The war for tech talent is forcing new and established companies in Silicon Valley to pony up escalating amounts of cash and stock to hire—or keep—employees.
One recruiter, Stuart Liroff, said total compensation has increased about 10 percent in 12 to 18 months, based on his firm's business which places engineers at start-ups.
Data from PayScale confirms this trend has been going on for years. The median pay for a software developer has increased by more than 14 percent since the first quarter of 2009, with a significant spike in 2012. In the past two years, wages have grown by 10 percent.
This talent war is also forcing some bigger, established companies to cough up more money to keep employees from fleeing to start-ups, said Liroff, a partner at the GreeneSearch recruiting firm.
He cited an example of a recent candidate who had been at Google for seven years and then agreed to take a position at one of the start-ups Liroff represented.
Software Engineer national average annual base salary comparison by year
| Year | U.S. national average ($) |
|---|---|
| 2014 (5/15/13-5/14/14) | 90,838 |
| 2013 (5/15/12-5/14/13) | 90,544 |
| 2012 (5/15/11-5/14/12) | 86,653 |
| 2011 (5/15/11-5/14/12) | 84,287 |
| 2010 (5/15/11-5/14/12) | 82,146 |
Source: Source: Glassdoor
Google came back with a counteroffer that the candidate said he couldn't refuse. The search giant offered him cash, a large amount of restricted stock with four year vesting and a promise to review his promotion in about 60 days, Liroff said. Google did not respond to CNBC's request for comment.
This strategy may keep employees for a while, but companies can't throw cash at employees forever, said Liroff.
"Honestly, I don't see how say a company like Google ... could sustain that story. The word's going to get out to other employees," Liroff said. "You think if you were at Google and you were a top engineer and you discovered that if all you had to do was just test the waters, that you would get a big counteroffer."
"It doesn't feel like a sustainable business model. Because you really want people to be working for your company because they love your product," he said. "Do you really want a company filled with people who just love money?"
Money isn't everything. There's also stock
Liroff—who has been placing engineers at start-ups backed by top venture capitalists for 15 years—said more candidates are willing to accept a smaller salary for a greater equity stake in the company they join.
"When they see these early stage start-ups that are backed by top tier VCs, the attraction is because they are backed by these guys the likelihood of being successful is greater and they will get to cash out," Liroff said.
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Another long-time Silicon Valley recruiter, Kathy Ullrich, agreed. "A lot of higher executives are doing it for the equity play. They are trying to find the company that is going to make it because they are want to get that hit in the equity."
Amy Vernetti, a partner at the recruitment firm True Capital, said she placed a senior vice president of marketing at an early- stage tech firm for a base salary of $220,000, $30,000 above his previous salary. One day later, another company offered $300,000. Vernetti's client upped its offer to $250,000, and the candidate accepted, despite the lower salary.
"Compensation is a tricky thing. I don't think he made out like a bandit, I think he was underpaid at his previous company," Vernetti said. "To me, this was the company he wanted to join. When you see companies offering outrageous things, sometimes it's desperation on their part and an indication that something is wrong with the company."
Return of the forgivable loan
One method of compensation that hasn't been seen much since the late '90s has also reappeared: forgivable loans.
Forgivable loans are upfront cash payments that are forgiven if certain requirements are met by the employee—like staying at the company a certain period of time. Taxes on the loan are often deferred and recognized over the life of the loan.
Ullrich, who has been recruiting in the Valley since 1998, said she saw an offer recently where a company offered someone coming out of college a forgivable loan presented as a sign-on bonus.
These types of loans were more common in the late '90s to recruit talent but died off significantly after coming under scrutiny by regulators, she said. However, these loans during the dotcom era were often over $100,000, and this particular offer was in the $30,000 range, Ullrich added.
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The numbers being offered today appear more reasonable than in the late '90s, said Vernetti.
For example, Vernetti—who has been placing executives at tech companies for 15 years—said her firm recently placed a chief revenue officer at a private multibillion dollar technology company in Houston. Because the job required the individual and his family to move from Manhattan Beach, California., the company gave him a forgivable loan for a down payment on a house, she said.
Still, the offers aren't as ridiculous as they were during the late '90s, recruiters said.
"That doesn't mean that outrageous cases don't happen. There are isolated cases of companies doing surprising things to get the candidates they want," said Vernetti.
—By CNBC's Cadie Thompson. Follow her on Twitter @CadieThompson.