The shekel-dollar exchange rate has brought the salary cost of an Israeli engineer close the cost of his counterpart in Silicon Valley, to the point of harming the economic efficiency of Israeli start-ups, at least in the eyes of foreign investors and corporations.
However, this could change within months, for several reasons, but the shekel-dollar exchange rate is not one of them.
The first reason is the shortage of available capital for investment in Israeli technology companies. Although Israeli start-ups raised more than $2.4 billion in 2011 - a 10-year high - things will likely change in 2012. Israeli companies will find it harder than ever to find investors, and many will be forced to close. The good companies, those that were founded and are managed by serial entrepreneurs, will probably find the money they need, but less favored companies will find closed doors.
Yesterday, IVC Research Center said in its annual report that, unless there is a miracle in the coming months, start-ups will raise just $1.5 billion in 2012.
The motivation of small companies
The second, and more interesting, reason is the unexpected rise in salaries of technology staff in Silicon Valley. A study by US placement firm Dice Holding found that the average salary of a high-tech employee in Silicon Valley was $100,000 (NIS 370,000) in 2011. Although we have not seen the pay slips of Israeli start-up CEOs, we can assume that few of them earn anything like that.
The average salary of software engineers in Silicon Valley reached $104,195 last year. Dice Holding said that, for the first time in a decade, the $100,000 threshold had been breached. The average salary of software engineers in the US as a whole was $81,327.
Dice Holding attributes the 5.2% rise in the salary of Silicon Valley engineers to Facebook, Zynga, LinkedIn, and Groupon, which are labor intensive, but also boosted the motivation of entrepreneurs who found new companies and need engineers. Freelancers in Silicon Valley also enjoyed an 11% increase in earnings in 2011 to $74 (NIS 273) per hour.
American engineers also benefited last year from something that their Israeli counterparts can only dream about - an annual bonus. In Israel, if bonuses are distributed at all, very few people benefit. But bonuses for Silicon Valley engineers rose 13% in 2011 to $12,450.
The salary differences between Israeli and Silicon Valley engineers will presumably continue to widen in the coming year. So long as Facebook is alive and kicking, and if it holds an impressive IPO, the hype will continue to pound in the hears of entrepreneurs and investors.
Published by Globes [online], Israel business news - www.globes-online.com - on January 29, 2012
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