Jun Group CTO Fears Salary Bubble Pushing Tech Sector to the Brink

8/30/12Follow @jpruth

Concerns about a rising shortage of developers and engineers may be driving somewhat unrealistic expectations among entry-level tech hires. And that will make it all that more difficult for small companies to lure in talent. David Wood, chief technology officer for Jun Group in New York, says his company—the developer of an opt-in, social video ad platform—faces a conundrum shared by many growing companies looking to hire. He spoke to Xconomy about his concerns, ranging from the pressure to pay new hires top dollar, to the need to offer juicy perks to compete with incentives offered by the likes of Google, Microsoft, and Facebook, to an increasingly inflated salary bubble that he fears may explode with devastating force.

Xconomy: How do the expectations you see from entry-level tech workers compare with the reality of the sector?

Wood: It feels like déjà vu. The early 1990s was the first New York tech boom based on the emergence of the Web. People were investing in this space all over the place. That started the first big hiring frenzy. Jun Group has been around, in its current form, since 2005. Right around 2009, I started to see this trend that felt familiar in terms of tightness in the job market. Something happened in 2009 through 2011. The 1990s were crazy but this was crazier. The sheer volume of jobs coming into the city was enormous—far more than could ever be filled.

Then we saw upward pressure on salaries. Looking at want ads, we realized senior developers with five to ten years of experience, who had been offered $100,000, were suddenly being offered $150,000. That’s a 50 percent jump in the space of 24 months. Referral and signing bonuses, which were around in the 1990s, are a lot bigger. You could get $20,000 for referring someone. That can look like a bargain to a company paying a recruiter. One thing that blew my mind: a free iPod just for coming in for an interview. Extended vacation times have been advertized in job postings. Late last year I saw job posts for Java architects and senior Python engineers, with salaries ranges of $175,000 to $200,000, plus a 25 percent bonus for signing and an immediate stock grant.

X: Are you seeing this more in New York or is this happening in other parts of the country?

W: My friends on the west coast claim it is worse there. Even smaller high-tech hubs, like Minneapolis and Boston, all seem to be experiencing the same thing. You can go on salary survey websites and watch this trend, not just in New York, but nationwide.

There are a couple of factors at work. There is an awful lot of money being invested in this space; it is very easy to do fundraising. We find people doing investments with money they can’t hold onto. That is reminiscent of the 1990s—that enormous drive to go into this industry and get returns back. This isn’t a new industry so now you have giant players such as Amazon, Facebook, Google, Apple, and Microsoft in this big dogfight for talent.

Google pays very well and they also have a staggeringly gorgeous space they built in West Chelsea. They have ball pits, slides, a four-day work week, and gourmet chefs in the cafeteria. I think Google saw there was an enormous economic upside with tech talent, so they invested heavily and early and made themselves a recruiting and retaining company for developers. Get the best ones, make them very happy, and make sure they never leave.

X: How are you trying to cope in this hiring climate?

W: When you’re having this much trouble hiring, you have to nervously explain yourself to your executive team. It might seem crazy that you’re trying for so many months to fill nice looking positions. You have to compile data, ad after ad, and prove this where the market was and that his bubble happened.

You look for opportunities [to be attractive to tech talent]. Developers hate going into some big companies because they are tiny cogs and have very little autonomy. It’s nice to go into a new place, get in on the ground floor, and make your mark. Of course you have to match or beat on compensation packages. Some companies like to give away equity and I recommend that to my friends when they are starting a new business. I tell them this is not the “hired help” anymore. You want a really strong technical team that’s in early. This is now a top level core part of your executive team and should incentivize them accordingly.

You can maximize your dollars and make the job more attractive by giving people flexibility about when they work and how they work.

X: Where do you think this trend is headed?

W: It was just like this in the 1990s and 2000. In the year 2000 this industry looked like it was unstoppable. Money was pouring in and people were streaming into the field. A year later it was Armageddon. Half a million people hit the job market in one six-month span. I saw MIT graduates not working for 18 months. I saw an ad in Silicon Valley for a Linux, Apache, PHP programmer—paying minimum wage. One hundred people applied from what I heard.

I thought this [current trend] would have cooled off sooner. What I expected twelve months ago was a gradual return to normalcy. Instead, I saw somewhat of a dip, but I’m still getting calls from friends in fashion, media, and finance looking to hire. I got a call yesterday from somebody struggling to fill a mid $60,000¬–$80,000 salary junior operations position job that requires no experience.

The larger companies are hiring earlier and earlier. We had a summer intern with no experience looking to get into Jun Group, who asked “what are you going to pay me?” He wanted $6,000 [for the internship]. “Microsoft and Facebook pay $6,000,” he said.

Of course the top ten engineering schools are all mined out [for talent]. The computer science degree programs all over the northeast and certainly the New York area are mined out.

After 2001 and the five years following, there was a sense that IT was going overseas and probably never going to be a domestic industry. It was not a good career move to get a computer science degree. I think that caused part of the angst in high-tech businesses. You have this enormous demand but the forces that drive supply did not work as well as they should.

Since we did not gradually cool down, we could have something like a 2001-style pop.

If we don’t see a gradual deflation really soon—probably by the end of the year—I’ll be really worried.

X: Given that overall economy is not moving at the same pace compared with the boom in the tech sector during the late 1990s, will it be different this time around?

W: People in finance say we’ve been through this already, that they are much smarter about where the money goes. Also when macroeconomics gets bad enough, even if there is rational exuberance that wants to express itself, ultimately venture capital and private equity will dial down the risk factor. However, any time you have a massive retreat, anything that is already fragile can shatter into a thousand pieces.

João-Pierre S. Ruth is the editor of Xconomy New York. He can be reached at jpruth@xconomy.com and followed on Twitter @jpruth. Follow @jpruth

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