The Scoop: the Hiring Market
Discover more from The Pragmatic Engineer
The Scoop: the Hiring Market
The remote work inflection point, Amazon attrition woes, and a secret hiring strategy for Europe
This post was the first article in the 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. I made this post public to read for everyone in September 2022. Subscribe to get this newsletter - and The Scoop - every week 👇
I’m starting The Scoop as a bonus series on top of the weekly long-form newsletter. The Scoop covers patterns and trends I’ve heard around big tech and high-growth startups. Expect to receive it every few weeks in the second part of the week, when I have enough interesting things to share.
Do you have tips, scoop to share or feedback on this issue? Send me a message. I keep all sources anonymous.
Today’s scoop is about the hiring market:
A remote work inflection point?
Amazon’s attrition woes - and how Amazon is responding.
A secret hiring strategy to hire senior engineers in Europe. Don’t tell your competition!
What will the hiring market look like in 2022?
A remote work inflection point?
It’s been more than 18 months since tech went remote, starting with the lockdowns in March 2020. Since early 2021, the return to office has always been 3-4 months away… and it got pushed out to another 3-4 months into the future.
Many engineers and tech workers are deciding they’re no longer playing the waiting game, and permanently moving, to not return to the office even when they open.
The ever-moving window of return to the office
In the spring of 2021, several of Big Tech announced office return dates. In March, Amazon announced an aggressive timeline, making it clear they believed the future of work is office-based. From Business Insider:
“Amazon plans to start bringing employees back to its offices on June 30, with most US workers returning by early fall.”
Around the same time, both Apple, Google forecasted the return to the office to be in September 2021. Uber also targeted September for employees to come back.
Well, none of this happened, thanks to the latest spike in COVID infections, and work from home continuing.
Google and Uber have delayed the return to the office amid omicron uncertainty, as has Amazon (to at least January) and Apple (to at least February).
Wait or move? Many workers choose to move
Even if office returns happen in the spring of 2022, it will have been two years of working remote for most tech workers. I’ve talked with several engineers and managers working at both Big Tech and startups who have decided to stop waiting, and embrace remote work that they feel is here to stay - by moving countries, states or cities, and keep working remotely.
Many of these people are making the move to improve their lifestyle - in Europe, many people are moving back to their home countries to be closer to families - and several EU citizens in the UK are moving following the disappointment with how Brexit is going. Many others are buying a more spacious house, in attractive neighborhoods.
Most of these workers are moving with the understanding that they can keep working remotely. However, several have made it clear to their employers that they will not be returning to the office - beyond the occasional team get-together, that is.
Is this the inflection point for permanent remote here to stay?
If the majority of tech would have returned to the offices by now, remote work would still be here to stay. A growing number of startups are remote-first, and their ability to hire - and retain - experienced engineers is something all hybrid or office-first companies would feel even in a world where COVID is a thing of the past.
However, I’m wondering if the seemingly never-ending remote work is resulting in an inflection point. Are we seeing a large enough group of people opting for permanently remote work, within companies that don’t want to embrace remote work once the virus is under control?
I sense the answer might be: yes, these companies will have to make the decision to keep operating with a growing number of experienced people working permanently remote - or lose these people. And with the current job market, where it’s very hard to hire senior tech talent, even big companies will have no choice to embrace remote.
Especially when their competition like Shopify, Twitter, Spotify, and - surprisingly - Meta, are all embracing full-remote.
Amazon’s attrition woes
Earlier the year I wrote a Netherlands tech compensation report where I called out Amazon as a player worth paying attention to:
“Amazon's compensation can be used as a baseline in cost-efficiently hiring top-of-the-market engineering talent with the smart use of equity. One of Amazon's core values is frugality: and this shows in their compensation structure. Their compensation structure is optimized to both hire and retain engineers, with the assumption that the company's stock price will keep increasing (which it has done steadily for the past seven years, growing above 15% YoY).
Amazon heavily optimizes its compensation for cashflow: paying as little fixed compensation as possible while still competing with the top of the market. They aim to retain employees initially with signing bonuses and later with equity.”
Simply put, Amazon has mastered paying the least amount of cash they need, in order to hire very close to the top-of-the-market talent. Amazon has the scale where they need expertise similar to what Facebook, Google, Twitter, and others do. However, Amazon pays less than any of its competitors for similar skill sets.
Their approach was a smart one and has worked well until 2021. However, in 2021 the demand for senior engineers exploded. With this, companies started to offer far more compensation for Amazon engineers - and many of them are leaving Amazon:
I’ve talked with several current and former Amazon employees to get a sense of how they see attrition and the driving factors behind it. Some viewpoints:
The end of the incredible stock growth. From 2014 to 2020, Amazon stock has 10x’d from about $300 to $3,000, increasing about 20-50% each year. The past 18 months the stock has been mostly flat: which is something most Amazon employees are not used to.
The stress and the PIPs. Amazon has a notoriously stressful working environment. Every year 5-6% of engineers are put on a performance improvement plan - PIP. The 5-6% is a target number which managers are given, and they need to meet. Managers are also part of this target. Read more about the PIP culture in the issue Inside Amazon’s engineering culture.
The cash. Cash compensation at Amazon is well below that of several Big Tech - and the companies I listed in the document 🔒 top of the market total compensation companies.
