IT Salaries Come Back To Earth

Information technology salaries aren't what they used to be. While IT professionals continue to command compensation that's the envy of other industries, the overall compensation has shrunk from the lofty levels of the late '90s. IT talent has counted on hefty pay packages with stock options, performance bonuses, and even signing bonus. But the salaries and extras are coming back to earth, and few job applicants are complaining.

"We avoided the train wreck but still hit the economy," says Bill Coleman, VP of compensation at Salary.com, a Web-based provider of recruitment and compensation tools. "The startup failures put the brakes on pretty hard in terms of supply and demand of IT professionals."

Premiums and signing bonuses are disappearing, and pay structures are stabilizing, says Katherine Spencer Lee, the executive director of IT recruitment firm RHI Consulting. "We're seeing a return to normal, whereas the past three or four years have definitely not been normal."

The average IT salary this year is expected to increase by only 0.1% from 2001, a sharp contrast to the 8.4% increase that RHI forecast for 2001, according to its recently published 2002 Salary Guide. Base compensation for high-demand positions, such as network security experts, database administrators, and disaster-recovery specialists, is expected to rise from 2% to nearly 7%.

"As vendors are encouraged to do business online, as companies become more concerned with secure data networks, those people with top skills sets will continue to command the most pricey salaries," Lee says.

Changing priorities have an effect on pay demands. RHI asked more than 1,650 U.S. and Canadian CIOs to name the top benefit, excluding salary, health insurance, and other traditional benefits, that would most appeal to IT professionals considering a job offer. Nearly 40% say company stability is the most important factor, followed by work-life balance (21%) and the challenge or prestige of a position (21%). Stock options come in a distant fourth at 13%.

Negotiating compensation with perspective hires isn't as intense as it used to be, says Jacquelyn Wolf, director of IS and services at General Motors Corp. "We've started to see that people are realizing that stability is critical," she says. "People are willing to give up some compensation demands for that stability."

Some job applicants are willing to take a 15% to 20% lower salary to work at a solid and stable firm, says Rocky Parker, human-resources officer at Nationwide Information Systems, the IT organization of Nationwide Insurance. Stability is attractive and helps keep IT turnover down, he says.

Base-pay increases are expected to be lower this year than in years past. The aggressive, double-digit salary increases that were prevalent resulted from low unemployment and high demand for a limited number of qualified technology professionals. With unemployment high and severe cutbacks in IT hiring, salary increases will remain low this year, far from the 6% to 8%, and even double-digit increases, of past years.

"Companies are reversing the trend of the late '90s of a separate pay scale for IT people," he says. "Now we're seeing them getting folded back into the mainstream."

Stock options have lost their allure. Originally designed as a long-term retention tool for managers and executives, they became part of the get-rich-quick mentality of the Internet economy. Now the predominant attitude is, "I don't want to miss out, but I'd rather have the cash," Salary .com's Coleman says.

Despite gloomy forecasts, IT professionals still should negotiate when it comes to compensation, says Diane Gherson, a compensation analyst at management consulting firm Towers Perrin. Know the company's market position so you'll understand its financial health, as well as your market worth. "Set up an incentive plan based on your personal performance, not the company's or the division," she says.

Coleman says, "Don't forget to bring up severance if it's appropriate. It's very important these days."

This is a temporary glitch in the constant trend of demand for IT professionals outstripping supply, says Diane Tunick Morello, Gartner research director and VP. The situation will change because businesses' reliance on IT can only increase. Says Morello, "If you're investing in certain technologies, you must be vigilant about attracting and retaining top-caliber" people.