With IT spend increasing, higher staff turnover and rising salaries are following along. Lindsay Nicolle looks at the overt and hidden costs of staff churn and recruitment, and how best to keep the staff you value on-side
When it comes to recruiting and retaining staff, IT directors have enjoyed something of a buyers' market in recent times. But now all that is changing, as IT spend continues to increase, generating job vacancies in skills across the board. Inevitably, IT staff are starting to get itchy feet.
The re-awakening of the IT employment market is reflected in the findings of the SSL/Computer Weekly salary survey and by reports coming from leading IT recruitment agencies. The upturn in IT spend nationwide has been accompanied by the highest average pay rises seen in the IT profession since the Y2K boom in 1999 - equivalent to 4% for permanent staff, and 5.6% for contract staff. This is borne out by the latest SSL/Computer Weekly Quarterly Survey of Appointments Data and Trends, and confirmed by the recruitment consultancies.
"We just had one senior developer manage to raise his salary by £40,000 overnight," says Paul Taylor, managing director of IT recruitment specialist Hudson. "He earned £70,000 at a big investment bank and was offered £90,000 elsewhere, but was then bought back for £110,000. We're also starting to see the return of golden handshakes as well as lots of buy-backs."
The number of job vacancies advertised for IT professionals has grown rapidly as the recovery in the jobs market has accelerated. Compared to the same period in 2003, the total number of advertised IT jobs is up by 31%, with contractor vacancies up by 49%, according to the SSL/Computer Weekly survey.
Growth in demand for systems developers and project managers has been particularly pronounced - evidence that organisations are once again investing in new systems.
Electronics, communications and retail companies, as well as the public sector, have stepped up recruitment of IT staff, but recruitment is highest among banks and financial services firms and IT suppliers. Unix is the skill most in demand and, for the first time, Linux is one of the top 20 skills. Windows NT is in 10th place and Windows 2000 twelfth.
But despite the growing competition for staff, recruiters are as yet unwilling to snap up just anyone to fill their vacancies.
"The average IT director is still looking for Madonna, when the reality is that there are Pat Butchers out there who can do the job," says Daley Thompson, managing director of City-based recruitment consultancy Madison Black. "We used to say that the average person could start work in seven days, but now we're getting back up to 28 days."
Thompson adds that the cost of replacing IT staff currently starts at about £6,000, but this can easily top £20,000 if you take into account hidden as well as overt costs.
Hidden costs include lost knowledge when a key person leaves, productivity disruptions when that person was a key member, or the head of a team, and the time and expense involved in rebuilding and refocusing teams.
"Losing key staff is hugely costly," says Jos Creese, head of IT at Hampshire County Council. "We are heavily reliant on a number of key individuals in critical programmes (for example, e-government), where the accumulated skill, experience and knowledge is very hard to replace.
"For this reason, retention has become a much more subtle game than simply trying to reduce overall turnover, and then being able to attract the right individuals when turnover does occur. In my view, it is hard to overstate how costly losing some individuals would be on some of our IT programmes."
There are hidden costs to recruitment as well. "Hidden costs are associated with transition and retraining times," says Henrik Kiertzner, IT director of IT services group, Arup. "Even with a seamless handover, there will always be a 'flash-to-bang' time while the incoming member of staff reaches full speed."
More obvious recruitment costs include the agency fee, the cost of management time spent hiring and hand-holding new personnel, and their training and equipment costs. There is also the time and expense involved in other staff shadowing the new recruit's duties until they get up to speed, and the extra wages bill that results from negotiating parity with existing key employees you want to discourage from leaving.
All this, and your new recruit could still be poached and leave before they have time to pay back your financial outlay.
Some companies are reacting to increasing salaries and ongoing skills shortages by becoming more innovative in the fringe benefits they offer to attract and retain key IT staff. However, this approach can prove to be expensive if company profits are limited, and will not necessarily guarantee staff will stay.
In a survey of fringe benefits by research group Computer Economics, nearly half of 529 institutions questioned said they find it hard to attract and retain suitable IT candidates. This is not because the working conditions are wrong, but mainly because they cannot offer career progression opportunities.
