If you want to understand the biggest problem in Canadian tech right now, ask someone who jumped from a Canadian company to an American one how their life has changed.
You’ll probably get one of two answers. One of them is about money. A Toronto-based engineer who spoke to The Globe and Mail recently described getting a 20-per-cent raise when the startup they worked for was acquired by an American company.
“I was the same smart – or stupid – person I was when I was working for a Canadian company,” the engineer said. (The Globe is not identifying many tech-sector workers who spoke for this story who requested their identities remain confidential so as not to hurt future job prospects.)
The other answer is more existential. Canada doesn’t seem to know how to support its own talent. That same engineer remembers politicians bragging about the low cost of Canadian labour as governments rolled out the red carpet for Amazon.com Inc. a few years ago, hoping it would establish a second headquarters in a city such as Toronto or Calgary in a widely publicized competition across North America.
“Are you the greatest thing since sliced bread, or are you cheap outsourcing for America?” the engineer asks. It’s a worthwhile question, given the number of U.S. giants that have already set up engineering outposts here, including Amazon.com Inc. AMZN-Q, Twitter Inc. TWTR-N, and Alphabet Inc.’s Google GOOGL-Q.
The problem gets worse. American corporate hegemony has a lot to do with America’s market size, but that size also generates lots of genuinely world-changing ideas. By contrast, many of the biggest TSX-traded tech companies care more about mergers and acquisitions than innovation, sell boring business-to-business software, or both. Even among Canada’s more innovative mid-sized companies and startups, few are trying to build the next great platform.
Platforms are exciting – a chance to work on the cutting edge of how everyday people experience the digital world. But Canadian companies, numerous engineers and developers say, are very rarely so exciting. “People who graduate from [the University of] Waterloo don’t want to write insurance software,” said the engineer.
One Toronto-area undergrad who just completed a $10,000-a-month internship in Canada with a Big Tech company puts this feeling more succinctly. His country, he said, is filled with boring “boomer tech companies.”
The COVID-19 pandemic’s shift to remote work has made it a lot easier for people such as the engineer and the undergrad to work for American companies. Increasingly, many of them are doing just that.
Nearly every Canadian tech executive is sweating this change. Talent was already hard to come by before 2020. Now its scarcity is driving salaries up by as much as 30 per cent a year for some companies, executives say, as they battle for Canada’s best engineers, scientists, developers and designers.
That’s great for workers, but it also leaves the sector facing a crisis. It’s had near-miraculous growth recently. Tech firms lured $14.7-billion in venture capital investment last year – passing the inflation-adjusted record set in the dot-com boom for the first time. The size of the ecosystem has expanded vastly: There were 752 deals last year, the Canadian Venture Capital and Private Equity Association (CVCA) said, compared with 361 in 2013, when the group began regularly tallying such data.
All that money comes with an expectation to perform. But it’s hard to perform when your talent is constantly getting poached by both domestic and global companies willing to pay them more. Many Canadian tech executives are scrambling to keep their best staff and hire replacements for people who’ve already left – let alone hire more to sustain their momentum.
If domestic firms can’t attract enough skilled employees, it will be difficult to pull off ambitious growth plans. And since labour is usually one of a company’s biggest costs, skyrocketing compensation will pinch bottom lines everywhere if revenues don’t keep up with lofty growth expectations.
“If we stay on this trajectory, we’re in trouble, because the only way you can sustain this increase in wages is if you become more competitive in terms of the output you create,” said Viet Vu, senior economist at Toronto’s Brookfield Institute for Innovation and Entrepreneurship, who studies the intersection of tech and labour.
Cory Janssen, co-chief executive of the mid-sized Edmonton-based artificial intelligence firm AltaML, puts his struggle plainly. “Can we compete with Big Tech? I don’t think it’s fair to say that we’d ever be able to get up to the numbers they’re throwing around,” he said. “So we’re doing everything we can in terms of flexibility and benefits, and the type of projects we’re working on.”
He and his fellow executives have a lot of convincing to do.
For an industry worried about a worker shortage, tech companies have never employed so many people. The number of Canadians working in professional occupations in natural and applied sciences – put another way, many of the country’s STEM (science, technology, engineering and math) jobs – has jumped by nearly 200,000, or 19 per cent, since the pandemic started, hardly affected by widespread COVID-19 layoffs.
