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This is part II of the series where I will examine the problem that had with the “Brain Drain” and how (as a community) has been too cheap and how this has hurt the tech industry in Canada. If you happen to have missed part I of Canada, and more specifically Toronto, belongs at the top– Tech (for me) over the last 20 years; you can still view it here.

I will continue to write one post per week of meaningful length.  I don’t do much in terms of social media (other than some light twitter) as I find it’s detrimental to my personal goals, so this is where you’ll be able to find most of my ramblings going forward.  You may also want to check out my business where I am attempting to throw the real estate community (in Ontario) on its head by applying techniques to the mass amounts of data that I’ve amassed in aggregate from being a broker.

Expect the following topics over the coming weeks as reasons for why the time is only now for Canada:

Part II – Canadian brain drain, Toronto tech is too cheap and the lack of venture capital money (VC) in Canada

If you weren’t around at the turn of the millennium, you may not have noticed this, but Canada lost a lot of its smartest people (at least for a period of time) to the US (and elsewhere). Going back far enough, this was not a tech phenomenon to begin with, it actually started with general Sciences and medicine, but really bled into the tech industry starting in the late 90s during the tech boom that led to the dot com boom, ecommerce, web2.0, Google, Facebook, etc…

State in early 2000s

During the 90s, Canada lost a lot of its best talent to higher paying, lower taxed territories, one such was the United States. There are many reasons why this happened and one of the major ones has to do with Canada having one of the best educated populations in the world.  Further, our higher education facilities are top notch, with Canada consistently placing in the top 5 of countries with the best Universities.

Add to this the quality of life in Canada, free health-care, (often) very liberal governments and it’s hard to wonder why there would have been a mass exodus of talent to the United States. Obviously, some of the major reasons were money and of course, the sheer fact that Canadian policy at the time was not focused on technology, medicine and/or research.  Loose rules in the US regarding their financial markets also led to a mass outflow of managerial level people (most specifically MBAs that left for Wall Street).

This had not yet hit a tipping point for the tech industry at this point, but was about to. In the 90s, the majority of the brain drain was attributable to physicians and researchers, however this opened up the spout for the later emigration of the sector.

Reasons for this loss

In those years, some of the catalysts were related to policy makers and markets, not just the burgeoning dot com era or the really cool companies in the US.

Here is a quick rundown of what those were.

NAFTA

Yes, the North American Free Trade Agreement was indeed wonderful for most, especially for consumerism all around, however it made it extremely easy to move across the border.  This was blatantly obvious to those who were tracking Temporary Workers (Visas of 1-3 years).  The mobility of our most talented workers was huge for the emigration of this class of people during the 90s; another big issue at the time (correlated to NAFTA itself) was the slumping Canadian dollar.

The slumping Canadian dollar

When NAFTA was put into place, many people should have seen it coming that the US would dominate and that Canada, would take a beating.  This was evident in how our three currencies trended at the time. You can see here that we all started buying more from Mexico and Canadian things went out of fashion.

This led to another reason (for Canadians) to move the United States, specifically for temporary workers, who could now leave for 1-5 years and come back much more well off, while being paid in a foreign currency that was consistently stronger than ours.

Tax rates

Another big issue that continues to be a problem, is the taxation rate that most healthy, young to middle age adults would experience in Canada vs the US. As you can below, the tax rate for anyone making more than $45,000 per year (which is much lower than most tech jobs garner in the US) is considerably higher in Canada and results in a several thousand dollars going to programs that you don’t use, believe in or see the benefit from.

Many people will argue here that Canada has universal health care and/or strong social welfare, which is good for the populous, however that just often does not manifest itself into the thoughts that a person in their twenties would have, they’re out to make money; especially due to the alarming debt levels that they’ve amassed over their years in University.

 

 

 

 

 

 

 

 

 

 

 

 

 

Another big problem we face is the growing inequality of our highest paid (usually our most talented) workers, who by working in the US save tens of thousands (and starting at around $330k actually save closer to $100,000) in taxes.

The majority of the incredibly awesome senior talent that has been leaving Canada for the Googles, Facebooks, Apples, Netflixs, Amazons of tech are getting paid at this level and there is nothing we (as companies and/or executives of companies) can do to combat this (outside of paying them 30% higher than they would in the US; which would amount to paying nearly 50% more due to the exchange).

Government looking the other way

Yes, this seems harsh, but at the time of the brain drain, the Canadian government itself adopted a policy of the hurt girlfriend.  Instead of being proactive, people such as our PM at the time instead said things such as:

If anyone wanted lower taxes, said the PM, they should move elsewhere.

As well as some of our brightest leaders of industry (i.e. the head of the Canadian Association of University Teachers) saying that:

Aside from a few selective anecdotes, not only is there no evidence of a brain drain, but differences in tax rates between Canada and the United States are simply not a major factor in explaining emigration flows, … If highly educated professionals move south, it is because they are attracted by better pay and more opportunities.

