European tech hiring has plunged 40% in 2023 in comparison to last year, as higher interest rates and a slowdown in funding is making founders more cautious about scaling headcount.
That’s according to a new report by compensation platform Ravio, which also found that the hiring rate at late-stage companies in particular has slowed, dropping from 62% in 2022 to 31% this year. (Hiring rate refers to the number of hires in a period relative to the average headcount during that period.)
Elena Pantazi, partner at Northzone, says that the slowdown in scaleup hiring is likely because later-stage companies have “generally been more focused on cost optimisation and operational efficiency, particularly if they are striving for or thinking through exit plans”, which leads to a decrease in hiring rates.
The hiring budgets of late-stage companies have also likely been reduced, as decreased public market valuations and the nearly closed IPO window have dried up funding options.
Companies cut hiring rates and pay rises plummet
55% of the 900 companies Ravio surveyed say they are keeping their headcount flat for the first half of 2024, meaning they will replace team members who are leaving but not hire for any new roles.
Just 20% of the companies surveyed say that they plan to grow their headcount in the next six months.
Pantazi says startups are generally hiring much more “sustainably” this year than in the hypergrowth years of 2018-2021.
Founders are “investing more time upfront” into figuring out which roles are essential to their business plans, and are focusing on retaining talent through initiatives such as learning and development for new managers, coaching and career development plans for high performers, she says.
When it comes to compensating existing employees, companies appear to be relying more on non-monetary incentives like equity and benefits instead of upping pay.
In 2022, the average startup employee received a salary increase of 8% throughout the year, according to Ravio data, even though inflation in Europe was hovering around 10%.
This year, pay rises have plummeted, with many tech companies only budgeting a 4.8% increase in base salaries for their employees this year, a whopping 40% less than in 2022.
Europe’s gender pay gap is widest in junior positions
Just 19% of executive roles at European tech companies are held by women, yet according to Ravio data, there is no pay gap at all in senior positions when it comes to median base salaries.
This number could change when factoring in variable pay and equity, which Ravio plans to do in a future iteration of the report.
Surprisingly, the gender pay gap in startups is widest among junior positions. Women make up 41% of junior roles at European tech companies, yet they earn 22% less than their male counterparts.
The gender pay gap is likely narrower among the higher ranks of a company because executive candidates “understand their market value and have the experience to negotiate offers”, and companies dedicate a lot of resources to ensuring their offers are “relevant to the market and free of bias”, says Merten Wulfert, founder and co-CEO of Ravio.
“This does not happen at the less senior levels, creating space for unconscious biases to creep in during both candidate selection and compensation negotiations,” he adds.