Society for Information Management (SIM)

1. Society for Information Management (SIM) IT Compensation Current Issues Potential Strategies June 3, 2003 Philadelphia Jim Bowers Hay Group

2. First, a Quiz! True or False • 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! 2

3. IT 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."

4. Organization 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?

5. Different Types of Work Culture

6. Work Value Must Support and Align with Culture

7. Compensation 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? Issues

8. Current 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

9. 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 Reasons for Leaving Grouped into Five Themes From Hay IT surveys and Consulting Experience

10. Intrinsic Extrinsic Reward has many components Common Examples Reward Elements Definition • Recognition • Sabbaticals • Development • Choice Non-financial Rewards R E W A R D S T O T A L Internal value or motivation • Cars • Clubs • Physical Exams Perquisites R E M U N E R A T I ON T O T A L • Retirement • Health & Welfare • Paid Time Off • Statutory Programs • Income Replacement Benefits COMP E S A T I O N • Equity-based (options) • Cash-based (pups) LTI TOTAL All things to which we can assign a dollar value D I R E CT • Annual Incentive • Bonus/Spot Awards Short Term Variable T O T A L C A S H • Base Salary • Hourly Wage Base Cash Every reward element has potential strategic impact.

11. 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% 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 Enjoyment ofthe Work CareerOpportunity 75% 71% 64% 64% 62% 57% Percentage Very Importantin Reason to Leave JobChallenge Interes-tingProjects “Fit”withJob Opport-unity forAdvance-ment Clear CareerDevelop-ment Plan Oppor-tunity forNon-Manage-mentAdvance-ment

12. 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% 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 Availabilityof Technology Reward Leadership 73% 64% 60% 55% 54% Percentage Very Importantin Reason to Leave 53% 50% Bonus orIncentivePay SupportfromManager Pay forPremiumSkills TechnicalTraining NewTechno-logies BasePay ITLeader-ship

13. Performance Cluster Improvement • Productivity • Security • Speed • Training Customer • Satisfaction • Service • Understanding Economic • ROI • Business Support Investment • New Technologies • New Systems • Infrastructure • Capability IT Value Chain • LEADING TRAILING

14. RewardCriteria RoleValue RewardComponent INPUTS THROUGHPUTS OUTPUTS Know the Right Things Behave the Right Way Achieve the Right Results DemonstrateSuccess BASE SALARY INCENTIVE PAY RECOGNITION MERIT PAY Pay For: Planned Results Unplanned Achievements Skills Competencies What do you pay for?Linking Work Value with Rewards

15. T&D Wealth Health Work/Life Balance Job Satisfaction Related Rewards Recognition Awards Company Social Programs Employee Assistance Plans Insurance Benefits Retirement Plans Wages Maslow’s Hierarchy of Human Needsand Related Rewards It’s Important to Meet All Needs to Aid Commitment and Engagement Maslow’s Hierarchy of Human Needs Self Actualization Ego Needs Social Needs Safety Needs Physiological Needs 15

16. Competitive Pay • Good Benefits • Incentives for Higher Performance • Ownership Potential • Recognition Awards • Fairness of Reward Quality of Work Tangible Tangible Work/Life Rewards Rewards Balance Balance • Learning and Development Beyond Current Job • Career Advancement Opportunities • Performance Improvement & Feedback Future Future Future Growth/ Growth/ Growth/ • Quality of Leadership • Organizational Values and Behaviors • Reputation of Organization • Risk Sharing • Recognition • Communication Opportunity Opportunity Opportunity Enabling Environment • Physical Environment • Tools and Equipment • Job Training (Current Position) • Information and Processes • Safety/Personal Security Creating an Environment of Engagement - It’s not just about tangible rewards • Perception of the Value of Work • Challenge/Interest • Achievement • Freedom & Autonomy • Workload • Quality of Work Relationship • Supportive Environment • Recognition of Life Cycle Needs/Flexibility • Security of Income • Social Environment Work/Life Inspiration/ Inspiration/ Values Values Enabling 16

17. 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

18. 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.

19. 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

20. Staying on Top of the IT Compensation Market • 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 notbe good enough • One-size-fits-all compensation program will not work • Variable pay strategies emerging

21. 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 Staying on Top of the IT Compensation Market (cont’d) Creative Approaches to Reward Evolving

22. Define Levels in terms or Capability, Competency, and Results Expectations

23. Potential (competencies) High Potential Progress =/> Std Not Applicable Learning/Developing Performance issues Talent Management (Competencies X Results) Performance (results) x 23

24. CompaniesIn General Most AdmiredCompanies • Teamwork • Customer Focus • Fair Treatment of Employees • Taking Initiative • Achieving Budgeted Objectives • Supporting Management Decisions • Respecting Chain of Command Current Culture • Customer Focus • Teamwork • Rewarding Superior Performance • Innovation • Fair Treatment of Employees • Customer Focus • Teamwork • Rewarding Superior Performance • Flexible and Adaptive • Fair Treatment of Employees Target or Ideal Culture Cultural Characteristics Different Similar

25. Key Success Factors Measurement Commitment Clarity Capability People know what to do People know how to do it Performance is continuously measured People are held accountable What Does it Take to Implement Strategy Successfully? All of these factors are related to compensation and incentives

26. Guiding 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!

27. 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!

28. Effectiveness in Implementation Value Created Alignment with Values/Culture Best Practices - Our View