More specifically, jobs are up 22 per cent (close to 60,000) in computer systems design, which includes everything from web developers to video game designers. Positions in scientific research and development are up 19 per cent, and in data processing, they’re up 32 per cent.
Employment in the rest of the economy is growing, too – but at nowhere near the same pace.
The numbers suggest that Canada’s labour market has experienced a sizable realignment – one that’s driven more people into white-collar jobs, and away from close-contact service industries that, in many respects, are still reeling from two years of rolling lockdowns.
“Tech clearly stands out as one of the leading sectors in the recovery from the pandemic downturn,” said Brendon Bernard, senior economist at Indeed Canada, a job-search site.
As of mid-February, tech job postings on Indeed had more than doubled from prepandemic levels. The sharpest growth (153 per cent) was for high-wage jobs with annual salaries above $81,000. Those figures point to “a challenging hiring environment for employers trying to fill those roles,” Mr. Bernard said.
For workers with the right skills, the amount of choice in today’s Canadian tech-job market is astonishing.
In just the past two weeks, Walmart Inc. announced it would open a Toronto tech hub, with plans to hire 45 software developers, technical program managers and product managers. Meanwhile, Pinterest Inc. revealed that Toronto is its biggest international engineering outpost. The image-sharing site will have 125 employees there by the end of 2022. Even though the company is still working out the future of in-person work in Toronto, all of these employees are required to live in Ontario.
With a few exceptions, the biggest being e-commerce platform Shopify Inc. SHOP-T, Canadian companies don’t carry as much global cultural cachet as a giant such as Pinterest would. Canadian providers’ products are often innovative, but behind the scenes.
The aforementioned undergrad said that when his peers look at Canadian companies, they tend to zero in on those with big-name U.S. co-signs, such as Y Combinator, the large and influential Mountain View, Calif., startup accelerator. Otherwise, for those workers taking a long-term view, many Canadian companies can pose a “risk” on a résumé.
For years, this kind of attitude has resulted in what concerned executives and pundits called a brain drain of Canadian talent to Silicon Valley. But now those brains don’t even have to get on a plane.
One Canadian employee of Facebook owner Meta Platforms Inc. FB-Q said working on products being used around the world is “an exciting proposition.” In his first stint with Facebook, he was based out of its Menlo Park, Calif., headquarters, where he was surrounded by fellow Canadians who saw the same opportunity he did.
Now he works remotely from Toronto, and his team members are as far-flung as Atlanta, Seattle and London. He is, however, paid less than his colleagues in San Francisco. Meta CEO Mark Zuckerberg has embraced telework, but insisted that compensation is curbed in lower-cost areas.
Still, those wages are competitive, the Toronto employee said. Although the city’s house prices and rents are steep, they aren’t as stratospheric as those in the Bay Area and Silicon Valley. Meta looks at local salaries for a particular role and pays at the top percentile, he explained.
This is putting enormous pressure on Canadian companies to catch up. “Because the war for talent is so real, you’ve got people jumping ship left and right to take another $5,000 to $10,000 – or we’ve seen $40,000 or $60,000 [raises] per year to go to the company next door,” said Travis O’Rourke, the president of recruiting firm Hays Canada, which often works with technology companies.
Those anecdotes bear out in the data, to an extent. Canadian companies recruited around 8,000 software engineers and more than 12,000 computer programmers in the fourth quarter of 2021 – both substantial increases from two years ago, according to Statistics Canada figures. For computer programmers, the average hourly wage being offered was $40.35, a two-year increase of 15 per cent. For software engineers, those offers jumped 18 per cent to $47.30 an hour.
And those figures don’t account for the hiring bonuses, performance-based compensation and stock options the industry frequently uses to attract or retain highly-skilled employees – and which are adding to prohibitive labour costs for tech firms. And the longer this situation persists, the more pressure there’ll be to keep boosting compensation.
Jean Le Bouthillier, CEO of the Quebec and Waterloo, Ont., cybersecurity company Qohash, said he’s raised salaries by 30 per cent. “That’s probably going to keep going,” he said. “If you have colleagues who work for a U.S.-based company who make a higher salary, word gets around.”
