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Pay for top engineers is immune from cuts at startups that fear losing them and would rather slash executive salaries to reduce costs

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  • According to an analysis from Thomvest Ventures, startups with hot engineering talent are willing to do whatever it takes to get those employees to stick around, even with looming budget cuts and reduced funding.
  • Thousands of startup employees have been laid off as startups scramble to cut costs and venture funding dries up.
  • The analysis found, however, that some engineering-led organizations were more willing to get creative with cost cutting, like resorting to executive-level pay reductions, to maintain salaries and head count in engineering roles.
  • The consistent pay for top engineers could also help startups attract newly available talent from other organizations that otherwise might be out of reach, Thomvest Ventures' head of financial analysis told Business Insider.
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The looming economic crisis has done very little to tamp down the highly competitive engineering talent market in Silicon Valley's tech scene.
A new analysis of late-stage and newly public tech companies from the venture-capital firm Thomvest Ventures found that startups with robust engineering talent were willing to do whatever it takes to keep those employees around, even as layoffs and budget cuts sweep through the red-hot industry.
"In today's climate, companies are doing whatever they can to reduce burn, including salary cuts and reducing headcount," Eddie Ackerman, Thomvest Ventures' head of financial analysis, told Business Insider.
In the past two months, startups have cut thousands of jobs, reneged on expensive office leases, and resorted to dreaded down rounds of venture funding just to stay afloat. Many founders have yet to live through a major economic downturn, but that's what many experts are forecasting over the next 12 to 18 months. Startups are pulling just about every lever at their disposal to make sure their companies can make it through to the other side.
But engineering talent remains as competitive an area as ever, Thomvest Ventures' analysis found, and some startups that heavily depend on top talent are bending over backward to ensure the engineering and data-science teams are left mostly intact. That includes reducing salaries for top executives and founders.
"We have seen one tech founder volunteer for a 90 to 100% salary cut to protect the company's top engineering talent and ensure the business emerges stronger from this crisis," Ackerman said. "For companies that are continually on the engineering front, this helps them stay agile to pivot to survive."
On average, startup vice presidents and executives have had their salary reduced by 20 to 30%, with some signing on for roughly 50% reductions. That's in comparison with other employees whose reductions tended to fall between 10 and 15%.
But to stay competitive and continue building, startups are getting creative with other means of cost cutting, like forgoing pricey 401(k) matching or ditching wildly expensive office spaces in favor of long-term remote work.
The changes can even help opportunistic startups attract highly skilled staffers from other organizations — when that would formerly have been impossible, Ackerman said. With a flood of newly available talent released from hot companies like Airbnb and Uber, smaller startups have a once-in-a-lifetime opportunity to scoop up top engineers without the premium compensation that such hires would typically require. But Ackerman said that was an option for only the scrappiest companies.
"A few well-funded tech companies have used this as an opportunity to hire otherwise unobtainable engineers who have taken salary cuts or been laid off," Ackerman said.
Despite the strong incentives to retain such engineers, companies can be forced by the financial crunch to let them go.
If the trend continues, Ackerman predicts that engineers may not remain the golden children of Silicon Valley who are able to command the sky-high salaries and perks that come with that. That shift could be great for frugal founders and tight housing markets, but it has less appeal for the talent market as a whole.
"Based on what we have seen analyzing opt-in 'alumni lists,' we are seeing that the sales, go-to-market, and the engineering talent pool (looking for work) has and will continue to increase due to necessary head-count reductions at tech companies," Ackerman said. "If head-count reductions continue with the current trend we are seeing, we can expect the supply of available engineers to increase, leading to softening salaries in the future."
SEE ALSO: See the deck that top growth-stage investor Insight Partners is using to prepare its founder network to weather a prolonged economic downturn
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