How to make IT staff less Angry – Part Five: Pay Rates

This is part five in my series of posts designed to help managers and employers who simply don’t understand why their IT staff hate them so much. Lacking the power to send the Clue Fairy around to smack clueless managers upside the head, I have been posting these tips which are the product of 15 years experience in IT. This group of posts is based around the idea that there are three key areas of job satisfaction; a good environment, interesting/fulfilling work, and compensation. Part One, Part Two, Part Three and Part Four provided an overview and covered the first two points. This part will explore the pay and benefits that make up the compensation package for IT workers.

On the surface, pay rates should be completely straightforward. Supply and demand dictate the average rate for a given skill set and in individual cases the employee pushes for as much as they can get and the employer pushes for the minimum they can get away with. In truth, pay rates are a minefield. A lot of people measure their self-worth according to their pay packet, hence this topic can become very emotional very quickly.

One of the most important things to consider when looking a pay rates is the motivation of both parties involved. The Cabal Of Disaffected and Exploited Information Technology (CODE-IT) workers tend to be quite conflicted on the issue of pay. Most CODE-IT workers are working in IT because if they don’t actually love it, they at least have a very strong affinity for it. If you read stories from the early days of the PC revolution, most of the early employees of Microsoft and Apple (for example) could hardly believe they were being paid anything at all to work on a hobby they were passionate about.

Having said that, the majority of CODE-IT workers are highly trained, highly intelligent and possess specialised skills. As IT has become more and more indispensable to business, pay rates have gone up. If you work in the IT department of a non-IT company (i.e. a company whose business is not IT software or hardware but needs an IT department to support it) then it is quite common to be earning 50% or more above other (non-IT) employees of equivalent seniority. This translates in many people’s minds that CODE-IT workers are overpaid and should shut the hell up with their complaining about pay rates.

In certain cases this might be true but broadly speaking, pay rates for CODE-IT workers are self-correcting. In a boom market, if employers aren’t paying their CODE-IT legions enough, they will leave for somebody willing to pay them more. Then it will cost more to replace the staff who have defected meaning, as often as not, that employers are poaching their replacements from other workplaces and so the cycle feeds on itself and pay rates go up and up. Eventually the job market will crater and the pendulum swings the other way. There is less work available and employers realise they can get away with paying their CODE-IT workers less (particularly contract workers) because their options are limited. Pay rates spiral down until the next upswing and it starts all over again.

From my limited experience, the pendulum tends to swing too far each way in the peaks and troughs. It basically seems that when the power relationship changes, the party gaining the upper hand wants some payback for how they were screwed when things were stacked against them. Around 1999-2000 pay rates for the majority of CODE-IT workers were going through the roof. Graduates in some disciplines were getting starting salaries that most people had to wait 10 years for. Unscrupulous recruiting agencies sprang up like mushrooms to grab their slice of the pie and there were many cases of grossly underqualified and inexperienced workers being slotted into high-paying roles.

The inevitable happened around 2001 – the IT job market crashed. Hard. Many companies had blown several years’ IT budget on Y2K readiness, dot-com bubble mania and (in Australia) GST readiness. Also, I think more than a few employers woke up to just how much they had been getting screwed on pay rates for the previous few years. Hell, I think I’m worth more than I’m paid but some contract rates in particular had been pushed to ridiculous levels. Several workplaces I knew cut contract rates in half and people were happy to stay because it was still more than they had been making a few years previously.

So much for the preamble and disclaimers; what should you actually pay CODE-IT workers? There’s no absolutely right answer regarding the amount, but there is a right way to approach the decision. Be aware of how your offer compares to industry averages, highs and lows (because the applicant definitely will be) and be absolutely open about why you have chosen to make your offer. Unless your reasoning is that you want to screw potential employees as much as possible and pay them the minimum you can get away with and to hell with them if they don’t like it. Stop reading now if that’s your attitude, you won’t learn anything useful here.

Plus, if that’s your attitude it will be blindingly obvious to the applicants as well. Unless they’re very stupid. So all your employees will be stupid, low achievers, desperate and/or criminals. Good luck. You deserve each other.

