Scarcity of IT Professionals Means Big Pay Raises for Employees with "Hot" Skills, Hewitt Study Shows; Companies Struggle to Attract, Retain Key Talent - Technology Information

Edge: Work-Group Computing Report, August 9, 1999

It's a great time to be an Information Technology (IT) professional. It's not a great time to be hiring one.

Competition has never been keener for IT employees with "hot" skills (skills in short supply, high demand, and experiencing rapid changes in market values). According to the new Hewitt Associates 1999 HOT Technologies Survey of 224 companies reporting data on 33,772 employees, it's going to continue after the year 2000 (Y2K) transition. As a result, IT professionals with the hottest skills are often receiving base pay increases in the 10-20 percent range per year, compared to national average annual increases of 4-5 percent for non-IT salaried exempt U.S. employees.

What's Hot Today According to the survey, the specialties currently commanding the highest pay are dominated by skills in Enterprise Resource Planning (ERP). ERP is a business management system that integrates all facets of the business, including planning, manufacturing, sales and marketing. As the ERP methodology has become more widely accepted, software applications such as SAP, Oracle, PeopleSoft and Baan have emerged to help business managers implement ERP.

"This shortage is not limited to the technology industry because technology is central to nearly all of business today," said Georgine Young, a Hewitt Associates IT compensation consultant. "To even be competitive in high tech talent market, companies are reinventing their compensation structures, but it's more than a compensation issue. At best, recruiting talent with high pay solves a short-term predicament. To win the talent war, companies must design new non-cash ways to retain that talent, because there will always be a higher bidder."

On top of base pay, professionals with hot skills are garnering additional pay in a variety of bonus structures. In 1998, 57 percent of IT employees received a bonus of some type, compared to 42 percent in 1997. In addition, bonus pay is now routinely extended to junior-level IT employees. Signing, retention, and project completion bonuses are used more often with IT professionals than with other professional groups. Approximately 10 percent of IT professionals received stock options in the last six months, and 7 percent received stock gains. Keeping Talent as Difficult as Attracting IT

With demand for IT professionals high, retaining talent is equally challenging for companies. According to the study, turnover of IT employees averages just below 16 percent, but some companies in the study reported turnover rates as high as 35 percent. The average time reported for filling an IT position was three months. Twenty-eight percent of companies reported at least 10 percent of their high tech positions were vacant, and while the vacancies are down from 1998 reports, 75 percent reported using contract IT employees in some capacity.

According to companies in the study, the most effective tools for attracting and retaining IT talent were performance shares, stock grants and retention bonuses. Non-monetary tolls receiving higher ratings from companies included casual attire (everyday), alternative work schedules and telecommuting options. Tomorrow's Hot Skills

According to the study, companies forecasted the highest increases of short-term needs in jobs in the following areas:

- Call Center Architecture - Information Security - Telecommunications Engineering - Internet/Intranet Development - Network Engineering - Disaster Recovery - Data Mining/Warehousing

The demand for new IT skill sets is projected to increase over the next 5-10 years. As a result, Hewitt predicts compensation levels will continue to escalate.

"The volatility in the IT sector is providing new challenges for both IT and compensation managers everywhere," explained Young. "What's hot today may not be hot tomorrow. Companies need to be competitive enough in the market to attract talent with specific skills, but avoid paying inflated salaries in the future when demand for a hot skill cools."

The Hewitt 1999 HOT Technologies Survey examines the dynamics of attracting and retaining IT personnel in highest demand, providing comprehensive trend data on what's hot, upcoming skill shortages, compensation packages and non-cash practices. FMI: www.hewitt.com/compsurveys.>

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