InformationWeek

Sign-On Bonuses Lure Top IT Talent

Incentive packages are helping companies acquire the expertise they need

By Marianne Kolbasuk McGee
Issue date: May 12, 1997

The quest to attract CIOs and other top-n otch IT talent with hot technology and business skills is fueling an increasingly popular compensation perk: sign-on bonuses.

"There is enormous demand for experienced IT professionals, and the sign-on is an incentive to make a career move," says Mitch Habib, who is leaving his post as director of global maintenance systems at Ryder System Inc. in mid-May to become the first CIO at GE Engines Servicing in Cincinnati. Part of his deal: a "very generous" sign-on bonus that includes cash and stock.

Sign-on bonuses typically are cash or stock paid in a lump sum or pro-rated over the first year of employment, exclusive of salary. They first surfaced in IT several years ago as a way for companies to entice big-name, big-company CIOs into switching employers. Today, the frequency with which the perk is offered is growing-as are the size of the bonuses and the range of job candidates to whom they are offered. Employers also are making increasingly creative offers.

These days, it's not uncommon for CIOs' sign-on bonuses to hit $75,000. Some executive recruiters say the price is as high as $200,000 for big-name CIOs. One recently hired CIO at a large national restaurant chain received nearly $500,000 in cash and stock, according to a headhunter who asked not to be identified.

At Ryder, Habib used sign-ons as a way to attract key talent to the transportation company. "We paid high hourly rates for many contracted consultants," he says. "We were often successful in getting many of those talented consultants to convert to full-time Ryder employees by offering them cash sign-on bonuses equal to 25% or 30% of their annual salaries," he says. This arrangement, Habib adds, was cost-effective because Ryder pays $125 to $150 an hour to contract the work.

Executives and top-notch consultants weren't the only ones receiving sign-on bonuses at Ryder. "We'd also offer $3,000 to $5,000 sign-on packages to programmers," Habib says. Sometimes, he says, the sign-on was more original: an agreement to spend up to $5,0 00 a year in training for the employee, extra vacation time, or a home computer for the employee's personal use. "Since IT people tend to bring work home anyway, that works out for both sides," Habib says.

Sign-on bonuses are an indicator of how valuable IT skills are, recruiters say. Kurt Wilkinson, president of Wilkinson SoftSearch Inc., a Tysons Corner, Va., IT job recruitment company, likens the negotiation of sign-ons and compensation packages for IT people to big-time sports contracts, in which huge signing bonuses are common. "CIOs and other people with hot skills are becoming technical athletes," Wilkinson says. "There are bidding wars going on." Among the most sought-after tech skills are C++, Java, the Web, and SAP and Oracle applications.

Paying The Price
Part of the sign-on trend is linked to the immense competition to find people with key technical skills, as well as to hire CIOs with successful track records for implementing technology strategies that benefitted their busines ses. "If you have specific management or technical skills that a company needs, and it comes down to cash being the incentive for you to make the move, most companies will pay it," says Wilkinson.

Jeff Leon, a recruiter at executive-placement firm Russell Reynolds Associates in New York, says sign-on bonuses were used two or three years ago as a way to get CIOs from major companies to move from one industry to another. Now, the bonuses are becoming more frequent, even for recruiting same-industry professionals. "The CIO market is quite hot right now," Leon says. "There is intense competition for top technology people in all industries."

This competition has been felt at Halbrecht Lieberman Associates, an IT executive recruitment firm in Stamford, Conn. "I don't think there's one deal that I've put together over the last year that didn't involve a sign-on bonus," says company president Beverly Lieberman. "While you'll still see mostly Fortune 500 companies providing sign-ons, smaller companies are also jumping on the bandwagon. Companies are becoming more desperate to pry CIOs out of good companies to come work for them."

While employers are less than anxious to publicly disclose that they offer sign-on bonuses for fear that all job candidates will demand them, many major companies admit that the bonuses are a competitive necessity. "We haven't had a history of giving sign-on bonuses to our employees," says the human-resources specialist at a major conglomerate assigned to recruit IT talent. "But for IT people, they are increasingly becoming a standard in our package. If you don't offer them, you're at a tremendous disadvantage. Everyone is going after the same small pool of qualified, quality IT people."

Another reason sign-ons are becoming standard is more practical. "It's compensation for perks a person will leave behind at a current employer if they make the move," says Paul Daversa, president of Resources Management, an executive recruitment firm in Stamford, Conn. These perks include year-end cash bonuses and vesting.

Sign-on bonuses also help HR departments attract desirable candidates, while leaving existing salary scales intact. Since sign-ons are most frequently offered as one-time payments, they don't disturb salary scales. "This is one way for HR departments to keep salaries from running rampant," says Daversa. "Sign-ons are a write-off from a budget, rather than part of the regular payroll."

Does everyone deserve a sign-on bonus? Not necessarily, Daversa says. "This marketplace is filled with strong egos, and from a search perspective, the situation has to be handled very tactfully," he says. "Candidates hear about other CIOs getting sign-ons, and say, 'Where's mine?' And from the company's perspective, they want to know why they're paying a sign-on."

For most companies, that's become a no-brainer, says GE's Habib. "Companies recognize that IT is the competitive driver that will help achieve business objectives," he says. "But to meet those goals, you have to have talented people."

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