CEO Guide to the U.S. Technology/Hiring Boom

Hiring Like It's 1999


Michael De Frenza scans the crowd of 50 or so well-dressed professionals mingling near a bar at the W Hotel in San Francisco’s South of Market District. De Frenza, a recent transplant to the Bay Area, is here in search not of a date—but of a job. In the five weeks since De Frenza, 34, returned to the area after a two-year stint in Toronto, he has received five offers. “I’m taking my time trying to find the right fit,” he says.

I Love Rewards, which provides companies with services to motivate employees, arranges cocktail parties like this one every other week at the W Hotel to help it recruit 40 people by Sept. 30 for a new West Coast sales outpost. “Just in time for us arriving in San Francisco, the market has gotten extremely hot,” says Razor Suleman, chief executive of the company. “San Francisco is coming back to the days when candidates have two or three job offers,” he says.

Competition for cloud computing engineers, security experts, and mobile developers as well as sales professionals in the technology industry has gotten so fierce in the past six months that companies are going to greater lengths to woo prospective employees. They’re throwing lavish parties, handing out free food at conferences, doling out $50,000 signing bonuses, and offering perks such as free haircuts and medical care at the office.

MORE SIGNING BONUSES

The tech sector is fueling a job boom that stands in stark contrast to the malaise of the general job market. The nationwide unemployment rate ticked up to 9.2 percent in June, according to the Bureau of Labor Statistics. At the same time, the unemployment rate for tech professionals dropped to 3.3 percent, from 5.3 percent in January. “That’s pretty close to full employment,” says Alice Hill, managing director of technology career website Dice.com (DHX).

“It’s such a thin market, it feels like everybody is employed already,” says Adam Pisoni, co-founder and chief technology officer of Yammer, which sells software and services for social networking in the workplace. The San Francisco company is doubling its engineering staff. “Engineers have 10 recruiters calling them.” The company would like to hire between 50 and 100 engineers this year, Pisoni says.

Companies are employing a variety of strategies to attract talent. Saba Software (SABA) and Digital River (DRIV) recently paid C-level executives $50,000 signing bonuses. “While signing bonuses at tech companies are not uncommon, their use has become more prevalent recently as the economy has improved and competition for talent has heated up,” says Aaron Lapat, managing director of the technology practice at executive recruiting firm J. Robert Scott. Recruiters are also circling Cisco like vultures, anticipating the August layoffs in the hope of finding qualified employees.

BELLS AND MUSIC

Recruiting tactics from the late 1990s are starting to make a comeback, too. Last year, Appirio hired a taco truck and parked it at Dreamforce, an industry conference for cloud computing professionals. Attendees couldn’t help but notice the signs on the truck saying that Appirio was hiring as they waited in line for free tacos.

When Dreamforce happens again later this month, Appirio plans to ply attendees with more food, but the company wouldn’t divulge exactly what it plans to serve. Appirio anticipates that about 25,000 people will attend Dreamforce, the cloud computing trade show organized by Salesforce.com (CRM). “We assume that 10 percent are actively looking for a new job,” says Narinder Singh, Appirio’s chief strategy officer. The company hired 110 workers in the first half of this year and is looking for another 140 by year’s end.

In 1998, when Mark Barrenechea worked for Oracle (ORCL), he hired an ice cream truck and parked it outside of then-competitor Siebel Systems. At the time, he was a senior vice-president for applications development trying to find engineering talent. The bells and music would signal employees to come outside, he says.

WATCHING FOR LAYOFFS

In his current role as CEO of supercomputer-maker Silicon Graphics International (SGI), Barrenechea uses a different tactic. “We haven’t had to resort to ice cream trucks and cocktail parties,” he says. Instead, SGI is going after employee referrals and targeting companies where there’s organizational change. The CEO says the company has found supercomputing talent at Oracle’s Sun Microsystems and may find technical sales talent from Cisco’s upcoming layoffs. SGI plans to expand its sales force 10 percent this year, adding about 25 positions. Cisco declined to comment.

Suleman at I Love Rewards also encourages employees to refer job candidates. He’s offering a luxury trip to Las Vegas in September for any employee who refers a new hire. Even though each employee will stay in a suite, Suleman says it’s 80 percent less expensive than using a recruiter.

In the end, though, some prospective employees will be wooed with competitive compensation packages that include cash bonuses. When Saba Software hired Shawn Farshchi as chief operating officer on June 1, the company agreed to pay him a yearly salary of $265,000 with an annual performance incentive bonus of up to 70 percent of his base salary. That offer also included stock options and a signing bonus of $50,000.

Farshchi previously worked at IBM’s (IBM) Coremetrics Web analytics unit and at Cisco’s (CSCO) WebEx operation, which he took from a $60 million business to more than $300 million, says Saba CEO Bobby Yazdani. Farshchi has expertise in selling a product globally, which is a skill Saba needs, Yazdani says. “He was someone that we had our eye on, and we were not going to lose that battle for $50,000.”

INCREASING CRAZINESS

As companies compete for a limited talent pool, they’re upping the ante. “There’s so much poaching going on, and now we see the rise of the crazy perks,” says Hill at Dice.com. Hill says she’s seeing companies offer a range of services, from car washes and free haircuts to onsite doctors, dentists, and notaries. “Qualcomm has a weekly farmer’s market,” says Hill.

No doubt these developments are a welcome change for workers after the recession. For companies, though, this means an increase in labor costs as salaries rise and businesses try to retain workers with perks and retention bonuses. It may also force companies to grant richer stock option awards to attract the right programming talent, according to a Fitch Ratings report released last month.

The percentage that stock-based compensation makes up of total operating expenses can serve as a proxy for technology labor market tightness, says Jamie Rizzo, an analyst at Fitch Ratings. At Adobe (ADBE), options and other stock awards accounted for 8.6 percent of total operating expenses in 2010, up from 7 percent in 2007. Intuit (INTU) saw that number increase to 5.7 percent in 2010, from 4 percent in 2007.

SKILLS WITH SHORT LIVES

The rush to find workers is symptomatic of a deeper problem in the tech industry. The supply and demand of talent is out of sync, says Professor Peter Cappelli at the University of Pennsylvania’s Wharton School. Companies are looking for exactly the skills they need today to deal with their clients. “We don’t want to have to train anybody, and when those skills become obsolete, we don’t want to retrain them,” he says. Companies tend to hire people with IT engineering degrees, use those skills for five years, and then they want a new crop, says Cappelli, who researches human resource practices and talent management.

“It means they are hiring and laying off at the same time,” says Cappelli. “It’s a really bad thing for the economy and for the companies themselves, because it’s putting them at the mercy of the labor market.” It also leads to labor booms and busts, which didn’t happen as much before 1983 because companies would train and retrain people, Cappelli says.

Still, Michael De Frenza, who sold time shares until the recession, is happy to find the tech job market is on the upswing. In his last job, he traveled 80 percent of the time. He has two young children and says he’s ready to stay put for a while.

Rachael_king
King is a writer for Bloomberg Businessweek in San Francisco.

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Companies Mentioned

  • DHX
    (Dice Holdings Inc)
    • $10.28 USD
    • 0.08
    • 0.78%
  • SABA
    (Saba Software Inc)
    • $8.5 USD
    • 0.05
    • 0.59%
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