More For The Money

As the list of fizzled start-ups grows, so does the pool of talented IT professionals in need of a new gig. But even in the midst of an economic downturn, corporations are still aggressively pursuing business objectives that have an emphasis on technology. And as a result, IT salaries are gaining a little ground this year.

Still, gone are exorbitant bonus plans. Say goodbye to wide-scale sign-on and retention bonuses, rapid hiring sprees and mushrooming baseline compensation. Instead, salary increases have been moderate this year – just less than 6 per cent and bonuses have been restricted to key members of the IT team.

Don’t scoff too quickly. That 6 per cent is still much higher than the raise received by the average American worker, who typically can expect a 4 per cent wage increase each year. What accounts for the boost? A number of executives say they plan to do the hiring this year that would have busted their IT budgets last year.

Established Firm Seeks Senior…

Take, for example, Duke Energy Field Services LP. The US$9 billion natural gas gathering company has been rapidly expanding its pipelines and gas wells, says Fred Kesinger, Duke’s CIO of field services, and IT plays an integral part in managing that infrastructure. Consequently, Kesinger has quadrupled his IT staff this year, a task that was painfully difficult last year.

Duke faced a major recruiting and retention problem a year ago, which delayed the Denver-based company’s efforts to rebuild its IT department.

“We were seeing a lot of requests in the US$100,000 range what we considered an unreasonable range,” Kesinger recalls. “That impacted our ability to capture the best people, particularly in the Web development area. College interns were turning down competitive rates, with no experience, and presumably got jobs elsewhere for US$20,000 more.”

Rather than bringing in new full-time employees, Kesinger says, Duke relied on outsourcing its IT support.

“We continued to look at the situation and we had very serious discussions about bending to the market and paying those rates, and we elected not to do that because it would not be in synch with the rest of the [corporate] pay scale,” he says.

With IT compensation no longer out of kilter, turnover rates are dropping, and companies that were running low on staff, such as Duke Energy Field Services, Gambro AB and Remy Corp., are now replenishing their departments.

All three firms with offices in or near Denver paid database managers US$90,000 to US$100,000 in baseline compensation to oversee database design, programming and maintenance, for example. Compensation increased approximately 6 per cent over last year for that position at those companies, while bonuses either disappeared or accounted for about 9 per cent of salaries this year.

And as firms beef up their staffs, IT executives expect that new hires will stick around longer instead of pursuing fatter paycheques elsewhere.

The IT turnover rate at Gambro, a US$2.4 billion health care company, is the lowest in five years, says Joseph Fenn, manager of IT services, operations and infrastructure at the Stockholm-based company.

“Anyone could leave any job at any time and make US$15,000 more a year ago,” says Fenn. “There is still the opportunity for the best IT people to move, but not everyone. Only the top-rated people are finding work in this economy.”

In contrast, most IT workers are looking to stay put this year. “There were way too many people making way too much money way too easily,” says Andrew Albarelle, principal executive officer at Remy, a consulting firm in Denver. Albarelle says his employees were paid twice as much in salary just 12 months ago. On average, those salaried employees are making US$120,000 this year, which has allowed Remy to hire 52 additional consultants.

And while top-rated workers may still find a steady paycheque and bonus this year, others aren’t so fortunate.

To keep pace with the cash-laden and stock-option-wielding start-ups of years past, many corporations offered handsome bonus packages and nonmonetary incentives to retain their star employees. But this year, those perks are gone.

In the midst of the dot-com boom, Gambro’s Lakewood, Colo.-based blood component division instituted a novel variable compensation program aimed at retaining valuable employees. Under the terms of that incentive program, employees could still earn their typical salaries and regularly scheduled annual bonuses of approximately 10 per cent of base pay. In addition to that, however, employees could also earn what amounted to vested stock options.

Gambro devised the plan because it couldn’t offer U.S. workers shares of its own stock. Gambro paid out the variable bonuses, which Fenn says were sizable, into a stock-index fund for those employees. Yet, like the stock-option plans at many start-ups, Gambro’s variable bonuses paid out only after 36 months.

“It was a combination bonus and saving plan,” Fenn explains. “If they left the company during the time frame, then it wasn’t paid out.”

But apparently the de facto stock-option plan overstayed its welcome. After three years, Gambro closed the program last year.