One of the top complaints in Canadian tech used to be that it was impossible to find seasoned executives who knew how to scale up specialty teams, such as in sales and marketing, to help companies navigate the tough changes needed to grow into bigger, more mature organizations. That concern, CVCA CEO Kim Furlong said, “has diminished with that fact that Canadian companies can hire in the U.S. or anywhere in the world, and find a way to bring this person on their team in some sort of remote fashion.”
The problem has now reversed: Every digital company around the globe can now hire anywhere it wants for any position. So, a new worldwide problem has emerged. “Planet Earth has not made enough engineers to deal with rapid digitalization,” Shopify CEO Tobi Lutke told analysts on a conference call last month.
On the call, Mr. Lutke revealed his company more than doubled its R&D hiring rate last year over 2020. He insisted Shopify is one of the world’s best-paying, too, and the company said the company’s stock-based compensation and payroll expenses would double to US$800-million this year.
Compensation aggregator Levels.fyi suggests that a front-end web developer for Shopify in Toronto can make as much as US$206,000 a year in base pay, stock and bonuses – roughly in the realm of some Toronto jobs at Amazon.
Even so, some Shopify employees have been quietly frustrated with compensation in recent months, according to complaints on the app Blind, a forum for tech-sector workers that verifies users’ employers, but lets the workers post anonymously.
Now that Shopify’s stock price has collapsed by more than half from its November, 2021, to $846.65 last week, amid a broad tech sell-off, many of the 215,893 stock options the company granted, at an average exercise price of $1,380.21, are underwater and currently of little value.
At Edmonton development shop Punchcard Systems, managing partner Sam Jenkins is looking at a 20-per-cent pay boost across the company. “That scares the crap out of me,” he said, “If our largest expense is increasing by 20 per cent, I’m struggling to figure out how to pass that down. How do we ask our customers to pay 20 per cent more?”
Executives across the country are doing the same, openly discussing raises of between 10 per cent and 30 per cent – in some cases, mulling boosts of 75 per cent. “There’s almost no ceiling,” said Anette Ceraficki, director of people at the Calgary employee-recognition platform Kudos Inc, and a co-chair of Tech West Collective, a group of executives trying to lure workers to local companies.
There’s another way to buy yourself out of a crisis. Toronto’s Daylight Automation, which helps businesses digitally automate form-filling and data collection, had tried everything from matchmaking services and recruiters, to hosting networking events, in order to hire software developers and other technical staff who would be a cultural fit.
Of course, Daylight has raised salaries. “We have to deal with the realities of the market,” said co-founder Art Harrison. But it also came up with another solution: It bought one of its best clients. The company scooped up Whitehorse’s Proof Data Technology in January in an “acqui-hire” that instantly grew its engineering team by seven people who already knew how its software worked. “It meant we could fill these roles – to get the great candidates in, and know they can make an impact on day one,” Mr. Harrison said.
Cory Janssen normally spends his days selling his vision for harnessing artificial intelligence to make life easier for customers and partners such as Suncor Energy Inc. and Alberta Heath Services. Lately, though, Mr. Janssen finds himself spending more time scouring LinkedIn. To deal with the talent crunch, the co-CEO of 125-employee AltaML has got deeply involved in recruitment, even showing up in job interviews to make a personal pitch. “I feel like I’m the closer,” Mr. Janssen said.
Tech executives say they also try to appeal to candidates’ sense of corporate purpose to persuade people to join them. Some clients of Alberta’s AltaML are in the health sector, which Mr. Janssen emphasizes during recruitment to lure employees seeking meaning in their work. “I think you need to tell a story about who you are,” he said.
If there’s one story Canadians know well, it’s the never-ending tale of scorching house prices and rents. One recent Globe and Mail analysis found that a person needs a salary of $95,000 a year to comfortably cover rent and utilities in a one-bedroom apartment in Vancouver, and $90,000 in Toronto. This doesn’t just prevent the majority of society from living comfortably – it’s also a cutoff for people in some of the most lucrative jobs in some of the country’s fastest-growing industries.
One person who was born and raised in Vancouver told The Globe they decided to take a job with a Big Tech platform in New York partly because of the city’s draw, but also because they’d be able to save for a Vancouver home faster there.
Pay in New York is a “significant multiple” of what B.C. companies would offer, the person said. In other words, in order to buy a house in the Canadian city they want to call home, they had to leave it: “If this is my internal calculus, this is certainly happening at scale.”
