(Updated October 2023)
Successfully recruiting engineers, developers, data scientists, and other technologists is more important than ever, but also more difficult. CEO of HackerRank, Vivek Ravisankar recently told Fortune that while “we’ve seen salary convergence, or the removal of location-based pay scales, for C-suite executives over the last several years; this coming year, we will see the same trend pick up steam for individual developers’ salaries as the remote-first model and ongoing tech talent shortage will further drive this convergence.”
Convergence is the perfect word to describe today’s hiring market in tech. A combination of factors is creating a storm of converging elements, pushing leaders of startups and enterprises alike to create new strategies for securing technical talent moving forward. You might be wondering, what exactly do those strategies involve? How have they changed? We’ll discuss different viewpoints on where tech salaries are now, plus how to compete in a tight market.
When it comes to entry-level techies seeking six figure salaries, the narrative certainly feels rooted in reality that tech salaries have ballooned to staggering levels since the start of the pandemic. Whether in response to the Great Resignation, inflation, or a different type of work and cultural revolution in the US, we saw companies making huge offers in ways they never have before in 2021 and 2022, with a major cooling of those efforts in '23.
We get it, the competition is real regardless of market conditions, but have salaries actually skyrocketing as much as it seems? Despite unrelenting growth for over 20 years in the industry, tech worker salary growth has actually been more uneven in the last few years. According to a study published by Harvard Business School, only five major cities experienced “exceptional” growth (New York City, Silicon Valley, San Francisco, Seattle and Washington, D.C.), while every other city nationally has seen salary growth slow or steady. Said otherwise, costly cities create their own bidding wars when it comes to tech wages.
Outside of those major cities however, and across the board, average tech salaries have actually cooled off by 1.1% in 2021, and this is due to several factors. Data from the following two years only supports the trend. For one, hiring in tech has become so challenging, that many companies have shifted their approach to hiring and training up more junior developers, and those relatively lower salaries have brought down the average.
So why does the environment for hiring feel much more dire than what the data shows? In truth, it’s a mixed bag, and also depends on what type of talent you’re looking for. While BWBacon’s salary data for 2021 and 2022 showed an average increase in salaries overall, 2023 has been an entirely different story and candidates are no longer in the driver's seat. When a looming recession started to creep to the forefront at the end of 2022, even economists couldn't agree if the inflation and jump in salaries we’re experiencing during the pandemic would be sustained or temporary. Yet another thing to consider is that these changes are another outcome of an exceptional and society-shifting time.
A term coined by Nobel laureate Robert Shiller, narrative economics describes the phenomenon when a narrative, true or false, catches on quickly and compels people to overlook facts when making economic decisions. If all you’re hearing from articles, peers, and hiring managers is that salaries are through the roof, you may assume that wage jumps are the norm, instead of the exception. Think of the housing bubble or the dot-com boom, these narratives were so strong they impacted people’s decision making for years, even if economic conditions changed.
How does narrative economics apply to a crazy competitive tech hiring market? At least, it allows us the opportunity to step back and think about what has changed and what has not. Certainly, candidates have been more vocal and open about their desires and compensation. Employees and employers are both aware of this shift in dynamic. But beyond shifting relationships and the growing self-advocacy of workers, the numbers simply do not support an unusual or unprecedented rise in salaries.
With that in mind, we can comfortably dismiss the myth of outrageous salaries, and ask a better question: what gaps remain between current salaries and salary expectations of experienced and talented engineers? Have companies been underpaying their talent for a long time according to the market? Does competing with the formidable FAANG group make growth for smaller companies relatively unachievable?
Ok, we admit that last question may have been a tad dramatic. While competing with big kahunas like Apple and Google is no joke, we’ve seen many small to mid-size companies find huge success and growth here in Colorado (and nationally.) Furthermore, the ongoing adoption of remote work only opens up the candidate pool and salary range for both small and big companies, pushing businesses to get creative about their recruiting and job requirements.
That’s not to say you can throw compensation out the window if you’re hiring nationally, though. Your grandma waving a dishtowel may come to mind when you hear the expression, “if you can’t stand the heat, get out of the kitchen,” but it very much applies to hiring in a world on fire with acceleration, ideas, and investments. When it comes to recruiting, matching your salary ranges to market value is the best way to stay competitive, regardless of what type of talent you are seeking. With a 357% increase in remote IT job postings in 2021, companies basing salaries on location instead of market value will lose out on talent. It’s about finding a happy medium between market value and pie-in-the-sky offerings.
We’ve seen it more and more frequently since 2020, salaries that fall outside of market value are almost immediately rejected by candidates because they know they can get more elsewhere. As an agency, we do our best to pass on this feedback and strike a balance in between the two extremes. Basically, we make it our job to give that reality check to candidates and clients alike, whether they’re seeking far too much or paying far too little.
These days, candidates understand their value. Many candidates, whether active or passive, know that if they have a coveted skillset, and can be considered a senior resource with five or more years of experience, that they should be paid according to that value and demand. Be honest about where market value is now, or resign to trudging an uphill battle. Keep in mind that while comp is hugely important, giant enterprises (or startups) are not the right fit for every worker, and there are many elements that can entice talented people to work for your company that are not a Google-level salary. Like we said before, it’s a balance!
Throwing big dollars at talent is not the only approach to hiring new people and help them find success at your company. Leveraging data from LinkedIn, Microsoft Data Scientists predict that the economy’s capacity for digital jobs will expand by 149 million new jobs by 2025. With a jaw-dropping 29% compound annual growth rate worldwide over the next three years, software development accounts for two-thirds of that forecasted job capacity. They predict that 98 million of those jobs will be in Software development, 23 million for Cloud and data roles, 20 million roles in Data analysis, AI and ML, 6 million in Cyber security, and over one million in privacy and trust.
Put into context, those statistics are flabbergasting. With so much growth and many, many new jobs on the horizon, companies will have to do a lot more than ramp their hiring budgets to attract long-term employees. None of these ideas are silver bullet fixes for having a tight hiring budget, but every candidate is different in what they’re looking for when it comes to career growth, benefits, and working for a mission-driven company.
Wrapping up his thoughts on what the current market means for recruiting going into 2024, Matt Milano, President of Motion Recruitment, said, "technologists want the whole package. Alongside compensation, IT professionals list technical challenges and flexibility for hours or better work/life balance among what matters most in a job offer, as well as company culture and advancement opportunities."
The theme here is consistent. When candidates are juggling multiple interviews and offers, compensation matters, but also all the other elements that are added on to an offer beyond base compensation. A great interview process along with specially curated perks can make the difference between someone accepting your offer or going with another. What’s the good news? Expansion into global talent pools and remote work allow many opportunities for teams to grow in ways they never have before. Lean into the growing emphasis on employee happiness and personal development, and continue to find new ways to elevate the employee experience.
Here at BWBacon Group, we know and live what you are experiencing as an employer or job seeker in Denver, Boulder, Dallas, San Francisco, New York City or any of the other cities we work in. We believe great recruiting starts and ends with understanding people.
If you have any questions about living, working or playing any of the areas we serve, please contact us. We are happy to help. Seize the day, every day, that’s what we say!