Talent Management in Silicon Valley

While on this trip to San Francisco I ran into a “talent management” consultant.

I asked What is that? “We help companies figure out how to recruit and retain employees.”

How much do companies pay for his services? “Certainly hundreds of thousands of dollars would be the minimum engagement.”

Why would they pay that much when there are 15 million unemployed Americans presumably eager for jobs? “If there is a talented person among those 15 million then my clients haven’t found him or her.”

[Separately, the Wikipedia article notes that this field was created by McKinsey in 1997, i.e., right about the time that Enron was organizing all of its incentive structures according to McKinsey advice (Guardian).]

What kinds of companies are most interested in talent management? “We get a lot of technology companies. They have tremendous trouble with retention. There is no loyalty in Silicon Valley. Companies are paying signing bonuses of $100,000 and more. Before making real money people used to have to work for years, wait for stock options to vest, and hope for a startup to succeed. Today there are engineers at big companies earning $1 million and more as straight salary and bonus.”

A Mountain View resident confirmed that non-managerial engineers could easily earn $400,000 per year at Google or Apple [a huge step up from the 1980s, when a top engineer might have earned the equivalent of about $140,000 in today's dollars] but thought that $1 million was rare. Why weren’t more people studying engineering trying to get in on this? “You have to remember that the cost of living here is crazy high. A decent house is $2 million. You pay the highest tax rates in the U.S., outside of New York City. There are very few women who want to hang around in the Valley longer than necessary to get pregnant and collect child support. You’ll be working and/or commuting through horrible traffic 60-80 hours a week, mailing child support checks to an address in Santa Cruz or Napa, then going home to your lonely single guy apartment.”

[Fact check from the Web:

  • Zillow says the median home value in Palo Alto is $1.8 million ($1118/square foot; the median includes condos). A single-family home in Mountain View, on the other hand, has a median price of $1.35 million.
  • See the San Jose Mercury News for some traffic data.
  • According to https://www.cse.ca.gov/ChildSupport/cse/guidelineCalculator , a one-night encounter with a Silicon Valley engineer earning $400,000 per year and paying a mortgage on that "decent house" would yield tax-free child support of about $43,000 per year ($777,600 over 18 years).  This is roughly the after-tax median household income for Californians ($61,400 pre-tax according to the Census Bureau, fed into the ADP calculator) and could be doubled or tripled by having additional children with additional engineers.
  • This article talks about working hours at Apple.

]

18 Comments

  1. Fazal Majid

    May 10, 2014 @ 10:19 pm

    1

    There is quite a lot of exaggeration there. I founded a startup in San Francisco 4 years ago. Certainly, Silicon Valley is different, but I doubt it is *that* different.

    Retention is certainly extremely tough. Oddly, the hardest kind of engineer to retain are good QA people with automation skills. We have to pay competitive wages and benefits, as we are in the same job market as, say Twitter, and I’ve never offered a $100K signing bonus. The highest we’ve offered was $10K to lure a data scientist with a PhD and exact subject expertise match with ours.

    Housing is certainly expensive (I’m in closing for a 3BR/3BA single family house in SF myself), with winning buyers bidding an average $250K over asking for those kind of family residences, often all-cash and sometimes even with no inspection contingencies, so it takes around 6 months to find a place, but you can find one eventually if you are flexible on the neighborhoods. The unfashionable western Richmond and Sunset districts are extremely safe, and you can buy a family house for around $1M to $1.2M. As long as you are not allergic to fog, it’s a far cry from $2M. That would buy you a 3BR/2BA in a fashionable part of town like Noe Valley. Palo Alto is a very special case because of Stanford, San Jose, Mountain View, Sunnyvale and the like are much more reasonable (everything is relative). Compared to New York or London, SF is still relatively inexpensive.

    As for salaries at Google et al, superstars may make $400K or even more, but the run-of-the mill senior engineer is closer to $150-$200K plus a bonus of around $20K. Apple is a very special case, their core engineering teams are surprisingly small considering the importance of the products they work on, and that’s why they are overworked.

