Israel's defense brain drain

Rafael exhibition stand  credit: Rafael

State-owned defense companies IAI and Rafael are losing out to the likes of Intel and Apple in the struggle to retain top technology talent.

Over the past week, the staff WhatsApp group at Rafael Advanced Defense Systems was alight with satirical memes that spread like wildfire. The jokes were about employees stunned to hear glad tidings about receiving an annual salary increase of no less than 0.35%. This was fake news, in part, as annual salaries for most of the engineers and researchers were increased by 4%. But the memes did express the feeling that the high-tech salary carnival has skipped Israel's defense companies. In contrast, according to Central Bureau of Statistics data, average pay in Israel's high-tech sector has risen by 8% in the past year.

Just a few weeks earlier, workers at Intel Israel, located just a few kilometers south of Rafael, received an annual bonus worth three-months' salaries. In recent months, it appears that Rafael, as well as other state-owned defense companies, are fighting to stanch the flow of resigning workers, especially those particularly attractive to the civilian market: software engineers and semiconductor engineers.

The brain drain challenge

"Globes" has learned that dozens of employees - engineers, technicians, programmers, managers in both the software and hardware segments - have recently left Rafael for privately-held companies in Israel's north and central region. Their reasons are, among other things, better salaries and higher status. As with law offices, accountant firms, and advertising agencies, security and defense companies are also being abandoned in favor of the private high-tech sector. Israelis have dubbed the trend, "Silicon Valley Syndrome."

Senior executives close to Rafael maintain that the company recruited 1,000 employees this year, some even from large, in-demand high-tech companies, and that the company's annual employee churn rate did not exceed 5%. In addition to the annual pay rise of 4%, employees are entitled to quarterly or annual bonuses amounting to about 20% of their salary, on average, but this depends on performance.

The situation is similar at Yehud-based Israel Aerospace Industries, which develops satellites, aircraft, and spacecraft, and its Ashdod-based subsidiary Elta, which develops radar, communications, and electronic warfare systems. According to the LinkedIn group for IAI staffers, this year saw a 1-6% decline in the number of workers at state-owned the government-held security and defense companies. The phenomenon signals an alarming trend: security and defense industry know-how and talent leaking from the public sector to the private one.

Raphael, Elta and IAI, and even privatized Elbit Systems, all recorded drops of several percentage points in their workforces. True, many security and defense industries employees are not allowed to have social network profiles, but there is plenty to indicate a negative trend across the sector. Former employees tell "Globes" of state-owned companies locked in archaic government pay frameworks that make it difficult to withstand the ever-increasing competition over Israeli high-tech workers in terms of salaries, organizational culture, work environment, and work-from-home flexibility. "Instead of getting a few percentage points salary increase at Rafael, I upgraded my salary by 25%," says one employee who left recently for a company in the north. Most former Rafael and IAI employees told Globes they had improved their salaries by about 50%.

Another employee says that the departures have caused a brain drain problem. "It will take a long time for the company to replicate the know-how that goes with a departing employee, and quite a bit of money, too. There are areas where, even after a few years, you can't find a replacement for the engineer who left."

The WFH challenge

"Globes" has found that some former Rafael employees have landed positions at high-tech and med-tech companies located in the north: medical device companies General Electric and Philips in Tirat HaCarmel, Intel, Apple, and Amazon in Haifa, Western Digital at the Tefen Industrial Zone, Tower Semiconductor and KLA in Migdal HaEmek. Former public sector staffers have even gone over to competitor Elbit Systems, which, although a defense company, is no longer state-held, and is therefore more flexible in its ability to offer competitive terms.

"Covid-19 opened up new horizons for us," says a former Rafael worker who resides in the north. Before the pandemic, a few Rafael workers had permission to work from home (WFH), thanks to classified computers provided to them. Meanwhile, others might receive WFH permission, but without the use of applications essential to their work, like email.

Today, with a variety of remote work options and the huge increase in demand for skilled technological personnel, these workers are receiving more offers while, at the same time, more options are opening up for job seekers. "You can easily look for work in the central region, live in the north, work from home, and travel to Tel Aviv once or twice a week," says a former Rafael employee.

Despite the limitations on working from home, Rafael claims that the company did lay off or furlough workers during periods of restrictions owing to the coronavirus pandemic. "We even invested in providing benefits to workers during that period," the company states.

The wage gap challenge

The difficulty of matching private sector salaries is a burden for any government company. It is even more difficult for state-held security and defense companies, which must compete for coveted technology workers. Rafael, IAI, and IAI subsidiary Elta, all employ some of the country's best engineers in semiconductor, telecommunications, image processing, algorithm, and software development. Most of this experience is relevant for other high-tech companies.

Government companies, like Rafael, IAI, and Elta, have watched the average high-tech worker salary of grow by an average of 8% to NIS 25,812, as of last October - an increase of about NIS 1,900 on average within a year. Meanwhile, the 4% wage increase at Rafael, and the NIS 1,500 raise over two years promised to IAI and Elta workers, reflect a situation of companies hemmed in by agreements with the government and the unions. It should be noted, however, that Elta pays three-year retention grants at NIS 40,000-50,000 per employee.

"It's an excellent technology school, and interesting for anyone who wants to work in a multidisciplinary environment," said one former Rafael employee. "But eventually, I saw people with kids and mortgages saying 'I can't do this anymore.' People are curious to see what's happening out there, and they're attracted to the enormous growth happening in the sector right now. On the other hand, there are social benefits that you don't always find at every tech company."

The same employee adds that "It's easy for the [public] defense companies to recruit graduates, because they're wonderful places to gain experience, but after a year or two they aren't able to make a real counter-offer, should one of the high-tech companies approach one of their workers and make them a tempting offer."

The response: "We offer challenges and technological diversity"

Rafael stated in response, "The company implemented a 4% salary increase for Rafael engineers, not including a one-time bonus distributed under an agreement. In addition, it should be emphasized that the bonus policy is in accordance with company performance and the employee's performance, as is customary at other enterprises. Rafael operates as a business enterprise that manages employee incentive programs based on performance.

"Rafael funds higher education for hundreds of employees a year, and Rafael also funds doctoral studies in Israel and abroad, equivalent to an investment of NIS 1 million a year, per employee."

IAI stated: "IAI develops and manufactures the most advanced technologies in the world, for the security and protection of the State of Israel. The company's employees enjoy exceptional technological diversity and challenges, and unprecedented experience in developing groundbreaking systems that are unique in the Israeli high-tech industry.

"As government defense companies, we have many constraints. Regarding work from home - many improvements have recently been made to allow remote work, similar to other technology companies, and to facilitate the flexibility of working remotely. We hope to increase this possibility significantly.

"Regarding wages, although we are a government company, compensation mechanisms and incentives have been approved to retain company employees in order to be more competitive. The rate of salary increases in the company is determined by management and in coordination with the workers' union. The rate of salary increases in 2021 was in line with rates in the high-tech industry."

Published by Globes, Israel business news - en.globes.co.il - on January 11, 2022.

© Copyright of Globes Publisher Itonut (1983) Ltd., 2022.

Rafael exhibition stand  credit: Rafael
Rafael exhibition stand credit: Rafael
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