Battle for stars makes Silicon a happy valley

Christmas came early this year at Mountain View, the sunny "campus" in Palo Alto, California, that is Google's global headquarters. On Wednesday, the firm's CEO, Eric Schmidt, emailed all of his 23,300 employees with a piece of happy news: they'd each be getting a 10 per cent pay rise in the New Year, along with a seasonal bonus of $1,000.

"We believe we have the best employees in the world. Period. The brightest, most capable group of this size ever assembled," he declared. "It's why I'm excited to come to work every day - and I'm sure you feel the same way. We want to make sure that you feel rewarded for your hard work."

If Heineken made bosses, they'd probably come in the shape of Schmidt, a captain of industry who knows exactly what makes his workforce tick. That sort of cash will, after all, buy an awful lot of trendy T-shirts and Apple gadgets for the bright young things at the heart of every Silicon Valley success story.

It will not change lives, however. And therein lies the problem with Schmidt's extravagant gesture. As a sop to stem a trickle of talent which has been leaving the firm that Does No Evil for smaller rivals such as Facebook and Twitter, or edgy new start-ups, it looked like a sign of weakness.

In America's tech capital, cold hard cash isn't usually thrown around by companies wanting to keep top staff. Instead, they tout free meals and yoga lessons. If money must be a carrot, then it usually comes via stock options.

Lately though, Silicon Valley has become the setting for an arms race every bit as vulgar as that fought among the pin-striped elite of Wall Street. A flood of new start-ups, combined with the expansion of bigger firms has sparked a war for talented employees. And with demand trumping supply, Google is increasingly seen as part of the dusty establishment.

"The market is frothing and new companies are being created faster than the people who can develop them," says Paul Daversa, whose eponymous firm is one of the tech industry's top headhunting outfits. "It's a firestorm out there, and talented people looking for creativity and innovation and technical advancement seem to believe that instead of Google, they must go to a cool start-up. It's a problem for them."

Despite the grim wider US economy, job listings in Silicon Valley are up 69 per cent from last year. Seed funding has increased by a factor of ten, reflecting the fact that - in contrast to the tech-bubble of the late 1990s - most internet firms have now worked out how to extract revenue from the medium.

You can see the results of this boom in Palo Alto's buoyant property market. Twitter just signed a lease for 200,000 square feet of new office space. Zynga, the social gaming giant, just added 270,000 more. Google is recruiting 200 new employees each month. Facebook hopes to double its 2,000-strong payroll by 2013.

The hot commodity is software engineers. Tales of excess abound. Graduates with a decent computer science degree from MiT or Berkeley, the Oxbridge of US engineering schools, can expect to earn $120,000 in their first year after graduation.

After that, the sky's the limit. Techcrunch, the Silicon Valley news site, this week reported that a staff engineer at Google was given $3.5m in company shares to ignore an overture from Facebook's HR department. One of his more junior colleagues, on a salary of $150,000, was offered a 15 per cent rise and a $500,000 bonus to remain... but still decided to jump ship.

The incidents come during a wider landgrab by Facebook, which is aggressively courting Google's top talent. At least 200 of Mark Zuckerberg's employees came from the search engine, including Bret Taylor, who is now his CTO and Lars Rasmussen, co-founder of Google Maps who rubbed salt into the wound of his departure by telling reporters: "The energy [at Facebook] is just amazing, whereas it can be very challenging to be working in a company the size of Google."

Matthew Papakipos, the engineer in charge of Google Chrome, joined Facebook in the summer, along with Android boss Erick Tseng, and sales chief David Fischer. In an audacious move, Facebook even managed to poach Josef Desimone, its rival firm's executive chef. Mark Zuckerberg was persuaded to pursue him after falling in love with his hot dogs.

Just one poor soul is not sharing in this gold rush. He, or she, is the unfortunate staffer who leaked Eric Schmidt's memo this week to Business Insider and Fortune magazine. A day later, Google announced, curtly, that the employee in question had been terminated. These may be happy days in Silicon Valley, but they don't want to rub our faces in it.

- INDEPENDENT