Software Compensation 2007--Is it 1999 All Over Again?

  1. Posted on May 31, 2007 10:01:AM by Steve McConnell to 10x Software Development
  2. software development, software industry, job market, employment, 2007, Management

A comment I'm hearing with increasing frequency is "The job market is getting to be like the dot com era all over again. Developer salaries are increasing, and it's getting harder and harder to attract and retain good developers." Our May ECSE Meeting focused on the topic of "Compensation, Recruiting, and Retention," and so I used that as an opportunity to dig into the question of "Is it really 1999 all over again?"

The first question is, Is developer compensation increasing? I think quite clearly it is. The consensus raise for 2006 was about 3.5%-4.0%. The raises being budgeted for 2007 are more variable -- I've heard a low of 3.0% and a high of 6-7%. (These figures are all North American figures. Figures in India, Russia, and Eastern Europe can be very different.) But these are not the unprecedented raises we saw in 1998-1999; they're more incremental. Note too that a "budgeted raise of 5%" doesn't mean everyone will get 5%. People who are top performers will tend to get more than that. People who's compensation has gotten behind the market will tend to get higher raises too.

What is current developer compensation? Most of my data here is from the Seattle area. In the Seattle area, developer comp typically ranges from about $60K to about $120K, with very few people (less than 5% of the most senior people) making more than $120K. Fresh outs are being hired at $50-$60K in our area. East coast salaries tend to be similar, with higher salaries in more expensive areas (e.g., Manhattan). Salaries in less populated areas tend to be somewhat lower.

Bonuses. Most employers report annual bonuses of 5-15% for purely technical positions, with most companies paying closer to 5% than 15%. For very senior technical people and upper-level managers (i.e., Directors and VPs), bonuses can go higher than 15%, and in a few cases quite a bit higher. One company reported going as high as 50%. Most companies give higher-percentage bonuses to more senior people, although some don't differentiate on the basis of seniority.

Standard Benefits. We see a lot of commonality in benefits at this time. Fully-paid health coverage for employees seems to be standard among software employers. Partial coverage of dependent medical premiums seems to be common, with a few companies paying 100%. Starting vacation of 3 weeks is typical, with some companies offering only 2 weeks. Vacation increasing by an additional week after 5 years also seems to be typical. Vacation policies are almost always based on longevity with the company, and most managers have little flexibility in varying vacation policy.

Other Benefits. We discussed signing bonuses, stock options, stock grants, and other more elaborate perq's. Signing bonuses appear to be rare, still very much the exception rather than the rule. Most employers report that prospective hires are showing little interest in stock options. Apparently the memories of the dot com collapse are still fresh enough that many people would still rather have the bird in the hand of cash now rather than the bird in the bush of equity that might be worth a lot more later. Many companies sponsor occasional low-key "morale events" such as tickets to a baseball game, dinner out, pizza and beer at the office, and that kind of thing. Other more exotic and expensive perq's seem not to be reappearing at this time.

Hiring wars. A few companies reported losing key people, and in a few cases to "crazy offers that it just doesn't make sense to try to match." After quite a bit of discussion on this point at the ECSE meetings, the consensus seemed to be that these extreme compensation packages were more the result of a specific overactive recruiter than a symptom of the job market overall. Several companies in our area (Seattle) have reported losing staff to the most actively hiring companies (especially Google and Yahoo), but even in these cases the salaries offered were something like 20% higher, which doesn't seem to be symptomatic of any overheating in the job market. There have also been a few reported cases of very experienced people getting more than one job offer at a time, but again these seem to be the exceptions.

So, is it 1999 all over again? I think it clearly is not 1999 all over again. What we're seeing is healthy competition for top talent, which is really business as usual -- and business as it should be. We aren't seeing elaborate perqs -- no onsite massages, concierge service, nights out in limousines, and so on. We're not seeing hiring wars for average talent -- remember in 1999 we had hiring wars even for people whose only skill was writing basic HTML. We're not seeing huge equity grants or promises of ridiculous wealth in short time frames. People seem to have already forgotten how crazy 1998 and 1999 were. One ECSE member commented that people aren't currently "Expecting to work for five years and then be able to retire." My recollection is that people at that time expected to work for two years and then retire! The market was unbalanced in favor of employees -- to a degree that was unhealthy, because businesses were constantly confronted with unpredictable escalations in salaries, unexpected losses of key staff, uncontrollably high turnover. There was so much chaos in the job market that businesses had difficulty finding time to actually focus on their business.

In 2001 through 2002 or 2003 (depending on where in the country you were), we saw a job market that was unbalanced in favor of employers. There were so few open positions available, and the software personnel who had good jobs were so reluctant to change jobs, that even some qualified people had trouble finding work. That wasn't healthy either because it can cause talented, qualified people to leave the field.

Job Market 2007. What we are seeing today is that the best employees can command a premium, but they can't be unreasonable. Average employees can find jobs but probably aren't going to get multiple offers. The worst employees are going to struggle to find jobs at all.

That all sounds to me like a healthy, sustainable equilibrium -- a balance of power between employers and employees. I would be happy to see that balance continue for the foreseeable future.

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Steve Gaines, MCSD said:

August 7, 2007 12:29:PM

I agree with your assessment.  I remember 1999 and this is not like 1999.  I'm glad it's not because you can't "party like it's 1999" forever.  A bubble like that has to burst.  As long as we don't start bringing in a lot of H1-Bs again we should be OK.

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Steve McConnell

Steve McConnell is CEO and Chief Software Engineer at Construx Software where he consults to a broad range of industries, teaches seminars, and oversees Construx’s software development practices. In 1998, readers of Software Development magazine named Steve one of the three most influential people in the software industry along with Bill Gates and Linus Torvalds.

Steve is the author of Software Estimation: Demystifying the Black Art (2006), Code Complete (1993, 2004), Rapid Development (1996), Software Project Survival Guide (1998), and Professional Software Development (2004). His books twice won Software Development magazine's Jolt Excellence award for outstanding software development book of the year.

Steve has served as Editor in Chief of IEEE Software magazine, on the Panel of Experts of the SWEBOK project, and as Chair of the IEEE Computer Society’s Professional Practices Committee.

Steve received a Bachelor’s degree from Whitman College, graduating Magna Cum Laude, Phi Beta Kappa, and earned a Master’s degree in software engineering from Seattle University.
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