Hear this New Delhi-based startup founder's recent hiring experience.
The entrepreneur was looking to hire an operations manager. The firm short-listed a candidate who recently graduated from one of the top business schools in India. The youngster, in his mid-twenties, had 3.5 years of experience and was already on his third or fourth offer, and that stood at Rs 45 lakh.
“He wanted a hike on top of that, and demanded Rs 55 lakh,” says the entrepreneur. The company did not hire him, but it would not be surprising if another startup matched the salary.
That is not the worst part, the entrepreneur says. “The worst part is they can still walk away and do.”
The founder also recounts the story of a Bengaluru-based company that had hired an engineer, paying a hefty salary of Rs 75 lakh. “He left just six months later for a 10 percent hike in another firm,” he added.
Indian tech salaries now as expensive as the US
Many founders and industry executives say it is more expensive to hire tech talent in cities like Bengaluru, compared to the US.
The pandemic-led internet adoption and acceleration in technology has shot up demand for engineering talent, with companies now willing to pay a premium, even if they risk losing hires within months of them joining a firm.
The talent situation even earned a comment from Ola founder Bhavish Agarwal, who quipped: “Engineering hiring situation in Bengaluru - thinking of offshoring some work to a lower cost centre in SF, Bay Area!”
Krishna Kumar, CEO, Simplilearn, said that Indians' talents, especially Bengaluru, are more expensive than the ones in the US, apart from the Silicon Valley.
“Companies are setting up centres outside the country, where they think they can attract talent. We have an office in Raleigh, North Carolina, in the US. We realised that we are paying more salaries in India than in Raleigh, though it is difficult to find talent there.” According to him, Indians have a cost advantage now only at the entry-level job, and when it comes to mid to senior levels, there is no gap in salaries.
A case in point is the Rs 1.10 crore payscale a DevOps engineer in Bengaluru with 8 years of experience was able to get in a US-based company. He was earning Rs 18 lakh earlier.
For AI/ML engineers, Rs 1 cr is the normal salary
In North Carolina, Kumar said, the salary will not go beyond $150,000, which is Rs 1 crore in India.
Kumar said that for AI/ML engineers with 8-10 years of technology experience, Rs 1 crore is a normal salary. This is also applicable for roles like data analytics, architecture and even senior engineering manager, where salary levels are similar. According to him, the salary five years back would be Rs 25-30 lakh. “This kind of growth in five years, we have not seen earlier,” he added.
So what the company has done is that it is offering its top talent the same salary it gives to employees in the company’s US centre.
Prateek Shukla, CEO, Masai School, an edtech company in Bengaluru, pointed out that in terms of cost of living, salaries of Indian engineers could be way above those in the US. The issue, he said, is that if an engineer is earning $100,000 in the US, which is about Rs 70 lakh in India, he will have to spend $7,000-$8,000 for rent, whereas in Bengaluru, one can live lavishly.
For instance, with Rs 50,000 one can have a lavish three bedroom house in Bengaluru, but it would be impossible to have such a lifestyle for the same money in Silicon Valley. So even if an engineer is earning about Rs 45-60 lakh per annum in the country, Indian engineers would be earning on par with their US peers.
Take, for instance, this Bengaluru-based edtech startup. An engineer with just two years of experience came to the interview with a pay scale of Rs 40-45 lakh and three offers, which he got within a matter of a month.
“His expectation was that we would top it off with Rs 57-60 lakh. Yes, he had a good background and had won programming contests in college. But we did not hire him,” the founder said.
While the company did not hire him, the Bengaluru-based founder pointed out that with talents overpriced, startups will now have to keep aside 40 percent of the money they have raised for paying salaries and hiring talent.
This raises the question as to why companies continue to hunt for talent in India if salaries in the US are not different.
Why not hire in the US?
The answer boils down to scale. While Indian engineers are earning as much as their peers in the US, there are not enough talents available at the scale needed currently. That is what is making India attractive for startups and multinationals.
For one, close to 10 lakh engineers graduate every year in India. Sangeeta Gupta, VP, NASSCOM, during a round table moderated by Moneycontrol, said talents also have wider exposure to technology at the back to IT services, vibrant startup ecosystem and product industry. As a result, India has people who work across the whole combination of domain and technology, as well as their ability to build products, making the country attractive.
This talent equation is why many companies, including large multinationals, are setting up centres in India.
Is the hike justified?
While the spike in salary is frustrating and many have spoken up about the unfairness of the situation, experts say, in this scenario, firms need to pay the market rate if they want to hire quality talent.
Kumar of Simplilearn offers an explanation as to why he thinks the situation is not unfair.
One of the huge shifts that have happened over the last couple of years was that India has moved away from the services model to the product model, which is at the higher end of the value chain. “If you build a product, you can charge any amount for the product depending upon what value that the person in front (you are selling to) sees, right? So there's no cap on how much you can pay the salary,” Kumar asked.
While large tech companies in the US are willing to pay large salaries for this talent, Kumar asks why Indian companies can’t have that large business and compete with some of the global companies and not pay the salary in the country. “As long as their business is profitable and they are growing fast, such things will happen,” he added.
A Bengaluru-based investor said: “There are two kinds of talent that you get on the market.” One type of employees is those who work for the mission the company stands for and place more importance on ESOPs. The others, not so mission-driven.
“If you are growing from 20 engineers to 100 in six months, not everyone's going to be mission-driven. At that point, you have to pay the market price. What other option do you have?” the investor explained.
Now does every engineer getting this package deserve it? It is subjective and a function of limited talent pool, pointed out the Bengaluru-based investor. But nobody is going to turn down a higher salary and there is nothing wrong with that. “There is nothing wrong with this. Some company somewhere is crying ‘I don't get engineers’. The engineers are doing all the right things here,” the investor said.
The Bengaluru-based founder quoted earlier agrees. He pointed out that even as we are talking about salary inflation, one should also consider the amount of money that is going into the startup ecosystem. “So in my mind, it (salary hike) is not crazy, because the valuations are also crazy and the kind of money that startups are raising is also crazy, in a way. The craziness is not just in engineering but everywhere. So I don't blame this,” the founder added.
What are companies doing to address the issue?
While some well-funded companies have been able to afford, smaller companies and even some funded startups are tweaking their hiring strategy to address talent crunch.
Anand Prasanna, managing partner at Iron Pillar, a growth stage VC Fund, said: “We have seen companies hiring talent in smaller cities in India compared to Bangalore, Delhi to avoid the battle for talent.”
Akshay Chaturvedi, founder & CEO, LeverageEdu, a higher education startup based in New Delhi, said that the company hires from smaller colleges in tier 3/4 towns and is training these talents instead of going to top colleges in the country.
While hiring at the mid to senior level is a challenge right now, Charturvedi said that the company is looking at hiring talent from a different sector such as FMCG to fill certain roles in the company. The company is also outsourcing technical work to software development companies.
Going overseas is also an option companies are mulling. "From both the quality of talent and cost perspective, some countries in Eastern Europe are quite attractive. We have been telling our companies to explore these options,” Prasanna said.
Aprameya Radhakrishna, co-founder & CEO, Koo, said in a recent interaction that the company is looking to hire 50-60 engineers across various roles such as frontend and backend developers, data analytics, and AI/ML experts but finding the right talent is one of the huge issues for the company.
“We are talking to enough people. But are we getting enough people for the entire team yet? No. we need at least 50-60 more engineers. The more engineers we hire, the less you have to hire other people since you can automate most things and you don’t have to hire for a particular function,” he said. But the company is yet to seek talent overseas and is able to hire talent locally right now.
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