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Society for Information Management (SIM)IT Compensation •Current Issues •Potential Strategies

June 3, 2003

Philadelphia

Jim Bowers

Hay Group

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True or False

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First, a Quiz!First, a Quiz!

People are the most important asset an organization has.

Most employees would like to develop a career with a company rather than job hop.

Most organizations have more than enough capability to be successful.

Organizations only need a few top performers to achieve and sustain superior results.

Most people want to do the right thing and work hard to be successful.

Pay motivates!

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IT Characteristics DifferIT Characteristics Differ

IT Business Components:

Nature of Business:– Internal Support– Customer Support– Core Business

Functionality– Infrastructure– Hardware/Software– Applications– User Support

This means—"different strokes for different folks."

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Organization Structure and ValuesOrganization Structure and Values

Functional?

Business?

Geography?

Matrixed?

Team-based?

What do you pay for?

What are the key measures?

What would you like done differently?

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Different Types of Work Culture Different Types of Work Culture

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Work Value Must Support and Align with CultureWork Value Must Support and Align with Culture

Work CultureWork Value

FocusFunctional Process Time-Based Network

Measuring Work Job Role Person Deal

CompetitivenessBasis

Market Driven(Median)

BenchmarkBest Practice

MarketReferences Negotiated

OrganizationFocus

HierarchyVertical

FlatWork Team

FluidProject Team

NetworkAd Hoc

Career FocusVertical

FunctionalHorizontal

CompetenciesPersonalized

CompetenciesPersonal

Achievements

Work ValueRanges/Bands

Narrow BandsGrades Medium Bands Broad Bands Not Applicable

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Issues

Compensation IssuesCompensation Issues

Ensuring alignment with Organization Profitability (ability to pay), but..

Recognizing and Rewarding Individual Success, but..

Promoting Teamwork, and...

Determining and paying for what is important, and deciding...

Does one size fit all?

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Current IT IssuesCurrent IT Issues

How do you measure people value?

How do you preserve IT "people assets" in down times when results are poor across the board?

How to attract "hot skills"

How to retain institutional knowledge

How do you motivate staff to achieve objectives in a timely and high quality manner

How to provide career pathing opportunities for learning and growth

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Reasons for Leaving Grouped into Five ThemesReasons for Leaving Grouped into Five Themes

Enjoyment of the Work– Working on interesting projects– Job challenge– “Fit” between my skills & interests

and my job

Reward– Base Pay– Pay for premium skills– Bonus or incentive pay

Availability of Technology– Technical training– New technologies

Enjoyment of the Work– Working on interesting projects– Job challenge– “Fit” between my skills & interests

and my job

Reward– Base Pay– Pay for premium skills– Bonus or incentive pay

Availability of Technology– Technical training– New technologies

Career Opportunity– Opportunity for

advancement– Opportunity for

non-management advancement

– Having a clear career development plan

Leadership– Support from your

immediate manager– Overall job done by top IT

management

Career Opportunity– Opportunity for

advancement– Opportunity for

non-management advancement

– Having a clear career development plan

Leadership– Support from your

immediate manager– Overall job done by top IT

management

From Hay IT surveys and Consulting Experience

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R

E

W

A

R

D

S

REMUNERATION

Recognition Sabbaticals Development Choice

Cars Clubs Physical Exams Retirement Health & Welfare Paid Time Off Statutory Programs Income Replacement

Common Examples

Non-financialRewards

Perquisites

Benefits

LTI

Reward Elements

Short Term Variable

Base Cash

Definition

Equity-based (options) Cash-based (pups)

T O T A L

T O T A L

TOTAL

DIRECT

TOTAL

CASH

Intrinsic

All things

to which we can

assign a dollar value

Extrinsic COMP E S A T I O N

Internal value or

motivation

Every reward element has potential strategic impact.

Annual Incentive Bonus/Spot Awards

Base Salary Hourly Wage

Reward has many componentsReward has many components

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IT Professionals Continue to Evidence Similar Work Values

Items Cited by Greater than 50% of the Population as Very Important in their Decision to Leave

Per

cen

tage

Ver

y Im

por

tan

tin

Rea

son

to

Lea

veP

erce

nta

ge V

ery

Imp

orta

nt

in R

easo

n t

o L

eave

Opport-unity forAdvance-

ment

Oppor-tunity for

Non-Manage-

mentAdvance-

ment

Clear Career

Develop-ment Plan

Interes-ting

Projects

JobChallenge

“Fit”withJob

CareerOpportunity

Enjoyment ofthe Work

75%75%

62%62%57%57%

71%71% 64

%64%

64%64%

0%0%

10%10%

20%20%

30%30%

40%40%

50%50%

60%60%

70%70%

80%80%

90%90%

100%100%

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IT Professionals Continue to Evidence Similar Work Values

