"We were doing very important things, but I felt that I needed added value," says A., who until a year ago worked at autonomous driving systems company Mobileye. "An opportunity came up for an interesting and challenging position at Rafael, that was almost parallel technologically, and I decided to go for it even though I understood there would be a cut in salary and conditions. Also, I felt I’d have the privilege to contribute to the country, and that spoke to me. A month after I started, the war broke out, and I felt it was a sign. We’re dealing with the most advanced technology there is. There are few civil societies that encounter the problems that we deal with daily."
A's enthusiasm also affected his former team members, and in recent months, four have followed him to Rafael. "We all feel that we’ve taken an amazing step, personally and patriotically."
N., a mechanical engineer by trade, says the war made her leave a lucrative medical-tech job to join a defense company. "October 7th caught me in the middle of maternity leave. I have a security-minded family, they all serve the country in one way or another, and I always knew that I would like to work in the sector, someday. When the war broke out, I couldn’t wait any longer."
For the past seven months, N. has been working as an electro-mechanical development engineer at Elbit Systems (TASE: ELST; Nasdaq: ELST), in the land systems division and at subsidiary IMI Systems. "It sounds cliché but there’s a crazy sense of mission. We all feel we’re contributing to the country. The fact that we have both economic security and job security, and that the defense market in Israel is a very, very strong sector, compared to other countries, is a bonus."
T. (29) is an electrical engineer who is currently working on his doctorate. Just before the war he gave up on moving to the US. "I worked at a biotech startup for three years, but when the company relocated in September 2023, I decided to finish up my job, and complete my master's degree. Two weeks later the war broke out and I was drafted into the reserves. When I finished the first tour of duty, I started looking for work in the private tech sector, and a friend who works at the ELTA division of Israel Aerospace Industries (IAI) offered me a job. I discovered that the things most interesting to me professionally, which I also deal with in my PhD, I can do in the aerospace industry.
"I’m about to leave today for a third round [of reserve duty] in Gaza," he says, "I’ve been in Gaza each time, and I’ve used IAI developments that have truly helped me, personally. If I can contribute from my knowledge and develop things that can protect people, and help us win the war, it gives meaning to my coming to work every morning."
One goes up, one goes down
The war may have been a catalyst, but there have been other forces at work in the form of two and a half years of tech crisis which, to a large extent, has not yet ended. In the meantime, it appears that growth in the tech sector has returned to pre-Covid bubble levels, similar to the 2018-2019 market growth rate. According to an October report by research institute RISE Israel (formerly SNPI), excluding large rounds, total fundraising for Israeli startups has hit a three-year low and the number of companies raising funds has gradually decreased. This means that fewer companies are being founded in Israel, and most Israeli tech funding is for the big unicorns. In May 2022, Israeli tech companies with weak economic models began laying-off workers, and some shut down.
Since then, many have since revisited the defense sector, which offers stable job opportunities and independence from investor whims. The outbreak of the war not only brought about a change in sentiment but also led to tech investment fleeing Israel, accelerating the trend.
Breaking records
These employees burst into an open door as, at the same time, the defense industries' need for labor has been increasing. Due to the ongoing wars in Ukraine and Israel, and the fact that many systems have now proven themselves on the battlefield, Israel’s defense industry is enjoying a big volume of orders from Israel and abroad.
IAI is Israel’s the largest defense industry company, which develops and manufactures defense and military systems, aerospace systems and electronic products. In the current war, its flagship products are the Arrow missile systems that intercepted ballistic missiles fired from Yemen and Iran. In the second quarter of this year, this government company's revenue grew 13% to $1.4 billion, compared with the corresponding quarter last year, with a record $22 billion backlog of orders. At the end of 2023, the company had 14,000 employees.
Elbit Systems, the largest defense company traded on the TASE, had a $21 billion orders backlog at the end of the second quarter of 2024 and quarterly revenue reached $1.6 billion, up 12% from the corresponding quarter last year. Elbit develops and manufactures combat systems in electronics, electro-optics, artillery, aviation, lasers, etc. Controlled by the Federmann family, Elbit has 20,000 employees worldwide including 13,000 in Israel. Among other things, the company produces the Hermes 900 Star and 450 UAVs. Elbit recently received a $200 million order from the Ministry of Defense to supply the Iron Beam laser interception system, now under development.
