Israeli High-tech’s Riches Trickling Down Into Buoyant Job Market

Demand for programmers, engineers soars, as do salaries, so companies are less choosy. They know their latest hire probably won’t stay for long.

Reuters

This year took off with a bang for Israeli high-tech, with exits, financing rounds and a visit from Apple CEO Tim Cook. Last Thursday two startups raised over $20 million each and the acquisition of two others, one by Wix.com and the other by Check Point Software Technologies, was announced.

Good news in high-tech usually comes with reports of increased hiring, and Cook’s visit coincided with the news that Apple Israel plans to take on about 50 new employees. Other multinationals operating in Israel, including Facebook and Microsoft, as well as local startups in the news, such as ironSource, Taboola and Playbuzz, have dozens of positions to fill in 2015.

That’s great news for programmers and software engineers, because job vacancies tends to translate into higher salaries. Candidates have more negotiating power. They can afford to be picky. It’s not great for the companies hiring, though. The CEO of the Ethosia tech-sector recruiting agency, Eyal Solomon, says job openings are through the roof. A survey conducted by the agency of 190 companies in the sector, from startups to medium-sized firm, found a 2% rise in the demand for employees in the first quarter of 2015 from the previous quarter; the agency noted that hiring is typically slow in the first quarter.

The hiring rate in the first quarter — the number of people who got new jobs divided by the number who worked or were paid, excluding hiring to replace workers who left — rose to 4% on average. If the pace continues, Ethosia anticipates that the 2015 hiring rate will exceed the 13% recorded in 2014.

Meanwhile, salaries in the tech sector rose 1.5% in the first quarter, compared to 1.3% in the previous quarter and in the first quarter of 2013. Ethosia anticipates that if this pace of increase is sustained, high-tech pay will increase by 6% in 2015, a higher rate of growth than in 2014, when pay rose by 5.4%.

In general, at Ethosia they feel things haven’t been this good in the sector since 2000. “For everybody, it’s a green light,” says Solomon. “The stock market is rising, the dollar is rising, startups are raising money and there are exits one after another. And when a company raises money the first thing it does is hire.”

The situation has made life tougher for recruitment agencies, Solomon admits. “Each placement has been like getting blood from a stone. For employers, it’s a difficult market. At meetings with managers at startups and companies I hear their frustration and helplessness. It hadn’t been like that before. Now candidates have six to eight proposals to consider. It even happens that applicants don’t even show up for the interview.”

More than 100 people work at the General Motors Advanced Technical Center in Herzliya, the U.S. automaker’s research and development center in Israel, which also faces a hiring challenge. The center engages in the fashionable area of developing technology for vehicles, including the development of Internet-connected vehicles and vehicles that drive themselves. Yet it too has to compete for quality personnel. The center has dozens of jobs to staff in the coming year, positions including computer scientists and experts in user interface and cybersecurity. “We always need excellent candidates. We’re constantly face the challenge of recruitment and retaining good candidates,” says the center’s Staffing Lead, Dana Biron.

The ‘buddy method’

The percentage of new tech hires that are found using what could be called Israel’s “buddy method” has risen in recent years, at the expense of headhunter agencies of course.

Some startups, especially those founded by “graduates” of the Israeli army’s elite technology units, use this “bring a friend” method almost exclusively. Any employee who refers a friend who gets hired receives a bonus.

Many tech companies use social media to poach promising candidates from rival firms, contacting them directly. Of course the hunters are aware that their own employees, especially the good ones, are fair game for competitors as well.

“We live in a digital world of Facebook and LinkedIn, and this affects hiring. Organizations and recruiters need to use tools borrowed from the world of marketing. ... Even the capabilities of a good recruiter have changed. One must be able to recognize talent from a few lines of text on LinkedIn,” Biron says. “It’s become more complicated to identify the quality candidate.”

One company that grew rapidly in the last year is Adallom, a cloud security company based in north Tel Aviv. In 2014 the young startup increasing its staff fourfold. Today it has about 90 employees, more than half of them in Israel. The company, which operates in one of the hottest areas, recently raised $30 million from venture capitalists and strategic investors. Adallom cofounder and CEO Assaf Rappaport says hiring is always difficult but the company’s high-quality core team attracts talent and reduces the company’s dependence on recruitment agencies.

