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The plummeting stock market and the penalty being inflicted on tech companies in particular is poised to reshape pay packages, although demand for tech talent remains strong.
Every day brings another wave of plummeting stocks, hiring freezes, and slowdowns or outright layoffs from companies that couldn’t hire people fast enough a year ago. Earlier this week, Spotify CEO Daniel Ek emailed employees stating that the company is slowing hiring by 25%. Crypto exchange Coinbase announced that it will shed 18% of its workforce. And within the last month, Stitch Fix has cut 330 jobs, 15% of its workforce, and Klarna, a buy-now-pay-later company, has laid off 10% of its global workforce.
These companies and many others in the tech sector have been quick to increase headcount during the pandemic, but are now hiring or reducing their workforce as rising inflation and economic uncertainty threaten growth. And while overall demand for tech talent remains strong — according to information technology trade group CompTIA, U.S. employers posted 1.1 million tech jobs in the first quarter, a 43% year-over-year increase — the way is Compensation packages are structured, likely to change.
Expect more equity and less cash in job openings for startups and smaller companies as these companies look to save money during tough times, says Thanh Nguyen, founder and CEO of compensation benchmarking startup OpenComp.
He says startups — which until recently were willing to pay anywhere from 15% to 30% more to find the right candidate — are starting to focus on saving their own money, especially when a previous round of funding has gone through more than six months ago.
“What we’re seeing now is that early-stage companies are less aggressive with cash and more aggressive with equity in job openings because their cash burn is so paramount now,” he adds.
While a mix of cash and equity has long been the practice for tech pay packages, this equation gets a bit tricky. Companies that issued stocks in their heyday to lure employees on board now find those stocks worth a lot less.
“Either there’s going to be a huge staff purge or a huge loss because companies have to cancel and reissue the stock that’s under water, or reject it and cause dilution to keep the talent on board.” said Nguyen.
In May, Brex co-founder and co-CEO Henrique Dubugras said the company’s $250 million takeover bid was a means of giving employees “some liquidity to weather this storm.”
Larger public companies like Apple, Meta, and Google face the same dilemma. Nguyen believes there will be a huge impact on these heavyweights, which had massive stock grant hiring runs as stock prices soared. “We will see the impact of this start in the third quarter earnings reports,” he says.
The ‘big gorilla in the room’
The continued strength in tech hiring is not going away, but it is likely to diminish. Nicola Morini Bianzino, chief technology officer at EY, says people with skills in AI, data, web3 and cloud architecture will continue to find opportunities, describing them as the talent that can “take businesses to the next level”. .
Nguyen adds that individuals with these skills “will be highly valued and will be able to command significant amounts of cash and equity.”
The pain will be felt more by technical generalists such as sales, operations, or marketing. “As people moved, the pay increased by 10% to 15% across the board,” he says. In a recession, labor costs begin to stabilize and people are more likely to stay in positions longer, he adds.
“The recession is the big gorilla in the room,” says Nguyen. “It has a big impact on whether people stay in jobs or leave,” Nguyen adds.