It very well may be. The Toronto-area undergraduate who called homegrown firms “boomer tech companies” is planning to leave as soon as he graduates and make a beeline for the United States. Relocating for work “sucks so much,” he said – and he loves his hometown – but it’s hard choose time with friends and family when Silicon Valley or Seattle companies wave “this big paycheque in your face.”
Staying home can be “hard to justify” for these workers, said Mike Moffatt, who researches Ontario migration trends as an assistant professor at Western University’s Ivey Business School and a senior director at the Smart Prosperity Institute.
“It used to be that you could stay in Toronto, and yeah, you wouldn’t make as much as you would in Silicon Valley, but you could conceivably afford a house. … That’s largely gone now.” The remote-work era, he said, exacerbates a trend playing out within Canada. As Torontonians buy up real estate in nearby centres such as Hamilton, Kitchener and Brantford, and continue to earn Toronto wages, they displace locals who earn less.
There are other unique Canadian roadblocks to consider as well. The cybersecurity company Qohash is technically now fully remote, but its Quebec headquarters could leave the company subject to the province’s new ambitious Bill 96 language law, which is expected to require many businesses to conduct communications largely in French.
Mr. Le Bouthillier, its CEO, said despite his company’s pay bumps, he’s struggling to find specialized talent – including experts in development, security and operations – and the language law may make the hunt even harder.
It should be said that not everyone in Canada’s sector believes the future of talent retention is a gloomy one. CVCA’s Ms. Furlong believes “people will find creative solutions to find the right people to build your teams.” Ben Bergen, president of the Council of Canadian Innovators, believes enhanced training programs and immigration of skilled workers will be “paramount to the future of the country’s economy and its prosperity.”
There are a variety of ways the government could support the sector in ways that could offset salary costs while boosting R&D, said the Brookfield Institute’s Mr. Vu. Ottawa could revamp procurement rules to better focus on Canadian companies; move forward with the advanced research agency the Liberals promised in the last federal election campaign; and revamp federal tax credits to better focus on R&D.
The sector could get some imminent relief through immigration, which slowed during the pandemic. The federal Liberals have ramped up their targets for immigration intake over three years, aiming to admit more than 1.3 million permanent residents by the end of 2024. Ottawa has explicitly said its plan is designed to fill labour shortages in a range of industries.
Tech companies are certainly drawing interest. In January, nearly 19 per cent of clicks on Canadian tech job postings on Indeed were made by job seekers abroad, compared with 16.3 per cent two years ago. But minting new Canadians also means adding more pressure to the housing market. Without a significant uptick in new builds, soaring housing costs might make the country less attractive to job seekers.
But for all the structural problems throwing talent retention into disarray, the sector is offering some structural solutions, too. Universities could focus more on partnering with Canadian companies to build out a talent pipeline, said Mr. Bergen, whose Council of Canadian Innovators lobbies on behalf of 140 of Canada’s highest-profile tech companies.
Many schools already have direct pipelines into American companies, after all. He brings up the University of Toronto’s deep connection to Google, thanks to its acquisition of professor and AI pioneer Geoffrey Hinton’s business DNNresearch Inc. nearly a decade ago.
“How can you help direct that amazing talent towards building companies here, building wealth here, building opportunity here?” Mr. Bergen asked.
Some businesses are taking training into their own hands. In late 2020, Mr. Janssen’s AltaML launched paid internships with some of its corporate partners, including Suncor and ATB Financial, to train people with technical experience in AI to apply it in real corporate settings. If people don’t have the right applied skillsets – which can be hard to find in burgeoning fields such as machine learning – AltaML decided to help those people get the skills themselves.
Eighty-six per cent of its first cohort found work in Calgary after finishing the internship program. Leave it to an Alberta company to build a pipeline. “You can’t just sit there and hire people with five years in machine-learning experience,” Mr. Janssen said. “They don’t exist.”
Other organizations are intervening even earlier. “We know this is a long-term problem,” said Tech West Collective’s Kelly Thompson. “So we’re reaching all the way down to school-aged kids … and hopefully we can get them more excited about STEM.”
None of this, however, will quickly solve the sector’s most pressing problem. “Talent is probably the thing that I stress most about,” Punchcard’s Mr. Jenkins said. “This is a great time to be a software developer, because you have so much choice.”
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