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Big Bucks Dry Up
Shrinking bonuses sent IT pay down for the first time in a decade.
April 26, 2002
18 Min Read
Paychecks for IT professionals are making another big move. The problem is that for the first time in at least a decade, total compensation is headed down.
After years of pay increases and multiple job offers, IT managers face an 8% decline in total compensation and IT staff a rollback of 11% from 2001, according to InformationWeek Research's 2002 National IT Salary Survey of more than 10,000 IT professionals. That's a painful reversal after last year's gain of 10% for managers and 8.5% for staff, and it sends total pay back to around the 2000 level. Taking inflation into account, IT pros are worse off than they were two years ago.
This is the first decline in the five years InformationWeek Research has tracked this data, and specialists in IT hiring and recruiting say it's the first decline in at least a decade.
However, plenty of people are more concerned about keeping their jobs than pulling in fat raises and bonuses. Jim Maddock, a systems analyst with Boston semiconductor company PRI Automation Inc., has already weathered a base-salary freeze, a 5% pay cut, and a reduction in other benefits, including tuition reimbursement. In May, his company will merge with Brooks Automation Inc., and he worries about joining the ranks of the unemployed when the two IT departments are combined. "If I get bounced out, it could take a year to find another job," he says. As a news junkie, Maddock eyes the Sunday Boston Globe to gauge the economy's health. "You used to get three huge sections of help-wanted ads in the Globe, and a big chunk would be IT jobs," he says. "Now, unless you're into nursing, teaching, or biotech, there's totally nothing. Despite Federal Reserve chairman Alan Greenspan saying the recession is over, if I don't see jobs in the paper, I don't feel that comfortable."
For those with jobs, IT remains a reasonably well-paying profession. Managers earn a median base salary of $83,000 and staffers make $61,000. But IT staffers, with a typical base pay raise of just 1.7% in the past year, are in a dead heat with inflation, which rose 1.5% for the 12 months ended in March, according to the U.S. Department of Labor. Managers do slightly better, with a 3.8% base-salary raise. A year ago, managers and staffers had almost 8% base-pay raises. And the money has really started to dry up for bonuses. Last year, managers got an extra $17,000 in bonuses, compared with $6,000 this year. For staffers, the median bonus went from $11,000 to $2,000. Ouch.
Even the highest-level managers feel a pinch, with base pay and overall compensation packages shrinking from a year ago. VPs with technology-management responsibilities receive the highest total annual compensation, including base salary and other cash payments, at a median of $135,000, but that's down from $145,000 last year. CIOs will receive a median total annual compensation of $119,000 this year, compared with $133,000 last year. One factor that could explain the higher salaries for VPs is that there are more VP-level positions at larger companies, which tend to pay more.
The highest-paid skills today are those relating to Internet security and wireless infrastructure. IT managers in wireless and Web infrastructure, enterprise resource planning, and Web security and design get significantly higher paychecks than the average manager. IT staffers working in Web security, wireless infrastructure, Web infrastructure, and enterprise application integration command the highest base salaries. Web-security staffers earn a base salary almost $20,000 higher than the average staffer.
But focusing too much on median pay alone can be deceiving. Median salaries for managers vary widely. One-quarter of EAI managers earn less than $75,000 and another 25% earn more than $110,000. Likewise, median base salaries for staff members represent a range. The bottom quarter of staffers working in security make less than $65,000; the top one-fourth make more than $89,000. The lowest-paid IT professionals continue to be in help desk or IT support, with median compensation at $39,000.
It's quickly turned into a buyer's market for IT talent. No longer can the marginally skilled bargain for juicy salaries, stock options, and perks. One reason: Internet startups aren't as attractive as they used to be. They still offer more money--about 8%, or $6,000, more in total cash compensation--but they're seen as less-desirable places to work. Last year, 61% of IT staffers were satisfied with jobs at dot-coms; now only 48% are. For IT managers at dot-coms, the shift is just as pronounced--from two-thirds satisfied last year to half this year.