Still, Fenn says he believes the program helped to ease management’s fears that its best performers would leave Gambro to purse stock-option packages at dot-com start-ups. “It was a very good program,” Fenn says, but he doesn’t expect a similar plan to take its place. “The market is not moving the way it was before, so employees are not moving,” he says.

Other firms have also shelved or modified bonus plans.

“We’re not giving out bonuses,” reports Bharat Singh, director of business development at San Jose-based Consultants Inc. “Bonuses were given to reward employees for jobs well done or for personal recognition, but our clients are clamping down on us for costs. We don’t have the spare cash to give people bonuses.”

IT managers at many companies are touting nonmonetary perks instead of cash bonuses and stock options.

“We did pay a few sign-on bonuses last year, but nothing too excessive,” says Dave Reddish, network operations manager at the University of Massachusetts Boston. “Now, we’re less likely to pay sign-on bonuses. With the downturn in the market, people are prepared to take more secure jobs, even with slightly less salary.”

Instead, the University of Massachusetts medical school is emphasizing other assets, such as quality benefits, moderate bonuses of 5 per cent per year and job security.

“The one downside for the university is that it’s not the most prestigious place to work. It’s not a sexy, creative company,” says Reddish.

But the educational institution offers six weeks of paid vacation per year and tuition waivers to employees and their children. Each IT staffer can get a bonus of 5 per cent of his annual pay at Christmas time, which UMass matches six months later as a salary increase.

But while IT managers aren’t doling out bonuses like candy on Halloween, they’re still offering treats to their top staffers.

“It’s the distribution of bonuses that has changed,” says David Foote, managing partner at Foote Partners LLC in New Canaan, Conn. “Companies are still paying more bonuses to established players, but they’re taking them away from junior people.”

Duke’s Kesinger concurs. “We’ve done some selective retention bonuses, but they were key resources that we could not replace,” he says.

Workers with specialized skills in areas such as security technology or an archaic development language that’s integral to a corporation’s IT resources will continue to receive handsome bonuses during the current economic downturn, Foote adds.

Another outcome of the economic downturn is an increased emphasis on probationary periods for new hires. A number of IT managers, particularly among consulting firms, told Computerworld (U.S.) that they got caught up in the hiring frenzy during the dot-com boom and got burned. now asks potential employees for a few days of free consulting services – something the company didn’t do last year. It’s a blatant attempt to ensure that potential employees possess the technical and people skills for success, says Singh.

Singh says ambitious but unseasoned IT recruits won’t get the same range of opportunities this year. Two years ago, “consultants with little experience could mature way ahead of time,” he says. “Junior to midlevel people were commanding salaries of US$90,000 and up. Now they’re getting US$50,000 to US$70,000, and only senior-level people are getting US$70,000 and up.”

IT managers aren’t lamenting the loss of the dot-com hiring frenzy.

“Just because we have everybody’s money, doesn’t mean that we’re quick to give it away,” says Monte James, assistant vice-president of network services at Bank of Oklahoma NA in Tulsa, Okla. In general, budgets are tighter, according to James, and as a consequence, the bank is now a lot more selective about its IT projects and new hires.

“We need to justify to management what we’re doing,” says James. “It was less difficult to get sign-off last year.”

“This is how it should have been,” says Remy’s Albarelle. “Demand was so high, but the supply was low, so you had to lower the bar. Now we’re only looking at candidates that have 11 of the 10 things that we’re looking for.”

Both Albarelle and Singh say compensation for consultants has dropped by as much as 50 per cent over last year. Instead of renting staff for lengthy projects, Remy’s clients are now looking for permanent placements. “It’s a good opportunity for consultants to get off-road and find a permanent home,” says Albarelle.

Prodigals Return

Even IT executives who watched their turnover rates soar during the dot-com boom say it’s their practice not to burn bridges.

“We had a couple of people that left to work at dot-coms,” says Kesinger. “But both came back after six months, asking for their old jobs back. Not everything was as they had been told, and there were some overexpectations. Then there were layoffs.”

James says that just because a former employee looked for a better compensation package and career opportunities elsewhere, that doesn’t necessarily reflect poorly on that individual.

“I always tell them to stay in touch,” says James. “If there were performance issues, we wouldn’t take them back. But if it’s a star performer, we’ll definitely take them back.”