Even those employers who can offer good career prospects are taking flexible fringe benefits more seriously now than in the past. Job sharing is on the increase and is now found in 42% of organisations. Homeworking is also more popular.
Final salary pension schemes continue to decline and to be replaced by money purchase schemes, although 41% of organisations still operate final salary schemes. Provision of company cars to managers continues to fall (30% compared to 35% 12 months previously), while replacement cash allowances are becoming more frequent. On average, organisations spend 3.2% of their salary budget on training.
So, is keeping key staff sweet worth it? Yes if the skills they have are rare. But keeping staff happy and on target often requires more than money and flexible benefits. "Have properly defined objectives so staff know what is expected of them," advises Margaret Smith, IT director at Legal & General. "Give them interesting work that grows their CV, and practice good man management. Tell people when they're doing well and when they're not, and how they might improve."
Or you may take the view that some staff attrition is healthy. "People always leave, but the most important thing is succession planning," says David Rippon, head of the University of London Computer Centre, which provides computer services to higher education establishments.
"Recruit and train people every year and then you need others to move on, otherwise the organisation stagnates. This way, you use staff churn to your advantage."
Whichever approach you take, the time for action is now, before the IT jobs market takes off. "With IT spend increasing I anticipate that we will again see higher IT staff turnover," says John Leighfield, president of the Institute for the Management of Information Systems, pro chancellor of Warwick University, and chairman of PC supplier Research Machines. "In the future we'll see more effort on making the work/life balance better for employees, with more flexible work patterns, homeworking and so on."
He adds, "It is essential to look very hard at the things that add to employees' satisfaction. From my experience some of the ingredients that keep key IT staff on-board and on target are developing their potential to the full; ensuring their jobs are truly interesting; allowing them freedom in their work domain; ensuring people understand the company's objectives and strategies and where they personally fit in to them."
Clearly IT staff motivation is multi-dimensional. What this means for future staff turnover in a revitalised jobs market will depend on which strategy employers adopt: hire and fire, or flex and retain. Either way, you can expect salaries to rise as skilled staff increasingly become able to make demands.
Case study: Advantage focuses on work/life balance to cut staff turnover
Scientific and technical consultancy Advantage Business Group has cut its staff turnover from 23.5% to 11% by placing greater emphasis on a work/life balance in its employment policies.
The company devised a flexible benefits programme for its 130-strong workforce to combat low morale, following a period of corporate instability. The new programme replaced a more rigid, old-fashioned approach to flexi-time, which had caused a lot of bad feeling, says project manager Cathy Hunsley. The new programme has a more relaxed approach to flexi-time and allows staff to vary entitlements such as pensions and retirement, holidays and company cars.
Staff were closely involved in drawing up Advantage's work/life balance policies to ensure their acceptance. Employees successfully lobbied for no compulsory retirement before 65, and for their holiday entitlement to rise from 20 to 22 days. Increased company profits enabled Advantage to bankroll the holidays and pay 1% more into staff pensions, raising the overall wages bill by 4.4%.
Today, more than half the staff have introduced flexibility into their employment package, for example, by buying extra holiday. Moreover, most staff now regard Advantage as being "as, or more competitive" in its flexible benefits compared to other IT companies, while less than half took this view before the project.
"Morale is certainly better than it was and we're making money, so we must be doing something right," says Hunsley. "Recruitment costs are down, and overall, it's been a very positive experience. We now have a benefits approach that will attract and retain the key talent we require for our business."
Practical ways to attract and retain staff
- Interesting projects using the latest technologies (give the mundane jobs to contractors)
- Career progression and coaching
- Competitive salaries
- A flexible benefits package
- Homeworking/mobile working
- Family-friendly flexi-time
- A forum to influence management decision-making
- 360 ° appraisals where staff evaluate management
- Creche or childcare allowance
- Social and professional team-building events to promote staff bonding
- Inspiring and interesting projects.
This was first published in September 2004