Clearly, the appeal of get-rich-quick stock-option plans has faded, with few IT professionals considering stock options a significant incentive. About 21% of IT staff and 26% of IT managers expect to receive stock options within the next 12 months, and the majority say the options they have are worth nothing today. Among those whose options are worth something, the median value held is $7,000 among IT staff and $16,000 among IT managers. That's a steep drop from two years ago, when the typical staffer with options valued them at $16,000 and managers did so at $35,000.
Yet, money's not the only--or even the biggest--problem facing IT employees these days. Managers and staffers paint a gloomy picture when citing changes in the workplace in the past year: More stress, lower morale, and fewer employees top the list. It's not hard to see how the three feed off one another. PRI Automation fired a PC technician, a network analyst, and an E-mail system administrator in the past 12 months; let go of half its interns; and instituted a hiring freeze, systems analyst Maddock says. Then there's the upcoming buyout by Brooks Automation. "It's hard to maintain motivation, because you don't know if you're going to be one of the ones left standing when the music stops," he says. Nothing short of knowing whether they'll have jobs will put workers at ease, though PRI did deliver a recent morale boost by promising to honor through September its severance package, which offers one week's pay for each year worked at the company, plus three additional weeks of pay. It's more generous than the one offered by Brooks.
Pay cuts aren't the norm in IT. Victor Janulaitis, CEO of IT consulting firm Janco Associates, says its research last showed a decline in 1985. Marc Lewis, a consultant with recruiter Christian and Timbers, says it's the first decline in at least a decade.
So how do managers keep people charged up when there's little money for raises, the bonus pools have run dry, and stock options are underwater? Emphasize noncash factors that can matter as much to employees as salary: challenge, flexibility, and stability.
The tough job market, fallen stock market, and higher unemployment rate have made a full-time job at a quality company a whole lot more appealing. Job stability has ranked among the top three important job attributes for several years, but this year both staff and managers cited it more often than past years. Managers rank stability on par with flexible work schedules, though still behind the perennial No. 1, challenge and responsibility. (Base pay has ranked a consistent fourth.) At FedEx Custom Critical, a subsidiary of FedEx Corp. that handles expedited shipments of items such as art work and antique cars, two consultants who had worked as contractors signed on full time, although it meant a 10% to 15% pay cut.
"If you want the security of coming in-house, you can, but you won't get paid like a consultant," CIO Chris O'Neil says. In tough economic times, he says, consultants tend "to re-evaluate the glamour and benefits of being a consultant and look at the risk that's there."
Rick Schonehals, IT director of the National Football League's Denver Broncos, isn't surprised that virtually no IT workers say stress is declining. Yet he says morale among his staff is good because of the challenging nature of the job. "Our stress goes up exponentially every year," he says. "We seem to take on more projects and bring in more technology, and we're responsible for more operational things," such as running an identification security system at Invesco Field at Mile High, the Broncos' new home stadium in Denver. New technology is a motivator for some IT people--about one-fourth cite working with new technologies among the most important job factors. Working for the Broncos offers staffers a lot of that. This month, the IT staff provided technical support to the coaches during the NFL college draft with a custom scouting system that was developed in-house and provides detailed data about each draft prospect. But the preparation, plus the fact that the draft took place on a weekend, added to IT staffers' workloads--and that translated into longer hours and less downtime. "It takes its toll because periods of time that used to be your downtime are now consumed with this new project or responsibility," Schonehals says.
He sees the long hours and pressure as part of the price for having a challenging job. "I wish there were more hours in the day, or we didn't have to work as much, but we all have interesting jobs that everyone likes, and we don't have a lot of turnover, so I think everyone is happy for the most part," Schonehals says. That's not unusual: A slight majority of IT managers and workers surveyed say they're satisfied or very satisfied with their jobs, and about a fourth are neutral.
