In an employers' market, average salaries for IT directors are still falling. Jane Dudman says it is more important than ever to look at the whole employment package, rather than just the salary
There are now more highly skilled IT professionals looking for jobs than ever before. Although there are some signs of recovery in the recruitment market, the impact of this glut of available talent is to squeeze the level of pay and conditions.
In the past year, according to the most recent Computer Weekly/SSL Survey, the average IT director's salary has plunged by 17% from £87,527 to £72,272. This ongoing pressure on salaries is not the only signifier of the economic climate - the benefits packages offered to IT directors are also changing.
"Salaries for IT directors and those on the top teams have either stood still or dropped over the past year," says Cathy Holley, director at executive search agency, Holley Maxwell. She believes the surfeit of highly-skilled IT professionals has had a direct impact on the salaries and packages being offered. "There has been a sense of increasing desperation over the past two years, as the market has dropped over the edge of a cliff," she says.
One effect of this is that the former big salary increases paid to lure top IT professionals into new posts have disappeared. "The magic figure used to be about 20%," says Holley. "But now the queue of chief information officers looking for jobs is so long that companies no longer need to pay that increase. The power is firmly back with the employers. It is a buyer's market - apart from a few figureheads for whom chief executives will cough up whatever they are asked. But this is rare."
Holley says this situation has resulted in a shift in emphasis when it comes to compensation. "I have encouraged companies not to increase the base salary, but to make the packages more flexible," she says. "They can increase bonuses because that is a lower-risk way to remunerate people. If an IT director delivers, they have helped contribute to the bottom line. If they do not deliver, the company does not have to keep them."
Whether the focus is on the basic salary or bonuses, the emphasis lies firmly on money. Company cars, for example, are now seen as almost irrelevant. "When I started in this business," says Holley, "I could not believe we were having significant conversations about the colour of cars. Now, everyone realises money is money."
This may also be another symptom of the way the IT industry has changed to catch up with other sectors. The role of the IT director is certainly changing. The decision by Somerfield to abolish the role is one way organisations are seeking to embed their IT managers much more deeply into the business structure.
The profile of IT directors themselves is also changing. IT has always been a young industry which employs young people, but now, as a generation of top IT professionals grows nearer to retirement in a volatile economy, the subject of pensions is firmly on the agenda. "We work with many top teams and CIOs in their 40s and all they want to talk about IS pensions," says Holley.
Katharine Turner of human resources consultancy Towers Perrin agrees that the performance of the stock market over the past couple of years has made many firms look twice at the way they remunerate their staff, particularly in relation to pensions and stock options.
One example is Microsoft, which has replaced its employee stock option plan with a programme allowing employees to earn shares in the company (Computer Weekly, 9 July 2003). Turner says that although this may work well for Microsoft, she believes there is a danger that other companies may simply follow this lead, rather than thinking what will suit their own business requirements and their employees.
"It is a challenge to motivate staff in a market that does not have anything like the prospect of growth that we have seen over the past few years," she says. "Companies have got to look at things differently now. They have to agree on rewarding performance and aligning with shareholders. The successful companies are at least starting to evaluate their own business requirements and understand their own employees. It is all very well to calculate the expected value of stock options, but the other side of that is how those options are perceived as a value by employees."
With options and pensions under pressure in an under-performing stock market, it is difficult for companies and IT professionals to calculate the best investment for their long-term future. The answer, believes Turner, is to provide much more information. "Everyone needs to be thinking about these things holistically, but that is quite a challenge," she says.
Some of these pressures are more marked when IT directors choose to move jobs, but even those directors staying where they are have seen some aspects of their remuneration worsen. Roger Ellis, former IT controller of Blue Circle Industries and founder of the UK IT directors' network, says most IT directors he knows have seen no downturn in their existing salaries, but that the healthy bonuses are well down or gone altogether. "Clearly, bonuses have gone down because companies' profits have gone down. Most bonuses are linked to that, rather than to personal achievement," he says.
Ellis adds that the market is more competitive. "Because there are a fair number of people looking for jobs, perhaps people are prepared to be more competitive in relation to salary," he says. "There is also an age issue,because there are many IT professionals in their 50s, and their market potential is not so high as when they were 35."
The taxing of company cars is another point of gloom. "I can also foresee that where the company car used to be a perk, it would not be worthwhile now, because things have been getting worse tax-wise," he says.
Margaret Smith, IT director at insurance giant Legal and General, is more optimistic. Legal and General does its own pay survey every year and Smith says that although salaries have generally stayed flat, they have not gone down and there are some signs of recovery. "There are some green shoots," she comments.
Although the private sector continues to feel the pain of the overall tough environment, IT directors in the public sector are having quite a different experience. Although public sector pay has always lagged behind commercial rates and continues to do so, the benefits of working for a sector that is buoyant, as the government pumps money into its e-government strategy, and provides secure pension arrangements are becoming apparent.
"IT directors in government are still paid a lot less than their counterparts in the private sector, although that varies across different regions and authorities, but their salaries have certainly not gone down this year," says Stewart Jackson, programme manager for membership services at Socitm, which represents public sector IT managers. "Pay has gone up by about 3% or 4%. On top of that, some people get retention payments, or market supplements, which can be several thousand pounds, and a number still get cars. They also get local government pensions, based on final salary schemes, which is a very good plus."
In previous years, public sector IT managers have struggled to retain staff and to shake off their image as the poorer cousin of the private sector. That has certainly changed, says Jackson. "The work is interesting, such as the e-government programme, and there is the chance for IT directors to be seen in a different light - more as business managers than technocrats. The general situation is that there has been a drop in staff turnover across all jobs."
Many local authorities have made considerable efforts to provide a good quality of working life for employees, such as implementing personal career development strategies. At East Lothian Council, one of the workplaces on the Computer Weekly roll-call of Best Places to Work in IT 2003, staff feel they have reasonable salaries, but more importantly, that they have good conditions of service and challenging work within a pleasant environment.
As the market begins to pick up, IT directors will be looking much harder; not just at their pay packet, but at their overall terms and conditions to see what really makes hard financial sense in the months and years to come.
IT salary trends
- Average salary for IT directors have fallen by 17%, from £87,527 in 2002 to £72,272 in 2003
- More top IT professionals than ever before are looking for jobs
- Bonuses have disappeared or have been cut right back because of the generally poor economic conditions
- Company cars are heavily taxed
- Stock options are less of an attraction
- Pay packages offered to new employees have generally been reduced
- Pension schemes are an important focus
- Public sector IT directors' salaries have gone up, rather than down
- Public sector conditions are seen as more attractive than ever, particularly final salary scheme pensions.
Many organisations have changed the way they run their employee benefits systems, partly to reward their staff more effectively, but also to provide more information about the true value of existing benefits packages.
It can be hard to work out the total financial worth of packages with benefits such as a pension, car or private medical insurance. Therefore, many specialists in the benefits area want to see companies give staff a total reward statement of the holistic view of each benefit and the complete financial remuneration it brings.
More flexible packages are also becoming popular, with employees able to pick and choose from a list of available benefits, enabling them to pick the most appropriate one, such as gym membership, child care or a season ticket loan.
Online systems have made this approach much more feasible and it is being adopted by a number of companies, including technology companies. Oracle, for example, runs a flexible benefits system for its UK employees, who can access the benefits system for two weeks in January and make changes for the forthcoming year.
Average salaries in Q3