A startup’s first funding round certainly affects hiring, Rappaport points out, because it makes it possible to pay salaries. “A company that’s been planned properly shouldn’t have to rely on fundraising in order to hire. The fact that we have $30 million now enables us to grow faster, but if I had only raised the money in half a year, I could have hired the same people. We think ahead, rather than coasting on fumes or taking unnecessary risks at the expense of our employees’ job security.”

One corollary of the sunny condition of high-tech is that companies are starting to hire candidates they might once have scorned, such as graduates from colleges and training schools rather than only the top university programs, says Ethosia’s Solomon. When you’re desperate, you get creative, he points out. He and his colleagues say this new flexibility is mainly in areas that are truly desperate for people with skills, such as Android and iOS development. He thinks the share of high-tech in the national workforce could break the 9% barrier this year.

Taking risks

Another consequence of the state of the industry is greater mobility between workplaces. In the first quarter of the year, 2.1% of Israeli high-tech employees voluntarily switched companies, attesting to their many options. (At 2%, the dismissal rate in the sector is about the same, but that’s down from 2.5% in 2014.)

According to the Ethosia employer survey, the shortage of workers means it takes companies longer to fill an open position — an average of five weeks in the first quarter of 2015, compared to four and a half weeks in 2014.

The duration of the job hunt did not change appreciably from the previous quarter, and for some age groups it contracted slightly. Companies are getting less fussy; if before they’d summoned quaking candidates to interview after interview, now they try to nail somebody down in the space of days before somebody else gets their claws into him, says Solomon.

Employees are taking advantage of the situation to improve their position and terms of employment. “We see a lack of flexibility from candidates over social benefits. They insist mainly on additional employer contributions, such as to keren hishtalmut training funds, and on the level of options. They want to better their terms when they move between companies. This isn’t a passing thing, it’s the new normal,” says Solomon.

Another sign of the times is the willingness of employees to accept more risk. “They don’t stick around. People who are normally relatively conservative, even senior executives in multinationals, will risk more and spread their wings. We’ve been seeing that since the beginning of 2015,” says Solomon.

Though of course the perks can make a difference, workers are choosing their jobs mainly on the professional challenges they offer, Solomon says. Biron, of the GM R&D center, says that large companies recognize this and have been trying to create a “startup atmosphere.” Company must market themselves as technologically attractive. Millennials want jobs that enable a work-life balance, job security matters less to them.

Despite all of this, Israeli high-tech is still traumatized by the bursting of the dot.com bubble in 2000. During the bubble, startups without a business model raised enormous amounts of money on the strength of little more than a flasher PowerPoint presentation and used it to rent gorgeous offices and to shower their employees with benefits, only to crash and burn. Could companies be offering employees too much again?

Well, workers today want a technological challenge more than they want perks, says Biron. “On the day-to-day basis you want to feel you’re doing something that challenges you, something big that affects people’s lives.” In any case, she adds, companies must follow the salary norms of the sector.

Solomon doesn’t feel a bubble is forming. “A bubble is when you start to see companies develop products that nobody needs. Today there are controls,” he says. “Money is not being poured down the drain. It’s being channeled into things people need.”

Do these conditions, and the increase in pay, make Israel less attractive for big companies? “GM opened its center here because of the Israeli talent, not financial considerations. One has to maintain a balance — to be attractive to candidates, but not too pricy to the parent company,” says Biron.

One technology trend in recent years is that the center of gravity has been shifting from hardware and telecommunication companies to software. While competition is fierce over programmers, especially for mobile and Internet, hardware engineers are on shaky ground, in part due to China’s rise in this area.

The area of cybersecurity is the exception to many a rule, however. Salaries have gone through the roof, rising around 15% in 2014 from 2013, a pace Ethosia expects will be repeated this year. In other areas of high-tech, wages rose by one to two percent. Cybersecurity is a battlefield, where startups are pitted against giants, says Solomon. Workers do not cavil at leaving a giant for a minnow, which may well get eaten by a giant. There are plenty of exits in cybersecurity.

At GM there is a suspicion that candidates for cybersecurity jobs are getting a tad cocky and the wage demands will make Israel too expensive, Biron warns. But at the top of the cyber heap, the manager needs to understand not only everything about the technology involved but also the economic facet of the business and risk analysis, Rappaport points out. The cyber chief may well be subject directly to the chief financial officer or company strategist. There’s no wonder pay demands are in keeping with the importance of the position.