Though I don’t fully disagree with the amount of opportunities available in the US, I really do think that the overall package (which includes what you are taxed); i.e. your take home pay, is a huge determining factor for expats.

High tech workers leaving

Then finally, in the late 90s we started losing our high tech workers to companies in the US for the plethora of reasons mentioned above.  This has not reversed and, even with the current state of the US government, has not yet reached a reversal of tides.

Toronto is too cheap

On the whole, Toronto employers do pay their employees well.  In many of the indicators that you can find, Toronto places well for their pay rates.  This is not what I mean to speak of, as this is heavily buoyed by the very largest of organisations that employ a large proportion of our population (and are also some of the major reporters to these pay scale reports).

Places like banks, insurance companies, manufacturers, etc… pay their staff well, possibly even on par with our neighbours to the south. The problem lies in what the startup tech community pays its staff and de-incentivizes the best talent we have from actually sticking to startups.

Here you see the average salary of software engineers vs how good they are (how they measure against each other). Notice how Toronto (and Vancouver) have some of the highest quality software engineers and yet we remain near the absolute bottom in terms of pay.  When Oklahoma City (which has horrendous – as per this chart) software talent (and is super cheap to live in) gets paid at least 33% more than Toronto or Vancouver, there’s a HUGE problem!  And we wonder why people have left!!!

Why do the smartest go to the Valley?(and other american cities like Seattle, NY, Boston, Denver…)

This has led to many of my contemporaries and peers moving to way higher paying work in the US, places like San Francisco, Austin, Denver, Seattle, Washington DC.  Here are some of the reasons that helped them get to those places.

Overall compensation package

This is not only related to what they company is willing to pay them as salary, but also their bonuses, stock options, and the taxation rate.  Smaller things also come into play such as relocation allotment and signing bonuses, which further incentivize the people being wooed to leave their current jobs.

Again, this is just a salary overview, so adding in a bonus (let’s pretend it’s a paltry 5%) and stock options (to mostly larger and more successful companies) and you can see how there is a huge discrepancy.

Equity / options in unicorn companies

As mentioned above, the equity and/or options available in early stage startups in the US make it much more attractive for anyone wanting to be in that space.  The alarming problem is that late stage companies do not do a good job, in Canada, of aligning themselves well with their employees by providing these.

Another big issue with the options (or equity) that you will often get in Canada is that it is quite worthless as we do not build unicorn ($1B) companies very often, which is when the options and/or equity start being life changing for anyone other than the founders.  Of course, we also don’t get any of the $10B companies here either, which are the type of companies that change an entire industry in a country (and abroad). Many of our super talented Canadians have figured this out and know the actual value of equity in a Canadian company, so they do not see it as an advantage.

It is actually time that Canadians look for something different than the US does here – equity is just not the answer.

Further, once again the Canadian taxation laws come into play here and start taxing our best and brightest almost immediately (upon vesting) rather than at time of sale. This however is a smaller issue as it relates only to Canadian public companies, not private companies.

Value of overall compensation

With all that said, the actual value of the compensation package you may get in Canada vs what you will get in the US is sub-standard.  Again, this is an example from Twitter rather than a small company but this is the level of superstar, A+ player compensation you can get in the US (that you just don’t see in Canada tech):

The senior vice president of engineering (Christoper Fry) raked in $10.3 million last year, just behind Twitter Chief Executive Dick Costolo’s $11.5 million, according to Twitter’s IPO documents.

In Fry’s case, his compensation came mostly in the form of stock awards, valued last year at $10.1 million, according to Twitter’s IPO documents registered with securities regulators. He drew a salary of $145,513 and a bonus of $100,000.

Oh, and this was 2013!

I have been part of (very large) companies where I know of these sort of payouts, the only Canadian one being Nortel Networks, who was one of the handful of Canadian giants in tech, of course, prior to going bust.

Quality of life in Toronto

Another big argument that I constantly hear about, however usually from people who are not in the tech sector, is that the quality of life is so much better in Toronto (or in Canada in general) than in the US. That is a huge amount of crap to swallow when you’re young, talented and deserving of high remuneration.

It may have gotten to the point where your decision (in the US) is now whether or not to go work in the valley, however you can always pick places like Seattle, Denver, Raleigh, Phoenix, Austin, etc… all places that have wonderful quality of life. Oh, and with the huge difference in salary that you may get there (and taxes in some of those no-tax states) you will definitely live really well.

Add to this the fact that so many of these locations are devoid of bitter winter weather and you have yet more reasons for people to leave.  I myself have seen my share of friends leave for the valley (and other places) for this reason specifically.

In my next post, I will examine an issue I have consistently noticed in the Canadian tech world – “The lack”; of VC money, of visionary technology leaders in Toronto, as well as the Lack of major exits. In the following weeks I will dive into how University of Waterloo and University of Toronto students obsess about the valley and the problems I saw with our best tech companies of the 2000s.  See you here next week, right around the same time. 

Canadian brain drain and Toronto tech is too cheap

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