    Taxes – no question California has the most bloated and spendthrift state government in the nation, with the most rapacious public employees’ unions, and it’s moving in the wrong direction. The fact tech companies are not migrating wholesale to Austin, Seattle, Denver or even Boston shows just how powerful the cluster effect of Silicon Valley is.

    As for talent management, that is a core responsibility of a VP of Engineering or CTO, not something you would outsource to a consultant. Keep in mind the HR and recruiting industries are rife with BS, to put it lightly, and take anything a glorified recruiter says with a grain of salt. You use recruiters to widen your reach and access a larger candidate pool, i.e. lead generation, but for most companies with a clue the actual recruiting and hiring process, as well as all that happens later, is firmly driven by the company itself. I’m sure there are clueless companies that get suckered, specially big corporations headquartered elsewhere who are trying to build a presence here, but the ability to hire, motivate and retain is my No. 1 qualification when I am hiring a VP of Engineering, not technical skills per se.

    Work ethic and general integrity is deficient compared to other places I have been, spoiled-brat syndrome is rife. That said, we do pay for relocation, and prefer American candidates over H1-Bs, contrary to popular opinion, but good US candidates willing to relocate are simply not to be found. The last star engineer I hired is a PL/SQL programmer from Belarus (his wife won the Green Card lottery), and the next one a very experienced 50-something C programmer (you can leverage the Valley’s ageism to get experienced and loyal employees). I’m sure if you dig behind the many people who loudly complain that H1-Bs are stealing Americans’ jobs, you will find some character flaw that makes them unemployable, or simply an inflated opinion of their skills (Dunning-Kruger effect). Any halfway competent engineer can scan through the listings on Craigslist and will get at least 3 job offers within 2 weeks. This wasn’t the case 4 years ago.

  2. Dan T

    May 10, 2014 @ 10:22 pm

    2

    re: “easily earn $400k/year” – What’s the source on this?

     Glassdoor.com indicates that Google engineers get anywhere from $100k-$200k/year.

  3. Russil Wvong

    May 11, 2014 @ 1:53 am

    3

    I’m also wondering if employers are running into what I think of as the Breaking Bad problem — there’s a scene late in Breaking Bad where Walt and his wife are standing in a storage unit, contemplating a giant pile of money. It’s more than they can spend in their entire lives.

    With such high salaries, plus stock options and bonuses, it’s not that unusual to build up a similar pile. (Okay, maybe not a $10 million pile, but big enough that you can’t spend it all.) At that point, money isn’t much of an incentive; considerations like the work itself, or the work environment (especially your co-workers), or even work/life balance become more important. Some number of people in this situation will just retire, which is a loss to the economy as a whole (since they’re not employing their extremely valuable skills). Even their children may decide to retire!

    Philip, I’m sure there’s lots of companies in the Bay Area that would love to hire you. How much money would it take for you to move there, even for three years? $1M/year? $2M/year? Is there any amount that would convince you?

  4. michiel

    May 11, 2014 @ 2:49 am

    4

    So why do Venture Capitalists stay in the valley? Why don’t they fund companies in Pakistan or Bulgaria, that, instead of paying $120k for an unmotivated American college dropout, or, at best, one of the scarce H1Bs, can pay $24k and have their pick of the best engineers?

    Intercontinental flights have never been cheaper. HD-quality videoconferencing is available at the push of a button. This isn’t the 1960s semiconductor boom, when specialist knowledge could only be acquired by doing time in Sillicon Valley R&D labs; the average twenty-something Lithuanian developer has acquires his knowledge from the same place as his American counterpart: the web.

    Anyone?

  5. nicolas

    May 11, 2014 @ 3:35 am

    5

    The biggest cost in relocating is non-financial : finding a new house takes time, knowing the place, the tax system, etc…

    This costs money, quite a huge amount, but also time, a more precious asset found in limited quantity.

  6. jsc

    May 11, 2014 @ 4:08 am

    6

    “There are very few women who want to hang around in the Valley longer than necessary to get pregnant and collect child support.”

    Philip, I noticed that in many of your posts you express a negative view of marriage. I am in Europe so I don’t know about the situation in US. Is it better in US to avoid getting married, or are there some countermeasures ?

  7. bjk

    May 11, 2014 @ 8:07 am

    7

    Fazal Majid mentions ageism and then says that anybody with skills can get a job. So which is it? Or is it that only the brand name firms are ageist.