Items Cited by Greater than 50% of the Population as Very Important in their Decision to Leave

Per

cen

tage

Ver

y Im

por

tan

tin

Rea

son

to

Lea

veP

erce

nta

ge V

ery

Imp

orta

nt

in R

easo

n t

o L

eave

LeadershipAvailability

of Technology

Supportfrom

Manager

ITLeader-

ship

TechnicalTraining

NewTechno-

logies

BasePay

Pay forPremium

Skills

Bonus orIncentive

Pay

Reward

0%0%

10%10%

20%20%

30%30%

40%40%

50%50%

60%60%

70%70%

80%80%

90%90%

100%100%

55%55% 50

%50%

64%64%

53%53%

73%73%

54%54%

60%60%

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IT Value ChainIT Value Chain

LEADING

Investment New

Technologies New Systems Infrastructure Capability

Improvement Productivity Security Speed Training

Customer Satisfaction Service Understanding

Economic ROI Business

Support

Performance ClusterTRAILING

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What do you pay for?Linking Work Value with RewardsWhat do you pay for?Linking Work Value with Rewards

INPUTS THROUGHPUTS OUTPUTSRoleValue

Know the Right Things

Behave theRight Way

Achieve theRight Results

DemonstrateSuccess

RewardCriteria

MERIT PAYBASE

SALARYINCENTIVE

PAYRECOGNITION

RewardComponent

CompetenciesSkillsPlannedResults

UnplannedAchievements

Pay For:

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Maslow’s Hierarchy of Human Needs

RelatedRewards

T&DWealthHealth

Work/Life BalanceJob Satisfaction

Recognition Awards

Company Social ProgramsEmployee Assistance Plans

Insurance BenefitsRetirement Plans

Wages

Self Actualization

Ego Needs

Social Needs

Safety Needs

Physiological Needs

Maslow’s Hierarchy of Human Needsand Related RewardsMaslow’s Hierarchy of Human Needsand Related Rewards

It’s Important to Meet All Needs to Aid Commitment and Engagement

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Perception of the Value of Work

Challenge/Interest Achievement

Freedom & Autonomy Workload Quality of Work Relationship

Competitive Pay Good Benefits Incentives for Higher

Performance Ownership Potential Recognition Awards Fairness of Reward

Learning and Development Beyond Current Job

Career Advancement Opportunities

Performance Improvement & Feedback

Quality of Leadership

Organizational Values and Behaviors

Reputation of Organization

Risk Sharing Recognition Communication

Physical Environment Tools and Equipment Job Training (Current Position) Information and Processes Safety/Personal Security

Future Growth/

Opportunity

Work/Life

Enabling

Tangible RewardsTangible Rewards

Future Growth/

Opportunity

Future Growth/

Opportunity

Supportive Environment

Recognition of Life Cycle Needs/Flexibility

Security of Income Social Environment

Enabling Environment

Inspiration/Values

Inspiration/Values

BalanceWork/Life

Balance

Quality of Work

Creating an Environment of Engagement - It’s not just about tangible rewardsCreating an Environment of Engagement - It’s not just about tangible rewards

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Compensation - Senior Management’s Perspective Compensation - Senior Management’s Perspective Spend limited compensation funds as effectively as possible Pay more to those who are:

– Increasing their capability– Increasing their contribution to the organization– Increasing their personal performance– Increasing the company’s performance

Link to the success of the organization– Ownership– Incentives tied to company performance– Increased discretion

Flexibility, but better discipline, in the decision making process

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Trends in IT Compensation Trends in IT Compensation

Continued need to recognize and reward for “hot” skills– Premium for staff that maintain up to date skills

IT professionals distrust of variable pay (especially equity) and subsequent refocus on base pay– Increased use of project-based pay, spot bonuses, lifestyle

incentives, team-based pay

Emphasis on career development, multiple individual contributor career paths, and “guaranteed opportunity”, as opposed to guaranteed job

Organization’s targeting compensation towards:– Contribution– Proprietary skills– Current skills– Competencies - learning orientation, customer focus, etc.