The Broncos organization has doubled its IT staff to six since the team moved into its new stadium last season. The team hasn't cut IT salaries, but it has slowed annual raises to about half what they were two years ago. Schonehals points to retention as proof of good morale: In the past five years, only one person has left the growing department.
As IS director at Campbell Health System, Byrum focuses on giving his staffers more responsibility and letting them direct their work, in lieu of stock options and profit sharing.
Gary Byrum knows what it's like to have to motivate co-workers without rich benefits such as stock options or profit-sharing. As director of IS at the nonprofit Campbell Health System in Weatherford, Texas, Byrum has learned to leverage what he has to work with: slow-but-steady salary increases, the option of flexible hours, and a general sense within the hospital and the community that what he and his staff do is important. Despite the tighter job market, Byrum faces competition from nearby Dallas and Fort Worth hospitals that have bigger budgets and can complete projects more quickly. So he tries to give his employees more responsibility, letting them join projects early in the process and direct their own work. While they don't go home at the end of a 12-hour day feeling quite like they've saved lives, Byrum and his colleagues know they helped the doctors and nurses who did. "Personal gratification is the only perk," Byrum says.
Flexibility is also vital to satisfaction, cited by 54% of staffers and 45% of managers as one of the job factors that matters most. Atefeh Riazi, CIO and senior partner with New York advertising agency Ogilvy & Mather Worldwide, where bonuses for IT employees fell by 20% to 30%, sees this change in attitude as driven by the younger generation of IT workers. They expect a good salary, but they also put a premium on living where they want to and don't see the need to work from the office all the time. That's forced the agency to be more flexible about where its employees work. "Our head of security works out of Boston. He comes to New York one week and works out of Boston another," Riazi says. "Physical proximity isn't as important as it used to be."
Other companies prefer to limit such flexibility. Nielsen Media Research, a subsidiary of business-information and market-research company VNU, gives just over one quarter of its 400 IT employees company-paid broadband connections at home. But that's mostly for work done after hours or on weekends, because CIO Kim Ross prefers that staffers work from Nielsen's offices. "Telecommuting doesn't work well from a team communications standpoint, although we can do it," he says.
One point of consolation amid the shrinking paychecks and declining head counts is that benefits and hours worked have stayed fairly constant. While glamourous perks such as free dog-walking services and office massages have all but disappeared, only a few companies plan to cut training in the coming 12 months. More than half will pay for training, and about a third will reimburse tuition, a drop of just a few percentage points from a year ago. Even company-paid health-club memberships are holding firm at around 11%.
What's more, it doesn't appear that reduced staff size has translated into longer hours for most of the remaining crew. Staffers put in 45 hours a week, and managers log 50, but on-call hours dropped 16% for staffers to 20 hours per week. Managers are still on call 24 hours a week. Unfortunately, not everyone is keeping the workweek manageable: Slightly more than a quarter of managers and staffers say longer work hours are among the biggest changes this year.
The vast majority of companies offer health benefits and 401(k) matches. Still, the survey doesn't measure changes in the generosity of health benefits, the cost of which rose 12% to 15%, according to a March report by employment consulting firm William and Mercer. Some employees have had to swallow the increased costs even as their paychecks shrank. BMC Software Inc. employees didn't, because the company absorbed the increased insurance fees, but Todd Reeves, director of global compensation and benefits, describes the decision as an "expensive proposition." And BMC employees did absorb an increase in co-payments.
Suppose your employer isn't delivering the challenge, flexibility, or salary you deserve, or you're asked to work too many hours. Maybe it's time to test the job market. More than four in 10 workers say they're looking for new jobs, though only 7% are actively searching. The No. 1 reason for wanting a change remains the same as in past years: more money, cited by 70% of staffers and 85% of managers.