  8. philg

    May 11, 2014 @ 11:29 am

    8

    Fazal: Why don’t the employees of these companies do the work of talent management? I don’t know. After executives hire McKinsey to plan their strategy, training firms to train junior people, etc., you’d think they’d have plenty of time.

    bjk: I don’t think there is a terrible prejudice against older workers in Silicon Valley. I have a friend who is in his 50s, a “leaf-node engineer” (i.e., not a manager), and earns between $300,000 and $400,000 per year in the Valley.

    Russil: You think that $10 million is a “giant pile of money” that a person in the Bay Area could not spend? I could spend that in the next hour within walking more than 20 minutes from my hotel room here in San Francisco. I would buy a four-bedroom apartment with a view of the Bay and put enough money in a savings account to pay for 20 years of property tax. $10 million spent. How much would it take for me to move to Silicon Valley? I would move there and work for Google for $1 per year if they would give me control of the Google Contacts group, just so that I could fix their broken product and then be able to use it in peace.

    jsc: As noted in https://blogs.law.harvard.edu/philg/2013/06/15/divorce-custody-child-support-and-alimony-in-denmark/ , the incentive structure in Civil Law countries (most of Europe) is very different than in the U.S. In particular, having a child and securing custody/possession of that child is not very profitable in most European countries.

    This is not “a negative view of marriage”. In fact, marriage may result in a substantial reduction in child support profits. For example, a person who marries an investment banker in New York City, has a child with that person, and then manages to obtain custody of that child (generally easier for a woman than for a man, but certainly possible for the father in some cases) can turn the child into about $2 million in cash (has to stay with New York law and New York courts). However, a woman who gets pregnant by that investment banker but is not married can choose to move, while still pregnant, to a jurisdiction where there is no limit on child support (e.g., California, New Hampshire). The $2 million baby can easily become a $20 million (tax-free, but paid over 18-23 years) baby. So the marriage would reduce the child’s profitability by $18 million. Child support profit opportunities are unrelated to marriage and, in fact, will typically be reduced by a marriage due to the resulting inflexibility in jurisdiction.

    Are there countermeasures? Not really. Professional athletes are frequently targeted by child support profiteers and are instructed to use their own condoms, flush said condoms down toilets instead of putting them in trash cans, etc. But somehow they usually are successfully tapped. Limiting one’s romantic associations to people vastly wealthier than oneself is a good starting point, but there are no guarantees. I interviewed a New York City litigator who said that he knew plenty of women earning $millions on Wall Street collecting the maximum legal child support from men with middle class jobs (so a father with a $100,000 per year job would pay 17-31% of his pre-tax income, depending on the number of children, to a woman with a $5 million per year job). There are no statutes of limitations on child support, so women and/or state welfare agencies sometimes sue men for as much as 18 years of back child support, oftentimes for a child that the man never knew existed. A child support judgment cannot be discharged in bankruptcy (so if a man cannot pay those 18 years of support, plus court-determined interest at a state-set rate (e.g., 12% per year), he will go to prison).

    Anyway, the U.S. is different. In Europe, a person would typically have to go to medical school and then work every day as a radiologist to have the after-tax income of a radiologist. In most U.S. states, a person need only have three kids with three different radiologists and obtain at least 50% custody of those kids and the child support will be equal to the after-tax income of one radiologist (with the added advantage of diversification).

  9. Fazal Majid

    May 11, 2014 @ 11:33 am

    9

    There is definitely ageism in the valley. How prevalent, I cannot say. That said, the job market is so tight even the prejudiced are desperate for talent and someone 50+ should find a technical job (less so in marketing or management). My comment was the older employees I’ve hired tended to be more loyal. Whether it’s a question of generational differences or perceived lack of alternatives is anyone’s guess.

    One more thing: San Francisco is one of the toughest dating markets for women, and thus one of the most favorable ones for men. Perhaps that’s why there is an increasing number of tech employees who choose to live in SF and commute to the Peninsula, often using the infamous “Google Buses”, which has now become a generic term, even though I think Genentech is the one who really started the trend.

