The slumping stock market, and the punishment being doled out to tech companies in particular, is poised to reshape pay packages despite the demand for tech talent remaining strong.
Each day brings a fresh wave of slumping stocks, hiring freezes and slowdowns, 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 explaining that the company is slowing hiring by 25%. Crypto exchange Coinbase announced it was cutting 18% of its workforce. And within the past month, Stitch Fix eliminated 330 positions, representing 15% of its staff, and buy-now-pay-later firm Klarna laid off 10% of its global workforce.
These companies, and many others in tech, grew headcount rapidly during the pandemic, but are now halting or cutting back the size of their workforce as surging 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, an increase of 43% from a year earlier, according to information technology trade group CompTIA — the way compensation packages are structured is likely to change.
For start-ups and smaller companies, expect to see more in the way of equity and less cash in job offers as these firms look to conserve money in a difficult time, says Thanh Nguyen, founder and CEO of compensation benchmarking startup OpenComp.
He says start-ups — that until recently were willing to pay anywhere from 15% to 30% more to get the right candidate — are starting to focus on preserving their own cash, especially if a previous funding round was more than six months ago.
“What we’re starting to see now is earlier stage companies being less aggressive on cash and more aggressive on equity for job offers because their cash burn is so paramount now,” he adds.
While a blend of cash and equity has long been the practice for pay packages in tech, this equation is getting a bit dicey. Companies that issued shares at their peak to entice employees aboard are now finding those shares worth a lot less.
“There’s either going to be a huge amount of employee shakeout or a huge amount of loss because companies are going to have to cancel and re-issue those shares that are underwater, or regrant them and cause dilution to keep the talent on board,” Nguyen said.
In May, Brex co-founder and co-CEO Henrique Dubugras said the company’s $250 million tender offer was a means to give employees “some liquidity to weather this storm.”
Larger public companies like Apple, Meta, and Google are getting caught up in this same dilemma. Nguyen believes there are going to be huge implications for these heavyweights that had massive hiring runs with equity grants when share prices were surging. “We’re going to start to see the implications of this beginning in third quarter earnings reports,” he says.
The ongoing strength in tech hiring won’t disappear, but it’s likely to narrow. Nicola Morini Bianzino, chief technology officer at EY, says people with AI, data, Web3 and cloud architecture skills will continue to find opportunities, describing them as the talent that can take “companies to the next level.”
Nguyen adds that individuals with these skill sets are “highly valued and will be able to demand significant cash and equity.”
The pain will more likely be felt by tech generalists such as those in sales, operations or marketing. “As people moved around it up-leveled compensation by 10% to 15% across the board,” he says. In a recession, labor costs will start to stabilize and people will be more likely to stay in positions for longer, he adds.
“The recession is the big gorilla in the room,” Nguyen says. “It has a big influence on whether people stay in jobs or go,” Nguyen adds.