Talent Raid

The booming high-tech economy and the speculative stock market have led to massive migration of skilled workers from old-line firms to Internet startups in search of overnight wealth promised by generous stock options.

The recent high-tech has created a shortage for talented workers. Companies have been spending huge amount of money and resources to recruit and retain their most valuable asset — their employees. When e-commerce came into the picture, entrepreneurs fell in love with the excitement and opportunities it promised. Big corporations quickly found themselves losing their top executives as well as technical workers to the Internet start-ups.

Even Microsoft, the software giant, had a turnover rate of 7.4% in 1999 which is half the industry average of 15%. However, the problem is not how many jumped ship but which ones. These people either held senior level management positions like director or vice- president or were the key players in software development. Microsoft tried to convince them to stay by offering higher salary and bonuses, but it is just not enough. Although dot-com start-ups offer low salary, their generous stock options1 promise instant wealth and are way more attractive. Peter Neupert, former vice-president in the Internet group, now is the CEO of Drugstore.com; Hadi Partovi, group-program manager for Internet Explorer, left to become the vice-president of Tellme Networks Inc. (Business Week, 11/29/1999). At the same time, Walt Disney had the same problem. Mr. Winebaum, the chairman of Disney's Buena Vista Internet Group, quit to pursue his own Internet start-up—eCompanies.com. Disney lost a lot of low-level techies as well (WSJ, 6/9/1999). Many business school students, typically M.B.A.s, even dropped out of school to join the race for Internet gold (WSJ, 7/18/2000).

The bust of the Internet stock market has slowed down this gold rush this year. Many dot-coms failed and disappeared for various reasons such as insufficient funding or the business plan just did not work. Many stock options have become worthless as the value of Internet stocks dropped below their strike prices. As a result, the techies are migrating from Internet start-ups to not-com major companies because their online pot of gold never materialized (WSJ, 8/1/2000). Recent M.B.A. graduates are once again targeting their goals at working for management consulting firms and investment banks that offer at least a stable income. Citigroup Inc. hired almost 50% more M.B.A.s this year than last year (WSJ, 7/18/2000). Also, business schools are expecting those dot-com dropouts to return and complete their degrees.

The reverse migration of dot-coms to not-coms is good news for old-line companies. However, the battle for hiring talented employees will still be intense as long as the economy is booming. From leasing BMW Z3 as a signing bonus to offering private jet for a family vacation, there is nothing companies will not do to lure brainpower. Professionals are hopping from one job to another and always searching for a better opportunity. A survey provided by McKinsey & Company shows that 50 percent of recent grads will have left their first employer within two years, and 80 percent will have left within five (Business2.com, 10/10/2000). The survey also found that 62% of these 5,000 surveyed IT professionals are passively looking for new jobs while 8% are actively seeking new jobs (Business2.com, 10/10/2000).

Note:
  1. Stock options confer to employees the right (not an obligation) to buy a certain number of shares in a company at a fixed price pegged to the trading price at the time of the grant (i.e., the grant price or strike price). Employees are willing to accept less than competitive salaries if they expect their options' appreciation will more than offset the lower salaries.
  2. Stock options confer to employees the right (not an obligation) to buy a certain number of shares in a company at a fixed price pegged to the trading price at the time of the grant (i.e., the grant price or strike price). Employees are willing to accept less than competitive salaries if they expect their options' appreciation will more than offset the lower salaries.
References:
  • Hamilton, J. "The Panic Over Hiring." Business Week, 4/3/2000.
  • Lublin, J. "Dot-Com to Not-Com: AutoNation Executive Has Tips for Return Trip." WSJ, 8/1/2000.
  • Moeller, M. & Murphy, V. "Outta Here at Microsoft." Business Week, 11/29/1999.
  • Orwall, B. & Swisher, K. "Of Mouse and Men: As Web Riches Beckon, Disney Ranks Become A Poacher's Paradise." WSJ, 06/09/1999.
  • Seaberg, J. "Talent Crunch." Business2.com, 10/10/2000.
  • Silverman, E. "New M.B.A. Goals: Investment Banking, Consulting." WSJ, 7/18/2000.

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