IT budgets increased in 2005, and managers are now reassessing salaries within their departments. Appropriate salary ranges are crucial for attracting and retaining the appropriate employees. Following a specific process enables IT managers to set salary ranges that can be defended when scrutinized by senior executives.

Use a Total Compensation Worksheet

One component of setting salaries is determining total compensation. Info-Tech has developed a tool for calculating the components of total compensation when provided with base salary: the "IT Salary Worksheet."

The worksheet should be used as part of an overall process for setting salaries, as outlined below. Info-Tech has a variety of additional resources that can be used at each step of this process.

Process for Setting IT Salaries

1. Revisit corporate strategy. Hiring priorities must be driven by overall corporate strategy. Aligning internal processes with business priorities is a crucial step in moving IT departments from Survivor status to Innovator. For more information, refer to the McLean Report article "How to Become an Innovator."
2. Set staffing levels. Determine the appropriate staffing levels to achieve corporate goals. Use benchmark data from Info-Tech's industry-specific "IT Budget and Staffing" reports. Adjust the staffing ratios accordingly to reflect corporate goals. For example, the strategic plan may require a greater focus on Disaster Recovery Planning (DRP) or help desk planning.
3. Establish job requirements. Staffing levels may reveal gaps in specific skills or experience within the IT department. Develop a skills matrix and assign priority levels for different levels of certification or experience. For example, a specific IT department may put particular emphasis on C# programmers with more than three years of experience. Use the Info-Tech "IT Skills Inventory Chart" and the "IT Skills Assessment Table" to guide this process.
4. Build job descriptions. To operationalize job requirements, create job descriptions for both existing IT staff and future hires. Info-Tech Advisor offers an extensive Job Descriptions Bank, as well as a basic "Job Descriptions Template."
5. Map existing staff numbers and skills to the matrix. Fill the gaps in the matrix with new hires or by developing the skills of internal resources. The mapping exercise also provides an opportunity to identify underperforming employees and employees whose skills no longer match the organization's strategic goals.
6. Evaluate compensation schemes. The strategy must both maintain internal skill levels and control costs. Compensation schemes have two different components:
   • Employment status: full time, contract, or outsourced. SME IT departments rely primarily on full-time IT staff. The use of contractors makes it difficult for IT managers to maintain a strategic IT skills development plan, and only 38% of SMEs use outsourcers for project-based work.
   • Bonus structure. Bonuses are a common component of IT compensation. The criteria for attaining a bonus should be based on both individual and group targets for all employees. However, group performance targets should be weighted more heavily for managers. Typical bonus levels vary by position:
     • Senior IT management: 15% of base salary.
     • Other IT management: 7.5% of base salary.
     • Other IT staff: 5% of base salary.
7. Research salary benchmarks. Information on salary ranges for specific job titles is available from a variety of different resources. An overview of these sources is provided in the Info-Tech Advisor research report, "Framework for Setting IT Salaries."
8. Understand the competitive environment. Benchmark data must be adjusted to reflect an organization's specific business conditions. For example, local labor conditions may dictate that an organization assign salaries at the top end of benchmark salary ranges. Specific industry experience can also skew benchmark data. For example, an experienced Java programmer with specific knowledge of the pharmaceutical industry will demand a higher salary than one without domain experience.
9. Determine total compensation from base salary. To determine total compensation, the base wage for employees must be adjusted to reflect benefits. Human resources departments may make organization-specific base-wage-to-total-compensation ratios available.

Bottom Line

Competitive salaries help to attract and retain talent. Info-Tech's process for setting IT salaries empowers IT managers to set salary ranges that are defensible to senior executives.