  10. valley dude

    May 11, 2014 @ 1:36 pm

    10

    philg: what is the structure of your friend’s 300-400K/year? How much is salary and how much is restricted stock or options? If the latter, has the stock been spectacularly successful?

    I agree with pretty much everything Fazal Majid said.

    It’s also worth noting that many (most?) long-time residents of now-expensive areas could not afford to buy their own homes on the open market at today’s prices. Buyers are able to put up the costs by leveraging previous real estate, decades plus of making money on options, often dual incomes, etc. In all cases I know of engineers (or senior technical leadership, whatever) buying expensive houses, they’re not paying 20% down and paying the resulting huge mortgage on a hypothetical $400K/year salary. It’s more like >> 50% down and a mortgage based mainly on whether you have dual incomes or one income.

    So here’s my numbers. Senior engineer at a late stage startup with an enterprise data storage product. Mid 40′s. Salary 175K. But, I am sitting on about $1M of restricted stock (bought it shortly after joining) which has vested over the last few years. The company is private so the $1M is estimated based on our last round. I think the 175 is probably in the rough market range salarywise. Had I stayed at my previous employer (a large enterprise data storage company), I would also have vested restricted stock worth approximately $1M over the last ~4 years, so combined with salary, about 400K. I’m pretty sure that type of deal was not being handed out to everyone, however. Probably top N% for some modest value of N (10? 20? 30?).

    On the child support thing, I think you are a bit obsessed with that for some reason. Paying child support due to a one night stand? Really? That’s like getting hit by lightning or an asteroid. Theoretically possible but do you actually know somebody who that happened to? Plenty of women don’t seem to have a problem raising families in Silicon Valley. Actually, the main reason for the premium pricing in Palo Alto, compared to next door Mountain View or Los Altos, is that their high schools have super high API scores, because for historical reasons their boundaries include no or hardly any areas which are not wealthy areas now. Compared to adjacent high school districts (e.g. MV/LA to the south), the other catchment areas include some working class neighborhoods, which probably drag down the averages a bit. Do I think this is a problem for my kids? No.

  11. jay c

    May 11, 2014 @ 3:07 pm

    11

    If you live in South Bay, and can accept living in a bad school district, it’s not quite so bad. You can buy a decent by valley standards house in Willow Glen for less than 750-800 (only 75-100 over asking) and your commute to places like Intel or nVidia or Altera or Cisco would be less than an hour. Willow Glen is a nice area and 15 minutes from Reid-Hillview. If you move to Portland or something you could rent the place out and be cash-flow positive.

    Michiel, there are areas in implementing communication ASICs (both analog and digital) at least where there are no academic papers or web pages to refer to. Nobody files patents on this stuff either but there are a bunch of people floating around South Bay who know the ‘tricks of the trade’ (note: most of them are ad-hoc and have no mathematic proof but everyone still uses them anyway) So if somebody left on Friday you could probably replace them in 2-4 weeks, and the replacement would need almost no training and might even be better. You could find people in Austin or So Cal and Boston who know this stuff but you are going to be looking for longer, which is I think one reason most hw companies haven’t left the Valley.

  12. philg

    May 11, 2014 @ 4:49 pm

    12

    Valley dude: Do I personally know men who’ve been targeted for child support without being married? Yes. Just from our community of pilots and aircraft owners at Hanscom Field there are plenty. Mind you, there is not always a child. One 25-year-old presented her date with a positive pregnancy test result, an Excel spreadsheet showing 23 years of child support, and an attorney who was there to market her abortion for $250,000. Jeannie Suk, a professor at Harvard Law School, said that there is nothing illegal about making money in this fashion.

    I’ve also talked to divorce litigators who say that an increasing percentage of their business is representing plaintiffs or defendants in unwed child support cases, oftentimes where the parents are almost complete strangers and often where a plaintiff has moved to a jurisdiction where her child support claim will be more valuable.

    See http://blogs.law.harvard.edu/philg/2014/01/25/divorce-corp-movie-review/ for a representative quote from a litigator. Also see http://www.independent.co.uk/life-style/counting-the-cost-of-a-onenight-stand-the-csa-can-act-whether-a-relationship-lasts-20-minutes-or-20-years-paula-webb-reports-1437701.html for how it works in England.

