When the skills gap creates a pay gap

You want to hire a hot-shot programmer or systems analyst, but given today’s information technology skills gap you know you’re going to have to pay dearly. And that may touch off morale problems among IT professionals who’ve toiled under you for years.

“It’s a very sensitive issue, one that organizations deal with by not talking about,” said Jeremy Seligman, CIO and vice-president at Frontier Corp., a telecommunications company in Rochester, N.Y.

But observers say it is worth discussing. Seligman attributes many pay-inequity problems to the tight IT labour market. “A year ago, people said [the labour shortage] was a Y2K problem. It’s not — the world is becoming an IT kind of place,” he said.

IT managers say they’re looking for candidates whose skills include experience in e-commerce, data warehousing and Unix system administration. The following are six tips for keeping staff morale up while paying the big bucks to fill those crucial positions:

1) Use bonuses. Ebby Khazaeli, senior vice-president and CIO at Trustmark Insurance Co. in Lake Forest, Ill., uses sign-up and retention bonuses. He offers bonuses to new hires, usually about 20 per cent of the first year’s salary, payable over three years.

At the end of each of the first three years, employees get one-third of that bonus. Unpaid bonus money earns 12 per cent interest per year, and employees who leave early forfeit any unpaid portion of their bonuses. The bonuses help attract and retain new workers while keeping base salaries for all employees level, Khazaeli said.

2) Communicate. An IT manager should identify those people he or she doesn’t want to lose and address salary issues directly with them, suggests Thomas Ferratt, associate dean and professor of management information systems at the University of Dayton in Dayton, Ohio. Adjust those workers’ salaries when research studies suggest their pay hasn’t kept up with the market, and develop career paths for them, he said.

Ferratt said he’s seen employees who changed their minds and stayed with a company after an IT manager explained what was foreseen for them in the future.

3) Create value beyond compensation. Yes, money counts — but there’s more to a job. To avoid having to adjust salaries every time there’s a pay spike in the market, “try to build a package that makes people feel like they’re treated fairly,” Seligman said. That can include offering training and tools, defined career paths, stimulating work challenges — and even “making the workplace fun,” he said.

Khazaeli said he allows flexible work hours, which are particularly valued by employees with long commutes in the traffic-clogged Chicago area.

Dianne King, director of IT at hair care and cosmetics distributor Sebastian International Inc. in Woodland Hills, Calif., said she’s been able to maintain good working conditions by not requiring her people to be on-call 24 hours per day or work weekends.

4) Know the market. Bill Haser, CIO and vice-president of IT for the Americas at Lake Forest, Ill.-based Tenneco Automotive, a division of Tenneco Inc., subscribes to market researchers’ salary surveys to keep in touch with the going rates. “If we have people not at the market rate, we adjust their pay,” he said.

Haser warns that if you pay new people more than the current ones, the existing workers will eventually find out — and you’ll lose them. Also vital is knowing current market wages. He said he used to do just an annual salary review but now “constantly” reviews salaries.

5) Be proactive and anticipate. If Bill McConnell anticipates that the pay of a new hire will be an issue with a particular existing employee, he’ll talk directly to that person.

“We try to figure out who [it] will be an issue with, and talk to that person one on one,” said McConnell, CIO at Guidant Corp., a medical devices manufacturer in Indianapolis. To put the current worker at ease, McConnell said he’ll describe the circumstances surrounding a new hire, the department’s philosophy and the situation in the marketplace. “We spend a great deal of energy trying to anticipate how [existing employees] might feel,” he said.

6) Understand your goals. Inequities in pay are justified when they’re the result of well-thought-out strategies. Ferratt’s model ties the IT department’s salary levels to the department’s goals. If you want to keep IT employees for several years, he said, your salary levels might not need to be as close to the market as they would with shorter-term employees.

Instead, provide longer-term employees with valued perks such as career development and training in leadership and business issues. If you’re trying to keep IT people on board for an intermediate length of time (three to seven years) your pay scale needs to be closer to the market’s, Ferratt said.

Training for intermediate-length employees should be more technically oriented, Ferratt said. If you have an immediate need, you might hire consultants or independent contractors and expect to keep them for only a short time. Those IT professionals receive few, if any, perks but draw the highest pay, he said.

Although an IT department has different salary levels in that scenario, they’re justified by the department’s goals, Ferratt said.

Horowitz is a freelance writer in Salt Lake City.