Completing the trio of major Israeli defense companies is government-owned Rafael Advanced Defense Systems, which develops and manufactures leading systems, including the Iron Dome air defense system, ASPRO armored shield protection, David's Sling medium range anti-missile system, and many others. Rafael ended the second quarter of 2024 with NIS 3.9 billion 35% revenue, up 35% from the corresponding quarter of last year. Orders backlog peaked at NIS 59 billion. Rafael has 10,000 employees and over the past year 1,500 new employees have been hired.
Reserve buddy referrals wanted
"The defense industry is more in demand than ever," says Nir Reiss, IAI EVP HR chief. "Over the last year, we’ve seen a significant rise in interest, by dozens of percentage points, and a 30-40% rise in people sending us CVs. That's tens of thousands, meaning it’s also easier for us to hire." Since the war began, IAI has launched several recruitment campaigns, including one asking for reserve buddy referrals. "We had a lot of people in the reserves, and it was clear to us that many reservists would come back, and it would be important for them to find a job that allowed them to continue the contribution and meaningfulness they had while serving. The response to this campaign was crazy."
What’s driving this wave?
" We’ve heard from quite a few candidates that what motivates them to work specifically in the aerospace industry, and not at a tech company that could offer double the salary, is its meaningfulness, their desire to contribute to the country, and their understanding that it also means working at the top-end of technology. I don't know of anything more interesting technologically and or significant than being part of the company that develops systems like the Arrow."
Rafael EVP HR Sagit Sela, says something similar. "People are seeking purpose, interest, and the opportunity to work at the top of technology. Being involved with Iron Beam or any of our projects, and the rate of our development, means being at the pinnacle of technology."
Do today's job applicants have a unique character, compared to the ones from before the war?
"There are a lot of proactive inquiries even if we haven't advertised a specific position, and when we advertise a specific position, we have a flood of inquiries. There are also many of our people who left and decided with the outbreak of the war to come back. It started directly on October 7. Another notable thing is that almost 60% of new hires come through friends. Reservists using our systems met Rafael employee reservists who tweaked our products right on the battlefield, and said, 'I want to join Rafael, too.'"
The defense industries also have needs. "Objectively, the defense industries are now experiencing an increased orders backlog, which have doubled during the war, so there is obviously a growing need for employees," says Sela. Rafael has already hired 1,500 employees this year. "By the end of the year, we’ll reach about 2,000. These numbers represent an increase that is insane. The war created an urgent need to hire for a variety of industrial positions, in production and especially in technology."
Narrowing the wage and benefits gap
N. from Elbit had assumed the transition from a private med-tech company to a public defense industry would mean both lower salary and less benefits, but says she was pleasantly surprised. "Besides the fact that my personal ideology has been fulfilled, I was also very surprised by terms that are very similar to the tech market. Conditions are also very favorable for mothers, and the salary is in line with the market, and even a little higher than what I was offered at other companies in the current period."
A. from Rafael says, "The pay and conditions are both excellent, with no substantial damage compared to what I was earning in high-tech. But the sense of satisfaction in what we do, the pride when you see these operating in the field, and their clear impact on our country’s security that’s immediately proven on the battlefield - there’s no substitute for that, and it can’t be measured in money."
Is it possible to compete with tech salaries and conditions
IAI’s Reiss says, "The total package we offer is fair and competitive, but we haven’t changed our remuneration terms, because of the war, and we still can’t compete with some of the tech market benefits because, after all, we are a government company."
Sela added that even though Rafael is a government company, the conditions for technology workers are competitive with those of the private sector. "The recruitment data speaks for itself. We are a government company, but also a growing and leading business enterprise, so it’s important for us to reward based on performance. We can’t offer options because we are a government company, but the salary is fair and competitive, and we have bonuses and compensation models based on performance."
Israel’s tech sector recorded a jump in salaries between 2020 and 2023, but slowed down this year. Between July and August this year, the average monthly tech salary fell 4.2% to NIS 30,190. The number of salaried jobs fell 0.6% compared with July. The rate of exits and IPOs also fell, meaning many public company employees remained "out of the money," - unable to profit from their options in the foreseeable future, while new employees became disillusioned with the dream of billion-dollar exits, as it has become apparent that the options component in their remuneration pie is small. According to a study conducted by IBI Capital Group and published in "Globes," the number of options allocated to employees fell 12.6% in the first half of 2024 from the corresponding period in 2023.
