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Tech Industry

How to avoid the tech salary blues

Tech workers led the charge toward higher compensation during the 1990s. Will they now see their wages stagnate or even decline? Not if they play the right cards, says Salary.com CEO Kent Plunkett.

    If corporate America is at a compensation crossroads, Kent Plunkett is in the perfect spot to direct traffic.

    The compensation consultant and CEO of Salary.com says hiring managers and salary experts are trying to create pay scales that strike a balance between the heady job market of the late 1990s and the massive layoffs of the past year. He expects the technology industry, which has always been particularly creative about compensation, to be a bellwether for the broader American work force.

    Tech companies are already experimenting with techniques to simultaneously reduce costs and avoid layoffs. In June, Hewlett-Packard chief Carly Fiorina requested that 93,000 employees take pay cuts or burn unused vacation time. In early September, San Francisco-based investment bank WR Hambrecht capped salaries at $60,000, resulting in a cut in base pay for about 60 percent of employees and disproportionately denting salaries of senior executives.

    Plunkett, as head of Wellesley, Mass.-based compensation consulting and software firm Salary.com, expects more experiments in the months to come. He talked with CNET News.com about whether computer programmers will continue to take new jobs every year, how long-term demographics will help 30-something workers for the next decade, and how the terrorist atrocities of Sept. 11 could shift the job market pendulum back toward workers.

    Q: It seems like companies are laying off thousands of workers every day. Have you ever seen a job market this slack?
    A: The last time we had a crisis that looked like this, it was in the six months before we invaded Iraq in 1990. Capital markets stood still for a long period of time, as did corporate purchasing. Everything stagnated, including the job market. Right now is the first time in a number of years where labor markets have loosened as opposed to tightened. In the past decade, the theme was that the power was shifting from employer to employee; employees had the power to pick where they worked, and they had more power than ever before to negotiate compensation packages. That's clearly changed, and now we're seeing the pendulum swing to the other side.

    Should we get used to the idea that pretty soon we'll be making less money than we are now?
    In the past decade, the theme was that the power was shifting from employer to employee...That's clearly changed, and now we're seeing the pendulum swing to the other side. Not at all. We're still going to see raises, just not at the same growth rate as in the past...Over the past 30 years, the average annual raise for the typical employee across all industries has been about 4 percent. I think we'll see the average increase in the 2 to 3 percent range this year.

    Who's taking the biggest hit as the job market loosens?
    People entering into a new job classification at a new company--their starting salaries are definitely down this year...For example, where somebody might have received a $65,000 salary offer as a fifth-year accounting person a year ago, they might see $58,000 this year. That's not terribly huge in the grand scheme of things, but it can seem significant to people who thought they were going to see $65,000.

    Another at-risk group are the contractors. A lot of companies lay off their contractors first, and those people have definitely seen the most significant hits in their consulting rates. Gone is the period when you can get $150 per hour for certain tech skills as a programmer.

    Technology workers led the charge toward higher compensation during the 1990s. Will they see their wages stagnate or even decline disproportionately?
    The people who gain the most are often the ones who lose the most when the economy turns against them. That's definitely the case for tech workers. It might take awhile to get back to the crescendo that it reached, but it will come back, and people with tech skills will always be able to make a living beyond what the average worker can make.

    Has any type of worker actually benefited from the loosening of the job market?
    In the view of recruiters, they are relieved. They're like, "Finally, when I pick a resume and interview people, they take the offer." That hasn't happened to them in years. They're celebrating--well, they're not celebrating, but they're relieved. They know it's just a temporary low, but they're still glad to have it.

    According to your data, approximately 25 percent of American workers have left their jobs each year for the past several decades. Will that number be lower this year simply because people can't find other offers?
    It's true that individuals are not actively seeking to leave their jobs because of the risks involved; people tend to be much more conservative in making career moves in a down market. On the other hand, with the number of layoffs taking place, people are quick to leave employers where their job is already at risk--or where frankly they don't have a choice in the case of a layoff. So, ironically, I'm not sure the number will change.

    Given the slowing economy, is now a good time to make a bold career move? Or should ambitious professionals take a bunker mentality and sit tight at their current jobs?
    I think this is a great time to step back, take a look at where you've been, and ask where you want to get to over the next five to 10 years. Do a good job, impress your boss, make your boss look good, get grounded, and add to your skill set. Then, when the demand comes back and the economy recovers, you're in a position to move within your current corporation or to a new job that gets you closer to your dream job.

    Basically, this is an excellent time to take a bunker mentality. Just think more than a year out. Don't think, "How can I make more money in the next 12 months?" but rather, "What are the skills I need to acquire to get more salary?" If you've been primarily in marketing and want to be a CEO, this is a great time to take on a new finance project but still stay at your current job. If you've been on the technology side, it's a good time to take a broader management role on one project. It's a really good time to keep your boss happy--to wait it out and be conservative.

    We've known for more than a year that employees no longer value stock options as they used to. What other forms of compensation are changing because of the slowing economy?
    Incentive programs focused on variable pay--employees have big issues with them because, given the economy, it's going to be nearly impossible for the employees to hit their numbers. For sales forces, the model in the 1990s was that one-third to one-half of total compensation was variable pay. Those models are still in place, but people aren't happy about them. They can't possibly meet their numbers. So we could see some companies changing that pay structure.

    This is an excellent time to take a bunker mentality. Just think more than a year out. Don't think, 'How can I make more money in the next 12 months?' but rather, 'What are the skills I need to acquire to get more salary?'How did the terrorist attacks on the World Trade Center and the Pentagon affect the job market specifically?
    I'd compare it to when Saddam Hussein invaded Kuwait. The uncertainty about reasonably priced oil and the uncertainty of terrorist attacks slowed everything to a standstill until the U.S. took decisive military action. Right now our government is seeking fiscal stimulus, so that's going to provide some help. But it's got to offset huge drops in consumer spending and an economy that was already teetering on the brink of recession.

    The U.S. government sanctioned the importation of 195,000 workers per year through the controversial H-1B visa program. Might the terrorist attacks reverse that trend and make the government wary of foreign workers?
    The attacks could definitely enhance the labor shortage predicted for the current decade. The Bush administration...was inclined to open borders to have more immigrants and offer more work visas in order to offer relief to U.S. corporations that were looking at critical labor shortages. That policy is likely to be re-examined. It actually will increase the likelihood that we have a severe shortage of knowledge workers, and that will push wages up and provide a more interesting job market in the future.

    The baby boomers are retiring, their children are just starting to enter the job market, and the generation in between isn't large enough to fill the gap. Don't the laws of supply and demand mean that the nation will continue to face a labor shortage for the next decade or two?
    Yes, and it's actually going to be a rather critical shortage. In the year 2000, we had a 3.9 percent unemployment rate. That's a recent-history low. Unemployment typically used to run 6 to 7 percent on a fairly regular basis. Now it's back up in the 5 percent range and could run as high as 6 percent. Even at 6 percent, it wouldn't come close to matching the unemployment rates of previous decades. If that's the new high for unemployment, that's good news.

    We have an economy that has jobs for people...Employers know this, and the labor markets will probably recover earlier than the economy at large. I'm hearing recovery for staffing companies improving in the fourth quarter or early next year. And those forecasts are post-terrorist attacks. The reality is that we're in a long-term worker shortage situation.