Engineering Shortage Is Real. Former Digg Engineer Gets 7 Offers, Takes One for $150K

In recent months, venture capitalists have been complaining that a shortage of talented engineers is driving up engineering salaries at their portfolio companies.

Turns out all that complaining is warranted. Created in part by the explosive growth of companies like Facebook and Zynga, as well as the sheer numbers of Web companies to spring into existence and raise funding, top-notch software developers are a scarce resource these days, say recruiters. And the engineers are commanding — and receiving — at least 10 percent more pay than they were before the financial crisis.

The ramp up is “really aggressive,” says Morgan Masner, founder of 2-year-old recruiting firm HireUp in Mountain View, Calif. “It’s almost like a gold rush right now,” he says. “While companies are still very selective” —  they prefer candidates out of strong programs like M.I.T, Stanford, the University of Michigan, and U.C. Berkeley, for example — “they’re really competing over the same candidates.”

The problem is twofold, says Masner. In addition to the likes of Zynga “snatching up a lot of good guys, even out of Yahoo and Google,” there’s not exactly an influx of engineers coming into the market because of the market downturn.

“There was a misconception that the recession hit [Silicon] Valley hard, and it didn’t,” says Masner. In fact, rather than pay top-tier engineers the same amount they were paying two years ago — as many startups expected to do — most have been forced to sweeten the pot, sometimes substantially.

Last week, for example, Masner placed a former software engineer from Digg into a job with a $150,000 base salary. It’s an extraordinary rate, considering that most senior software engineers make between $100,000 and $125,000. Just as extraordinary: the engineer was made seven offers.

It’s not just Maser’s experience. “Right now, startups are either having to pay more, relocate people [to work for them], or go the [H-1B] visa route [allowing companies to temporarily employ foreign workers],” says Chuck McLoughlin, who heads up the tech practice at SVS Group, a 14-year-old recruitment firm based in Emeryville, Calif., that works with midsize companies. “As [our clients] see the responses they are getting, they’re all saying: ‘We have to do something.'”

It doesn’t help startups that large companies are paying exceedingly well right now to retain their staff. Masner says he’s seen “huge counteroffers” from VMWare to Cisco, not to mention Google, which “you don’t see many people leaving” because of the lengths it is willing to go.

As for Facebook, Masner characterizes efforts to cherry-pick its engineers as “pretty much impossible. Two to three years from now, people will probably be looking to leave, but not now.”

Worse for smaller startups are Facebook’s own hiring efforts.“You can make the pay the same, but it’s pretty great to have [Facebook] on your resume,” says McLoughlin.

A startup’s best hope of landing a hot engineer? Intangibles like free meals around the clock help, says McLoughlin. But “convincing [an engineer] that [the startup] could turn into the next Facebook — that’s the hook.”