Pay is not the only motivator, or at least it shouldn’t be. If pay is the only thing motivating your staff you are on very precarious ground. In this situation the only way you can increase or even maintain your staff’s motivation is to pay them more which is going to hit a limit unless you’re Google. And if you’re Google, the one thing you don’t need from me is lessons on recruiting staff. Also, it becomes very easy for a competitor to poach your staff if they have no attachment to their work. Simply offer them more money and they’ll jump ship.

Having said that, the pay rates you offer send a very clear message. For those who can’t guess, in simplest terms if you are paying above average you are saying you want above average staff or you value your staff above average. If your pay rates are average, you are aiming for staff who are, well, average. Hardly inspiring. If if you are paying below average…

Possibly the worst mistake an employer can make regarding pay rates is applying some arbitrary rule instead of judging each situation on its merits. With a new hire, you have three basic choices; offer them more than they were getting previously, offer them the same as they were getting previously or offer them less than they were getting previously. In different scenarios, any of these three options might be the right option for all parties concerned, or at least be an acceptable option. Make a call based on the current market, the value that person can bring, the value that person has compared to other potential candidates and the cost to your company and/or department of NOT hiring this person.

Pay rates should always be a considered value judgement. The idea that some managers have that pay rates are set objectively rather than subjectively is so opposed to reality that it boggles the mind. Every decision about pay rates is a value judgement and even if you delude yourself that this isn’t the case for you, the person on the receiving end is in no doubt. You have quite literally made a judgement about their value. At least have the decency to do so in a conscious and open manner.

Most of this post has focused on pay decisions for new hires but really, the thinking holds true when considering pay rises for existing staff. One additional piece of advice for judging what’s adequate for pay rises: if an employee’s pay rate is going up slower than inflation, they are literally worse every day they continue working for you. If you think this isn’t an important consideration for your permanent staff, well, enjoy your voyage on the good ship Titanic.

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17 Comments

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17 responses to “How to make IT staff less Angry – Part Five: Pay Rates

  1. ‘if an employee’s pay rate is going up slower than inflation, they are literally worse every day they continue working for you.’

    Exactly what is happening working for the state. That is why we get such fucking twits.

  2. I’m glad that some employers in MTL in IT pay their staff quite well, though I’m not one of them. Right now, my doggie is burrowing his head into my armpit, its getting hard to type.

    When I started out, I felt exploited. Didnt have any benefits and a meager pay. Today, some guys are making C80000-100000$ as IT workers.

    The most ambitious of them become selfemployed and double their earnings in the first year, if they have the right contacts.

  3. Looks like the Angry alliance is hitting the stratosphere, or nearby. I have written an article on HDR photography and got… 26000 hits in the last few hours. I was Reddit.

  4. Sandra: sad but true, and they exploit your integrity as well.

    Range: Go the angry alliance!

  5. Yep, Angry Alliance Rules!
    We should start making T-shirts and merchandising.
    I’m at 147000 hits today, I posted a follow-up, I have trouble understanding it all, but I’m glad. Next week, I’ll start doing some real stuff. I just needed some more traffic, and I got what I wanted… and then some.

  6. I believe, just as a gesture of decency and consideration, the employee should be paid as much as possible. “How much can we afford to pay this guy? Look at all the good work he does for us”. Am I a dreamer? Yea, I guess so, good thing I dont hold the company’s purse strings.

  7. Range: people like “how to” guides. I ‘ve seen it work before for people, really lame things like how to use MS word. Yours was interesting, detailed and well put together, that’s why people are diggin’ it!

    Rockwatching: in some place, that’s actually the case. They are the places with ahppy employees and high profits.

  8. Yep, Mr Angry, I’m pretty happy about it. Let’s just see how this affects daily traffic in a few days. I didn’t really want to write so much over the weekend, but I feel compelled now.

  9. I think there are good argument for either having brackets for people in a certain skill level (basing pay on the skill level) and determining salary on an individual basis for each employee’s circumstance. It simply depends on the type of business you’re working for.

    As with Joel’s philosophy on compensation, hiring, and brackets…it’s very clear to everyone how compensation is figured. It’s also clear how to get into a different bracket. It’s basically an open book to everyone so there’s no surprises.

