult 18 months. GitHub planned 14 additional holidays in 2021, Bumble added two additional weeks and LinkedIn gave staff a week off. Booking.com, Cisco, and many other companies are following this trend.
Internal mobility. Is it easier to change projects, teams, locations within the company, than it is to interview outside for a new opportunity? It should be easier to change within the company. Some people get tired of working on the same things. Hassle-free internal mobility options will help retain more people.
Sabbaticals and other long-term leave on attractive terms. Many people are in dire need of extended time to recover. It can be cheaper to offer 1-3 months unpaid sabbaticals with uninterrupted equity vesting to retain people, instead of having to backfill the same person quitting.
Continue to invest in culture. Remote work makes it even more important to create experiences which help people feel part of a group. Many companies continued to invest in events within the constraints of the pandemic. For example, many European companies organized outdoor, picnic-style offsites.
As a hiring manager, take care of yourself, do most of the above for you.Many hiring managers are working hard, trying to take care of their team. But what about you? Advocate for yourself as well, not just for your team.
For high-growth startups: the coming period will be hard. Here are a few things that will help:
Reach out directly to candidates. Stop waiting for applicants to come to you because in this market, few will. Instead, reach out directly. While you can task recruiters to do reach-outs, response rates to recruiter emails are very low these days, as confirmed by numerous hiring managers. Response rates are much higher when managers, directors, VPs, C-level or Staff+ engineers reach out.
A fast and pleasant interview process. Are you still copying the coding-heavy Big Tech interview process, or giving candidates automated tests or long takehomes to complete? You’ll see many candidates drop out. People are willing to jump through seven hoops to get into Google, but they won’t do the same for your company. Rework your process to be more nimble and faster. Long hiring cycles increase the risk of losing candidates in the pipeline.
Adjust compensation and expect to negotiate. Once you extend an offer, you’ll see lower than usual acceptance rates. Have a plan on how people can negotiate, and introduce signing-on bonuses and a policy for one-off adjustments. Prepare to move the bands up within the company later. This can probably wait until planning for 2022.
Equity. If you’re not already generous on equity, you’ll need to revisit this. Big Tech offers attractive equity packages, and you’ll need to keep up. If you’re an earlier stage (seed / Series A/B) startup, expect to educate people on the value of the equity.
Sell to candidates. Companies that are hiring faster in this environment than their competitors often have the hiring managers talk to candidates as the first or second touchpoint. They also tend to do the closing.
Expect counter-offers. Counter-offers are common and aggressive in this market. Hiring managers shared dozens of stories of candidates walking back on signed offers. Desperate times call for desperate measures, and companies will do what it takes to retain key people.
Don’t stop when the offer is signed. Many companies are losing candidates after they sign the offer because the employer stops communicating with them. Then, as a cold shower, the candidate emails the firm, revealing that they’ve accepted another position and won’t be starting. Keep in touch with candidates after the signing, have team members all email the new joiner to share their excitement, and consider sending them swag before the start date.
Pull in the C-level. CEOs or CTOs jumping on a call with senior or staff candidates are closing more than companies which do not do this. On top of selling to them, these people often make one-off adjustments to the offer that a hiring manager lacks the authority to do. If your C-level is not doing this yet, they will need to. Alternatively, consider forwarding this article as an argument!
Hire remote. Revisit your remote strategy. Are you open to hiring from other countries? What are the costs and risks? This will be a longer process to go through, so now might be a good time to start.
Hire juniors where you can. There is a huge pool to hire from with a high variance in skills. Invest in a screening process to spot standout candidates early on. When hiring juniors, onboard them efficiently in a remote, or a hybrid setup. Most companies shy away from hiring juniors because they don’t know how to onboard them remotely. Those who figured out how, are ahead.
Identify “easy target” companies to hire from. There are plenty of companies with good tech talent which have not adapted to the new market, or to hybrid, or remote work. Look to more isolated and niche markets, and to smaller cities where local options are limited.
Leverage software engineers more. The cost of engineers has gone up significantly, their utilization should follow as well. Invest in best-in-class tooling, equipment, and remove distractions that would take away engineers from producing value. Buy or build highly leveraged platforms to empower engineers across the company to be more productive.
A fast and personal interview process with strong compensation numbers, makes all the difference. An engineer in the UK with 3 years experience accepted a job at a US-based Y-Combinator startup and shared:
“My interview process was a conversation with a founder, and a simple exercise that was not timed. It was so friendly! They offered £85K ($117K) + equity. All my other London offers were £50-60K and far more rigid processes. I accepted on the spot.”
This story exemplifies how competition is truly global, thanks to remote; a US, seed-funded company hiring in the UK. It also shows that fast and personal processes, coupled with strong compensation works.
For Big Tech, the market is more challenging. However, if you work at one of these places, you should still be hiring, but at a slower pace. A few things I am seeing hiring managers do, who hire more efficiently:
Sell your team and yourself. In the past, you probably did not have to do too much selling. These days, it makes a difference if a candidate knows they’ll join your team, knows what they will work on, and what support they can expect from you in their career.
Have a direct line with your recruiter. Make sure you have a close relationship with your recruiter, and be there to help them close candidates. When it comes to negotiation, have their back and help escalate cases where out-of-bound offers are required.
Influence the move to no-cliff equity grants if you are a publicly traded company, as much as you can.DoorDash and Uber made this change early 2021, and have seen an immediate spike in offer acceptance. Google, Facebook, Pinterest, Spotify and Snap, all offer no-cliff equity. Big tech firms offering an annual cliff are seen as less attractive, compared to the growing group that has no such cliffs.
Sensible recruitment tactics both large or small companies are following, which continue to see success with their growth:
Pay up. The market is up, and you need to pay more than ever to get the same candidates to join. Make a clear statement with strong packages that candidates will be delighted to accept.
Treat recruiting as a priority, and spend time on it. Check-in regularly with the recruitment team and offer to help. Create space for engineers to prioritize recruiting; for example, by slowing down some of the engineering work as a tradeoff. Make closing your personal responsibility, as a hiring manager.
Invest in better recruitment and sourcing. Hire full-time recruiters who understand how to hire in tech, and work with them as partners. Invest in sourcing tools with additional reach or capabilities like AngelList, Gem, Entelo and others. Engineers on the market are easier than ever to reach online.
Don’t hire out of desperation. Be clear on your expectations for levels, and don’t lower these. Inconsistent hiring will cost you more in the mid-term than it benefits you in the short-term.
Build only what you cannot buy. With higher costs-per-hire, consider buying solutions above hiring engineers to build custom. The internal tools and developer tools market is rapidly evolving. Tools like Retool, Internal.io or Appsmith are examples of vendors offering tools that in-house engineers use to build and maintain.
Advice for Tech Workers
Welcome to the best tech job market of probably all-time, assuming you have a few years of industry experience under your belt. Now is the perfect moment to turn this employee’s market to your advantage.
Optimize for your happiness. Write down what are “must-haves” in your next position. In the current market, there is a good chance you won’t need to compromise. Be clear on tradeoffs you are comfortable with.
If you’re unhappy with your current situation, now is a good time to do something about it. Ask for changes and if things don’t, then look around.
If you have an offer, negotiate hard on it. This is the single best advice in this market.
Thanks to Arun, Andreas, Barry, Emili, Jacek, Max, Mustafa, and Rodrigo for sharing their insights and giving feedback on this article. They are all experienced leaders and generous in sharing their knowledge: I suggest connecting with them.
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