  13. valleyperson

    May 12, 2014 @ 1:45 am

    13

    Fazal, you wrote:

    “One more thing: San Francisco is one of the toughest dating markets for women, and thus one of the most favorable ones for men. Perhaps that’s why there is an increasing number of tech employees who choose to live in SF and commute to the Peninsula, often using the infamous “Google Buses”, which has now become a generic term, even though I think Genentech is the one who really started the trend.”

    Did you permute genders accidentally? The prevailing opinion about the SF Bay Area (see, for instance, every post on Quora) is that the male-female ratio is so skewed that SF is a terrible place for _men_, given that SF and the Peninsula are overflowing with smart, well-off dudes who run Ironmans and take elaborate French cooking classes to have a chance in the compeition. [Random example: the infamous startup that proposed flying women from NYC to the SF area http://www.businessinsider.com/dating-startup-flying-women-cross-country-2014-3

    I’ve lived there for three years and the prevailing opinion is pretty consistent with my observations.

  14. Jim Howard

    May 12, 2014 @ 1:10 pm

    14

    I’m a software developer in Austin, and just spent a few days visiting tech industry friends in Silicon Valley.

    I’m gobsmacked at the housing prices. Yes, northern California has probably the best climate of any urban area in the world, and there is tons of really fun things to do out there.

    Still, if one was to sell his or her 1.5 million dollar 1,900 square foot frame house with no garage out there, they could move to Austin, buy a $750K 3500 square foot house on Lake Travis with a triple garage and a boathouse in a gated neighborhood.

    And the Lake Travis school district are always has contenders for the Texas high school football championship!

    The would still have plenty of money to fly back and forth to SFO on Virgin America business class all they want.

  15. Mark Lutton

    May 12, 2014 @ 5:01 pm

    15

    How does the Boston area compare with the San Francisco area?

    Out here an hour’s commute gets you a nice place in New Hampshire or Rhode Island, if you prefer a country or small-town setting. There are the companies around Tech Square in Cambridge for the young car-free urban engineers, and the ones along 128 and 495 for the older two-cars-in-the-suburbs crowd.

  16. jack crossfire

    May 13, 2014 @ 4:43 pm

    16

    Haven’t seen very high demand for engineers, unless it’s for kickstarter projects, app store projects, or 2 week website projects. The demand may be for people with select graduate degrees or certain executives, but not for people who just know how to do the work. There may be just a dysfunctional hiring system or corporations deliberately holding out for H1B’s. Housing prices seem more due to free credit than rank & file workers making a lot of money.

  17. philg

    May 14, 2014 @ 1:37 am

    17

    Mark: How does the little provincial backwater of Boston compare to the world tech center? You can commute from the Bay Area to a tax-free state like New Hampshire. It will take you about four hours to drive there (Lake Tahoe, Nevada). An hour’s commute in the Bay Area will take you about halfway across one of the bridges on a bad day.

    Child support profits are a little higher in Massachusetts, e.g., http://www.mass.gov/courts/docs/forms/probate-and-family/cjd304-worksheet-child-support-guidelines.pdf shows that if a judge just extrapolated the “11% of pre-tax income” formula, a defendant earning $400,000 per year would yield tax-free child support payments of about $683 plus $406 per week = $56,628 per year. But on the other hand, finding a $400,000 per year wage earner might be tougher than in Silicon Valley.

    Tax rates are substantially lower in Massachusetts, both for income and sales tax. Massachusetts doesn’t get headlines for pension insolvency like California, but http://www.governing.com/gov-data/state-pension-funds-retirement-systems-unfunded-liabilities-obligations-data.html suggests that Massachusetts public employee pensions have an even bigger funding deficit (percentage-wise than California’s). So presumably the taxes will have to go up.

  18. E. Rekshun

    May 14, 2014 @ 6:08 pm

    18

    @Mark Lutton: …and the ones along 128 and 495 for the older two-cars-in-the-suburbs crowd.

    True. In the mid-’80s, I worked at government defense firms along 128 and 495, and had a 45-min commute to my north shore MA suburb. I’m in FL now and my commute is 3 miles roundtrip!

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