Engineers’ emotional bonds
"The defense industry lives on cycles," says Col. (ret.) Yiftach Kleinman , EVP Commercial Affairs at Tel Aviv-based Spear UAV, a drone solutions company, and until a year ago, Deputy General Manager of Rafael's land and sea division. He recalls ups and downs, with the industry going through highs in the wake of military activity, in Israel and the world, when budgetary constraints are loosened, followed by downturns.
But Kleinman says, in the current situation, "The global trends are not the ones having an effect. When the war broke out, it generated some trends in defense industry hiring that were very much related to the emotional connection of engineers to the issues these industries handle. Many of these newcomers arrived following reserve duty, after they met engineers from the defense industry. There were cases where, in a casual conversation, our one of our employees in the reserves was asked, ‘What do you do’? And he replied that he developed an app for loitering munitions, and the other guy said, 'I developed a shopping app,' and suddenly felt uncomfortable because he wanted to do something meaningful."
Kleinman says, however, there is a caveat. "To qualify: we haven’t seen very highly-salaried people making a move. People don’t leave a job like that. They also have limits on what concessions they could make, certainly due to the war situation, and while the economy is weak. They aren’t saying, 'Dammit all, I’ve come to save the country.'"
Beyond that, he adds, "There’s also a difference between hardware engineers and software engineers. We see that transitions are a bit easier for hardware engineers, and the difference in pay is less significant. Hardware engineers also see the result of what they do immediately, and there is an emotional element here.
"The software arena is more complex because tech salary levels are higher by a large margin, and it’s often harder to explain what your code does and its result in the field."
What will happen the day after the war? Will there be a decline in the defense industries again?
"I believe that some defense industry cycles will slow down to an extent. It very much depends on whether defense will be a topic of conversation, and how groundbreaking and significant Israeli tech will be. If the wage gaps are substantial, it will be harder for us to retain this human capital after the war."
Message to the CEO: "Hire me"
The trend has not bypassed smaller private defense companies. Daniel Eshchar is Orbit Communication Systems CEO, which provides airborne communications and satellite-tracking maritime and ground-station solutions for the civilian and military markets in Israel and worldwide. He says, "Until a few years ago, there was fierce competition in the tech sector over high-quality workforce, meaning there were instances where we had great candidates but we couldn't pay the salary they wanted. Now, when tech is bearing the brunt of the whole story about decline in investments, we feel the employment market has opened up for us significantly."
B. worked as a developer at a well-known tech company. While in the reserves, he used a system the IDF calls OLAR/AMUD (also ORION), a smartphone-like device for planning, tactical mission management and navigation which is widely used by forces in the field. B decided he wanted to take part in developing these systems, so he simply sent a LinkedIn message to Asio Technologies CEO. "He wrote to me that he worked with our system in the reserves, that he has a lot to contribute to us, and he would be happy to join us. We hired him and today he is a developer of the OLAR system he used," says Asio CEO David Harel, who adds, "Since the outbreak of the war, sales have more than doubled, and staff has almost doubled.
"Before the war, we had about 25 employees. Today we have reached 44 employees, and we’re continuing to hire for a variety of positions. Our system has been deployed in the IDF for years, but it received a very big boost with the Iron Swords war. Today, it is the most common system in the IDF, after the personal defense weapon. As more reservists are exposed to it, we receive more applications from job-seekers."
Is tech ‘out’ and security and defense ‘in’?
"The defense market has become significantly more attractive to workers who, in the past, might have preferred high-tech companies with higher salaries and conditions. Today they have additional considerations. But it's not that high-tech is out of the picture. It's true that in the last year, the number of high-tech hires decreased a little, the number of investments decreased, and it's no secret that quite a few good people who were at high-tech companies have been fired and are looking for new places of work. But apparently, there will always be competition over good quality staff."
Published by Globes, Israel business news - en.globes.co.il - on November 25, 2024.
© Copyright of Globes Publisher Itonut (1983) Ltd., 2024.