Tech Companies: Employment On The Decline

Despite the fact that demand for tech expertise remains high, the collapsing stock market and the punishment meted out to tech businesses, in particular, are poised to change pay packages.

Every day comes to a new wave of falling stocks, hiring freezes and slowdowns, or outright layoffs from companies that couldn’t hire people fast enough a year ago. Spotify CEO Daniel Ek delivered an email to staff earlier this week in which he said that the firm is limiting hiring by 25%. Coinbase, a cryptocurrency exchange, reported an 18% reduction in its employees. In the same month, Stitch Fix cut 330 jobs, accounting for 15% of its employees, and Klarna, a buy-now-pay-later company, laid off 10% of its global workforce.

These companies, like many others in technology, increased headcount rapidly during the pandemic, but are now stopping or reducing headcount as rising inflation and economic instability threaten growth. Even though overall demand for tech talent remains high — according to the information technology trade group CompTIA, employers in the United States posted 1.1 million tech jobs in the first quarter, a 43 percent increase from the previous year — the way compensation packages are structured is likely to change.

According to Thanh Nguyen, founder, and CEO of compensation benchmarking platform OpenComp, expect to see more equity and less cash in job offers for start-ups and smaller corporations as these firms attempt to conserve money in a difficult time.

He claims that start-ups, which were previously willing to pay anywhere from 15% to 30% extra for the appropriate candidate, are now focusing on protecting their own cash, especially if the previous fundraising 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 continues.

While a mix of cash and equity has long been used in IT pay packages, the calculation is becoming a little problematic. Companies that gave shares to induce staff to stay are suddenly finding those shares are worth a lot less.

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“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 predicted.

Brex co-founder and co-CEO Henrique Dubugras stated in May that the company’s $250 million tender offer was intended to provide staff with “some liquidity to weather this storm.”

Larger public businesses, like Apple, Meta, and Google, are facing the same challenge. Nguyen feels there will be significant ramifications for these giants that had major recruiting sprees with equity grants while share prices were skyrocketing. “We’re going to start to see the implications of this beginning in third-quarter earnings reports,” he says.

The continued strength in tech recruiting is unlikely to diminish, but it is likely to narrow. People with AI, data, Web3, and cloud architecture skills, according to Nicola Morini Bianzino, chief technology officer at EY, will continue to find opportunities, defining them as the expertise that can take “companies to the next level.”

Individuals with these skill sets, according to Nguyen, are “highly valued and will be able to demand significant cash and equity.”

Tech generalists, such as those in sales, operations, or marketing, are more likely to suffer. “As people moved around it up-leveled compensation by 10% to 15% across the board,” he explains. In a recession, labor prices will begin to stabilize, and individuals will be more likely to stay in jobs for longer periods of time, he says.

“The huge gorilla in the room is the recession,” Nguyen says. “It has a big influence on whether people stay in jobs or go,” Nguyen adds.

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