Silicon Valley is a corporate playground for wealthy Tech companies, from start-ups to mature global enterprises. Technology jobs have always been incredibly competitive. Layoffs have always been a part of the story and nothing like a pandemic, war, inflation, and Brexit cocktail to stir up the job market, especially the technology sector.
With another round of layoffs, which seems to have become cyclical since the start of the pandemic, we are looking to understand the impact of the layoffs on Tech salaries. Despite the cyclical layoffs, 2022 has seen both a high number of redundancies paired with an increase in the job posting for specific roles in the Technology Industry, backed by salary increases. Although contradictory, we have found research to explain this new trend in the Technology sector, since the start of the pandemic.
What is triggering the layoffs?
Pandemic job layoffs statistics, for the Technology Sector in the US, have been ongoing since the dot com collapse. Just recently the wave has escalated to new heights making 2018 the worst year on record when it comes to technology redundancies. But what is the relationship between Technology salaries and Technology Layoffs? Are we in a slump, or are the layoffs propelling salary increases in the Tech Industry?
Trueup.io has produced a research study on the 2022 layoffs in the Technology sector, in the US. The results show an incredible 504 layoffs by Technology companies, with over 86,000 people since January 2022. These layoffs peaked in June 2022, impacting close to 29,000 employees. In the Unicorn world of Software start-ups, the Technology Industry has seen this year alone, over 117 companies announcing layoffs. Of that cohort, the sectors with the most layoffs are fintech, followed by crypto and real estate.
Big companies do it differently, but they also do it
However stable financially, the bigger corporations were not behind in terms of layoffs and equally gave their contribution to the redundancies to balance P&L. They just used different terminology for redundancy.
Take the case of Microsoft, whose June 2022 layoff has been associated with a ‘realignment ‘activity following the Q4 2021 earnings review. According to TechCrunch.com, the layoffs reportedly affect less than 1% of Microsoft’s 180,000-person workforce and follow no clear pattern concerning geography or product division, touching on teams including customer and partner solutions, as well as consulting.
But Microsoft is not alone. In this wave, we have found other names such as Twitter, Tesla, and Oracle. In the case of the latter, financial earnings were reported, instead of losses. So, what drives the layoffs in such cases? Despite earnings, Oracle indicates its 1$ billion redundancy is a cost-saving initiative, following a 5% hike in fiscal 2022 revenues for the year ended on 31 May.
Given the current world economic climate, investors are nervous and pulling back from investing. Clients are equally hesitating to renew or sign new contracts. Therefore, drastic measures must be put in place, to ensure business sustainability.
The consequences and impact on Tech Salaries
What consequences do these measures represent for the ‘lucky employees’ who get to keep their current jobs? Extra work but the same pay.
According to Spiceworks.com report ‘State of IT 2022’, despite Tech salaries having hit an all-time high in 2022, because of demand for state-of-the-art tech talent, pay has not increased for those who were not laid off. Appraisal season revealed that those who stayed in employment during the layoff season ended up taking over the work of those who left but have not seen the corresponding salary adjustment. So how is it possible that the Tech salary report by Dice.com, revealed that the average Technologist salary is now hitting 6 figures?
The main driver organisations have identified to become competitive in hiring the right talent, is basically compensation. The main rationale is linked to the new, remote working conditions where the salary is seen as a source of talent attraction, engagement, and even retention of new talent. While in the past, the visit to the office, the office location, and facilities, office perks, and benefits contributed to attracting talent, now organisations have had to find alternatives.
Without time to properly review a benefits package or even career strategies, forced to hire the best in class for high-demand skills, corporations are met with one only option – to offer competitive compensation packages or to lose talent to competitors.
Tech Hiring increase and Salary Trends
Despite the uncertainty of the last couple of years and the consequent layoffs, organisations have not deterred themselves, as seen previously, from job posting (after layoffs) or increasing salaries in the technology Industry
CompTIA’s Tech Jobs Report (paired with the U.S. Bureau of Labour Statistics Employment Situation) has released employment and salary data since August 2020, where we see an increase in technology job postings up until April 2022, with a projection of growth for May and June 2022. We look forward to the next report, with the final numbers.
Between May and June 2022, the Technology job postings peaked at circa 6,000 postings. In June, the US Technology Sector hired 10,000+ people, more than in the previous month of May. In June this year, top companies posting tech jobs include Capital One, Amazon, Deloitte, and PwC. Technology Industry job postings categories were led by Professional, Scientific, and Technical Services, followed by Finance, Insurance, and Manufacturing in the top 3.
Software developers/engineers are by far the most asked job by recruiters, at close to 72K postings. Followed by IT Support Specialist and IT Project Manager roles, just under 15K job postings. Given these three occupations are in the top 3, the investment in Developers is shockingly obvious and justifies the increase in Developer/Engineer salaries which will reach 6 figures in 2022.
In terms of salary trends, Dice.com shows a 2021 report on salary development for Technology careers. The pandemic and overall uncertainty did not stop the growth in specific Tech segments with salary offer 6% above the previous year of 2021. In this period, the main skills in demand are cybersecurity, project management, and ITIL.
Why are Technology salaries increasing post-pandemic?
Following a period of retraction, scaling back, pausing projects and in some cases, simply surviving, 2021 seemed to bring a breath of optimism to most organisations. According to Dice.com’s salary satisfaction report, 61% of technologists received a salary increase, up from 52% in 2020. What triggered higher compensation for Technologists, in 2021? As a result of the study, the reports show the main increases came from:
- job changes in new companies, with 48% of respondents confirming they negotiated a better salary through an external career move
- this against 30% who found a new job inside the current company
- and merely a 26% who received a salary increase after a salary revision, from a performance appraisal.
The obvious conclusion, therefore, is that this strategy or lack thereof is potentially not ideal. Let’s replay the steps:
- lay off employees to balance costs
- rehire new people shortly after and increase their compensation
- the new joiners, attracted by the hefty salary, may not adapt to the company culture or workload (inherited from the previously redundant employees)
- A new joiner leaves in less than 12 months…
What is important to the ad, is the churn data which piles up with redundancy data, for technology companies. The average tenure for technology and professional services roles in technology companies is 2-3 years. Linkedin’s 2018 study entitled ‘These 3 Industries Have the Highest Talent Turnover Rates’, shows that the Technology sector scores the highest at13.2% (2017)
The Founders Circle, powers and supports many technology organisations and has written important articles not just on the concerning numbers of churn, despite the high paying salaries. The Founders Circle is also a great advocate of the solution to this problem of attracting the right talent, the right way, and retaining it.
The answer is quite simple and not necessarily related to attractive salaries: its Culture. Indeed, company culture. Employees, especially Millennials and Gen-Z, are looking to align with a company’s purpose and values. Treating candidates like we treat client prospects can make an incredible difference, and few organisations are visionary enough to see the potential of using brand and culture as tools for engagement and retention.
Designing and developing a strong company brand, designing the right candidate and employee experience, as well as collecting frequent feedback, can be game changers and a great alternative for organisations looking to become more competitive.
Be Proactive, Not Just Reactive
Source: Microsoft lays off a portion of its workforce as part of a ‘realignment’ | TechCrunch
Source: The 2022 State of IT (swzd.com)
Source: CompTIA Tech Jobs Report | Monthly Jobs Report Analysis