    In most companies where the objective is to get away with as little as possible and still be attractive to the employee they’re trying to keep the deciding-based-on-individual-circumstance works fairly well. I think there is a high resentment in this scenario when people find out salaries of other employees that do less but get paid more. This isn’t always the case, but I’ve seen it happen quite a bit. Nobody can really argue against the whole supply and demand issue though, so this appraoch is no doubt the most applied one I’ve seen.

  10. Dave

    Software employers must keep in mind that they need to keep the top programmers from making the jump to other careers (like law and medicine) in order to be paid more. This is a real danger as job security, benefits, and pay drop. This is another angle of the article main point: you get what you pay for. Smart logical people cost $100k-$250k. If a smart person can double his/her salary by leaving the software world, he/she likely will–after all, that person is smart.

  11. You were going well until you based pay of a new hire on where the person is currently. I much prefer what you alluded to first–average salary == average developer. You can compute from there. Companies should determine what work they need done and what they’re willing to pay for it first. Then you go and find the individual who will fit that pay. Basing pay for a new hire on what they are currently earning runs too great a risk of devaluing or overvaluing a given candidate.

  12. Retro: I agree the opnness is the most important aspect, if people can see what the pay is based on, they can make an informed judgement

    Dave: good point, high achievers tend not to settle for less than average wages

    Jacob: That’s one point of view, my question would be, if you’re not considering what someone is already getting, why would they consider you? I agree that the company needs to know what they *think* the role is worth to them but what if the market can’t provide anyone competent at that rate?

  13. Thanks for the response.

    I’m not sure why you ask why would they consider you. If they’re on the market, they’re not happy where they are. If you have their resume, they’re considering you already. As you have detailed very well, there are a lot of reasons for a developer to want to leave their current position–salary is only one of them (and often not the most common or important).

    Most developers know the market rate for their skillset, why shouldn’t a company that is hiring developers know as well? I was actually in this situation last year when I was hiring developers. I was “out-bid” on two candidates I really wanted. It turns out that the market had changed and above-average developers were in more demand and that meant higher salaries were called for. We had to re-evaluate what we were willing to pay for the positions we had open.

    I guess it’s not so much what you’re willing to pay as much as recognizing what the market rate is for the type of developer you want and making sure you’re in that neighborhood. Underpaying leaves you vulnerable to losing developers. Overpaying leaves you wasting resources–not as damaging, but hard to justify on a budget. Best to know the value of the work and offer that amount. It saves heartache all around.

    As a footnote, finding that I was offering too low gave us an opportunity to re-evaluate developer salaries with the end result of giving some much-needed raises for developers we valued. Replacing a developer is expensive (I figured it was between two and six months salary depending on the developer).

  14. Jacob: I think we are seeing eye-to-eye on this, maybe a little miscommunication in the fine print. I agree that pay shouldn’t be the only consideration and the best employess don’t focus solely on pay but this specific post was dealing with pay rates in isolation. Your re-evaluation policy sounds eminently sensible.

  15. Yeah, that’s kind of the realization I had during my last comment. And thanks for the compliment :). We had a great team that was absolutely destroyed by management cock-ups…

  16. An interesting variable here is job passion. I know of a few programmers who are extremely smart, logical people, and yet remain in software despite the ability to make more raw cash in other careers. It’s even more common for people to prefer certain jobs over other, better-paying positions.

    The previous four entries have really hit the nail on the head I think; but what seems conspicuously absent here is a consideration of how much job satisfaction affects pay demands.

    Hell, I settled for a relatively painful pay cut to get out of a slightly bad job, and move into a really great one. Of course, a big factor is that the potential for pay increase over time is much better, but for the next year or so I’m definitely worse off financially than I was.

    A lot of smart, logical people might have called that a tragically stupid career mistake, but I’m too busy loving my life – and my work – to agree :-)

  17. Apoch: you are absolutely right, I did specifically point out in a previous post that IT people will take a significant pay cut for the right job. Also, I think pay alone is an extremely dangerous motivator. Good luck with continuing to love your career! :)

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