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Challenges Presented by the Different Business Lines Challenges Presented by the Different Business Lines

Different Incentive Practices– Consulting

Incentives are customary Highly linked to the success of the consulting business, team, and

individual Typical measures are utilization, sales development, customer metrics,

contribution to the practice– Outsourcing

Incentives are rare, and engagement specific Measures are contribution to efficiencies, customer metrics,

performance vs. SLAs– Services

Incentives more typical than outsourcing, but not a major component of compensation

Measures are utilization/efficiency-based, customer metrics, team/organization performance

– Internal IS Organization Incentives typically available, not at a high level Measures are project-based, customer metrics, reliability, strategic

contribution to the business

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Timely Data for New Roles and Skills Different roles created (i.e., Business Consultant,

Webmaster, Merging of Data and Applications Experts)

Evolving technology often paid market premiums

(i.e., SAP, Oracle, Visual Basic, BAAN)

Requires frequent research and review of market data– Best guess or internal equity based pay may not

be good enough– One-size-fits-all compensation program will not work – Variable pay strategies emerging

Timely Data for New Roles and Skills Different roles created (i.e., Business Consultant,

Webmaster, Merging of Data and Applications Experts)

Evolving technology often paid market premiums

(i.e., SAP, Oracle, Visual Basic, BAAN)

Requires frequent research and review of market data– Best guess or internal equity based pay may not

be good enough– One-size-fits-all compensation program will not work – Variable pay strategies emerging

Staying on Top of the IT Compensation MarketStaying on Top of the IT Compensation Market

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Staying on Top of the IT Compensation Market (cont’d)

Staying on Top of the IT Compensation Market (cont’d)

Referral Awards

Hiring Bonuses

Premium-Paid Hot Skills

Pay-for-Competencies and Skills

Customized Salary Administration

Spot Bonuses

Objective-Based Incentives

Referral Awards

Hiring Bonuses

Premium-Paid Hot Skills

Pay-for-Competencies and Skills

Customized Salary Administration

Spot Bonuses

Objective-Based Incentives

Paying Teams

Profit-Sharing Plans

Cash Retention Plans

Equity-Based Retention

Long-Term Cash Program

Sabbatical Leave

Paying Teams

Profit-Sharing Plans

Cash Retention Plans

Equity-Based Retention

Long-Term Cash Program

Sabbatical Leave

Creative Approaches to Reward EvolvingCreative Approaches to Reward Evolving

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Define Levels in terms or Capability, Competency, and Results ExpectationsDefine Levels in terms or Capability, Competency, and Results Expectations

Learning andDeveloping

Fully QualifiedJourney Level

Expert/AdvancedLevel

Capability (what)

Expertise LeadershipCompetency (how)

Develop others Innovation Build organizationResults (why)

$ Expectations Accountabilities

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High Potential Progress =/> Std Learning/Developing Performance issues Not Applicable

Potential (competencies)

Per

form

ance

(re

sult

s)

x

Talent Management (Competencies X Results)Talent Management (Competencies X Results)

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Teamwork Customer Focus Fair Treatment of

Employees Taking Initiative

Achieving Budgeted Objectives

Supporting Management Decisions

Respecting Chain of CommandC

urre

nt C

ultu

re

Most AdmiredCompanies

CompaniesIn General

Customer Focus Teamwork Rewarding Superior

Performance Innovation Fair Treatment of

Employees

Customer Focus Teamwork Rewarding Superior

Performance Flexible and Adaptive Fair Treatment of

EmployeesTarg

et o

r Ide

al C

ultu

reDifferent

Similar

Cultural CharacteristicsCultural Characteristics

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Key Success Factors

All of these factors are related to compensation and incentives

Clarity

People know what to do

Measurement

Performance is continuously

measured

Commitment

People are held accountable

Capability

People know how to do it

What Does it Take to Implement Strategy Successfully?What Does it Take to Implement Strategy Successfully?

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Guiding Principles for RewardGuiding Principles for Reward

Align your plans with strategy and desired culture

Define expectations clearly

Build organization capability and use it

Objectively identify and reward for top performance

Pay all employees fairly and competitively

Lead, don’t blindly follow the herd

Use performance management to raise the bar

Leverage non-cash benefits and other rewards

Recognize that leadership is required to build commitment

Focus on effective implementation!

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What’s a “Best Practice?”What’s a “Best Practice?”

Self disclosed (pat myself on the back)?

What’s new and different?

Published in articles and books?

Attributes of successful companies?

What works for you?

What works for others?

There is no such thing!

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Valu

e C

reat

ed

Alignment with Values/Culture

Effe

ctiv

enes

s in

Impl

emen

tatio

n

Best Practices - Our ViewBest Practices - Our View