But is it possible to get more cash in these penny-pinching times? There's still competition for the best employees, the kind who combine hot technical skills with an understanding of business. The University of Pennsylvania's Wharton School of Business pays six-figure salaries to two of its six database administrators because of their experience and knowledge. "It's hard to find good analysts who will consider a database's performance from the outset of a project," says CIO Gerry McCartney. Leave it to a business school to have a good understanding of market value--the top 25% of database analysts and developers earn more than $107,000.
Geography remains a consideration when it comes to landing a bigger paycheck. But the issue has become a bit more complex, as some large employers cut the premiums they pay for living and working in pricey markets. Managers still earn the most in San Francisco and New York, though for staffers, Chicago jumps into the No. 2 slot. (To check salaries in your city by job function, visit informationweek.com/advisor.) But it's not clear if those salary adjustments will grow as quickly as they have in the past. A few months ago, Microsoft decided to trim the 25% pay premium it gives 1,600 of its employees in Silicon Valley to 15%, starting in August. BMC Software's Reeves says the rest of the industry keeps an eye on what an employer such as Microsoft does. While he considered the 25% differential high even for Silicon Valley, BMC will continue paying New York and San Francisco workers a 12% premium over the national average salaries it pays to its other employees. "We can't afford to pay our employees lower than the national average," Reeves says, "because Microsoft could then hire our employees away from us."
Job-hopping doesn't necessarily pay off, though. Perhaps because laid-off people have had trouble finding jobs, many IT managers in their jobs less than a year make less than they did the year before, including a 3.3% drop in median base pay for job-changing managers, compared with a 3.8% increase for non-job-changers. Compare that with 2001, when job-changing managers were rewarded with a median 15.4% raise and non-job-changers got an 11.1% hike.
Of course, the motivation for switching jobs can be complicated, and some people accept a pay cut for personal reasons. Quinton Crenshaw, a project manager with hiring responsibilities at Advanced Financial Solutions Inc., left a larger company in Arkansas to join the financial-software company in October because it's in Oklahoma City. "My wife and I decided it was important to get back to Oklahoma, where our roots are," Crenshaw says. He took a base-pay cut when he moved to the smaller company, but he says bonuses make up a bigger part of his compensation and could bring him close to what he made at his old job at Teksystems Inc., an IT and communications staffing firm. Still, the biggest reason he prefers his new job is that it's easier for him to get away--for one weekend a month, and two weeks a year. "I'm in the Marine Corps reserves, and I need a job that gives me the flexibility to serve my country," he says.
How long employers will stay in the driver's seat is a point of considerable debate. When Schonehals of the Broncos was looking for someone skilled in Windows 2000 and SQL Server last year, he had three times the number of applicants he saw for a similar opening two years ago; many also had Microsoft Certified Systems Engineer status. Applicants generally asked for less money than in years past. "Finding skilled people was pretty easy," he says.
But Brian Moore, Bank One Corp.'s VP of executive recruiting, isn't sure that will last. Bank One, in Chicago, late last year kicked off an effort to hire 800 IT employees, particularly senior-level IT executives with banking knowledge, as part of initiatives that include upgrading and consolidating its banking Web sites. A lot of factors contribute to making it easier to recruit, Moore says: the dot-com downturn, the Enron collapse, the Sept. 11 attacks, and the intertwined social and economic factors that have people looking for more stability. Plus, there are fewer high-paying consulting opportunities. But Moore noticed about a month ago that other companies are beginning to hire selectively as well, and he predicts the talent market will tighten soon. Lewis, with executive search firm Christian and Timbers, predicts that CIO salaries will remain flat this year, see single-digit increases next year, and could hit double-digit growth in 2004, thanks to pent-up demand.
But 2004 seems a long way off. In the meantime, IT workers recognize that the days of hopping from job to job, demanding rich signing bonuses and lavish perks, are gone, at least for now. So they're just looking for the right mix of challenge and stability, with the chance to share a reasonable slice of the rewards when the good times roll again.
-- with Eileen Colkin and Larry Greenemeier
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