Still, the fact that attrition is heavy within AWS is surprising to me. Every Amazon engineer I talk with emphasizes how AWS is a much, much better place than working in the rest of Amazon. AWS employees perceive Amazon as another company, with a far worse culture and a more stressful place. The thing that AWS employees have consistently mentioned as a negative has been their compensation versus competitors. Sounds like this complaint has caught up with the company.
So how is Amazon responding to attrition? Very swiftly, I am told:
Counteroffers. Attrition is not new at Amazon, and they know how to deal with this: offer the same as you’d be leaving for. Amazon will not do counteroffers for anyone, only in “Dive and Save” situations, where the person is deemed critical to hold on to. When this is the case, they pay up. The manager needs to advocate for this to happen, and in certain regions Dive and Save needs director or VP-level approval.
Paying up for new people to join. Amazon offers are up significantly in 2021, and I am told some people are getting close to double the total compensation as existing people at the same level - mostly in the difference on signon and stock.
So what will happen next? I’m expecting Amazon to move up in their offers to the bare minimum as they need to hire people. Their brand remains strong, and frugality as a core value is not going away.
While it might seem like Amazon is having attrition woes: in reality, all of the industry is suffering from this. Amazon has prioritized frugality, and is now flexible in relaxing this constraint. Still, Amazon’s attrition woes are a reminder that even if you manage to hire great people cheaper than the competition, this hiring advantage can turn into a disadvantage in a heated market.
Read more about the Amazon’s engineering culture in the deep-dive issue Inside Amazon’s engineering culture.
The senior engineer recruiting strategy you should know about
The market for senior software engineers and data engineers has moved up by 20-35% the past 12 months, globally. If you’re a hiring manager, you are likely lobbying for a larger-than-usual budget increase for this group.
What is a pain point for most of the industry, however, can also be an opportunity for some groups. Here’s why.
In Europe, certain companies with solid senior engineers will not be able to raise compensation by more than 5-8% YoY. These are companies who suspect that the market has moved up, yet even if they wanted to raise, they could not raise. This is because their pay structure doesn’t allow this kind of raise.
What’s more, engineering leaders at these companies have been briefed that next year they cannot expect above a single-digit raise - which raise is closer to 5%.
What companies are we talking about?
Decades-old companies whose business model has not been technology, headquartered in highly regulated countries like Germany, France, Netherlands. Clothing, automotive, pharma, and businesses where software is not core to the business.
These companies have started to hire engineers in the past years in the hundreds, realizing they need to become “tech-first” to control their digital sales channels. They attracted solid senior engineers who were excited about the mission, and the pay looked good.
However, these companies tied the software engineering pay bands to their existing, internal leveling. This means that a software engineer would be paid the same amount as an employee working at another part of the company, like in administration, the factory floor, or another department.
In countries with strong worker protections, companies above a certain size need to create unions. Those unions then ensure fair pay. In many cases they do this by publishing the salary bands on the internet, for everyone to see. For example, here are the tech salary bands for Mercedes, in Germany:
Software engineers are grade 12 or 13. In Niedersachsen, Germany, they make between €56,000-€81,000/year ($63-91,000/year) including all bonuses (about 13.5 times the monthly salary). These include senior software engineers, and could also include those working on self-driving cars.
Here’s the kicker: compensation at these places can not move up significantly for software engineers.
This is because any compensation increase needs to be approved by the works council. The council cannot agree to compensation increases that are not fair to everyone. Basically, if software engineers get a 20% increase, everyone in the company at levels 12 and 13 would need to get a 20% increase.
This means very good engineers are being paid below the market at these companies. Many of these engineers are either interviewing for remote positions or have already accepted ones for 20%+ increases.
What companies are we talking about? Get creative and look into this. I’ll offer a few, but there are many others for you to find:
German carmakers: Daimler, Mercedes, BMW, Volkswagen. Lots of these places hired excellent engineers in the past years for advanced technology challenges.
German-headquartered multinationals with large tech teams like Adidas and Bosch.
Large organizations that likely will not move fast: Ericsson, Nokia and others.
This strategy works outside of Europe as well. Many multinationals have similar guidelines. Look for companies where technology is a smaller part of the company headcount, but already large enough to attract solid engineers. The structure of these companies makes it impossible for them to “play favorites” and do out-of-band increases only for engineering.
Companies with long compensation adjustment processes will not be able to respond to how the market changed for engineers, at least until 2023.
If you work at a company that adjusted compensation faster, or you already pay above these levels: now is an opening to reach out to engineers working here, and tempt them to talk to you. Mentioning numbers can be helpful for this group.
What will the hiring market look like in 2022?
As 2021 comes to a close, this year has undoubtedly been the most heated market for tech hiring - probably of all time. What will 2022 bring?
I have my opinions, but I’d like to hear from you: what do you think?
Share your predictions and thoughts here, and I’ll summarize opinions in a follow-up newsletter. Update: the summary of these predictions is out.
Want to read more? Check out The perfect storm causing an insane tech hiring market.
The Scoop: the Hiring Market
The Amazon analysis was fantastic. I would love to learn more about hiring practices @ FB & Google.
Where are the results from "Share your predictions for 2022"? They'll be wrong, but it's still fascinating to see *how* wrong, and in what ways.