How do the compensation expectations of software and hardware engineers differ in Defense and Space?
Software and hardware engineers are approaching compensation differently in 2026. Software engineers expect greater movement beyond their current base pay, while hardware engineers remain more closely aligned with existing compensation structures. Employers therefore need distinct strategies for attracting and negotiating with each group.
Why is the compensation divide between software and hardware engineers growing?
Our recent 2026 U.S. Annual Defense & Space Report states that “50% [of software engineers] expected total compensation of $170k to $190k,” compared to “50% [of hardware engineers] expecting $150k to $170k.”
This disparity requires tailored hiring strategies, which demand more research and negotiation to meet sector-specific expectations.
Furthermore, the report notes that “43% [of software engineers] still see a material gap between current base and expected total compensation”.
This widespread dissatisfaction suggests that employers are still failing to keep pace with the demands of the current market.
Companies that misunderstand software engineers’ evolving expectations risk under-offering experienced candidates and weakening their senior-level recruitment.
On the other hand, the report observed that “73% [of hardware engineers] report expectations that are flat or near flat relative to current pay”.
This difference between software engineers’ desires and hardware engineers’ pragmatism implies that employers’ hiring processes require drastically different approaches, which may not always be immediately apparent.
Which organizations are feeling the impact most?
Companies hiring senior engineers are feeling the most impact from the growing demands for expected total compensation due to the market leverage experienced engineers have.
Software engineers primarily seeking high total compensation packages may pose a major problem for companies hiring senior engineers with 7 to 15 years of experience. This is because experienced engineers have more room to be selective with applying for roles. Considering how competitive the market is for senior engineers, this may lead to costly project pauses for companies that actively require the employment of someone with seniority in the field.
In comparison, defense and space companies may face fewer challenges in hiring more experienced talent because they primarily seek hardware engineers.
This could create a larger difference in the impact of expected total compensation between organizations, given that, as stated in the report, hardware engineers “appear anchored to existing compensation structures”. However, companies cannot assume the same approach will work for software engineers, who are pushing for higher total compensation.
Why does understanding the difference in expectations matter for employers in Defense & Space?
The change in expected total compensation has a drastic impact on leaders concerned about project delays, skills gaps, and missed program milestones.
This is because they are most likely to headhunt engineers who have the most years of experience. For companies approaching top-tier talent in the software engineering sector, rising expectations for total compensation may have a significant impact, especially as the hiring process for experienced software engineers is taking longer, which could directly affect the efficiency of organizations trying to meet certain milestones and deadlines.
Furthermore, because of current pay gaps in the market, unless a company can offer the expected salary and benefits for software engineers, or the stability hardware engineers value, leaders seeking to reduce skill gaps within the company may misunderstand the trends and conclude that “every unfilled engineering vacancy increases delivery risk.”
Moreover, it’s crucial to understand that job opportunities may be limitless for many senior engineers across sectors, which implies that every company requiring their level of expertise may need to be willing to meet the growing demands of total compensation.
How are forward-thinking organizations adapting their hiring strategies
To bridge these gaps, forward-thinking organizations are completely transforming their playbooks. They are adopting tailored compensation benchmarking to avoid under-offering, accelerating their interview processes to lock down top-tier talent before competitors do, and leveraging actionable market intelligence to understand shifting candidate expectations.
Ultimately, companies that fail to adapt their strategies and treat software and hardware hiring the same will continue to face costly project delays and rising delivery risks.
As the report notes, “the clearance premium may become a retention risk instead of a differentiator.” If defense and space companies fail to value seniority appropriately, particularly for software talent, they may struggle to secure the expertise they need.
When top-tier engineers have limitless options, they naturally gravitate toward organizations that recognize their experience through competitive base salaries, robust total compensation, and improved benefits. Rigid companies risk leaving costly project gaps.
In addition, organizations that recognize these distinct preferences when hiring will find it much easier to secure in-demand talent. As the report highlights, “60% of software engineers prefer a remote-first approach, with none preferring a fully on-site” setup.
In stark contrast, “35% of hardware engineers prefer on-site work, and only 6% prefer remote-first”. Ultimately, these statistics show that software and hardware engineers seek entirely different working environments, necessitating recruitment strategies tailored to each sector’s needs.
As part of a wider leading engineering business with more than 20 years of experience and over 120 engineers across the group, Luneus understands the language, challenges, and motivations of the people companies need to hire.
That insight gives us a deeper view of what software and hardware engineers value, where compensation expectations are shifting, and how employers can adapt with confidence.
By combining this engineering expertise with talent intelligence, compensation benchmarking, and specialist defense and space recruitment knowledge, Luneus helps organizations build hiring strategies that speak to engineers and secure critical talent before competitors do.
If you are struggling to find engineering talent or want to better understand what motivates candidates in your region and industry, speak to one of our consultants.
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Download the full report for a comprehensive view of compensation expectations, candidate motivations, and hiring trends across the U.S. Defense and Space market.
