Keeping pay raises for those with hot skills

Nearly one-quarter of high-tech organizations in Canada are limiting pay increases to top performers and workers with “hot skills,” according to a new study.

And while salary increases are expected to be relatively flat in 2003 as many organizations across the board adopt a cautious approach, these workers will likely see fatter raises than most.

Catherine Ponting, a consultant in Aon’s compensation strategies practice, said 22 per cent of technology organizations are only targeting top talent and individuals who possess hot skills when it comes to raising salaries in an effort to boost retention and keep compensation competitive.

According to the Aon Radford Total Compensation Survey, workers with skills in high demand in the technology sector can expect a four-per cent increase for 2003, higher than the three-per cent hike predicted for the rest of the Canadian workforce.

So what are in-demand technology workers earning? A typical hardware engineer earned a base salary of $77,000 in 2002 compared to $100,000 for an ASIC design engineer. On the software side, the typical software development engineer pulled in $75,000 while a software development engineer with systems skills raised the bar to $97,000.

“Those are both unique skill sets,” said Ponting. “So they are typically earning 30 per cent more than their counterparts.”

Retention bonuses, signing bonuses and stock options — all hallmarks of the technology industry — are still prevalent, but the reasons behind using them seem to be shifting. In the past, retention awards were used primarily to reduce turnover as organizations geared up for a key project or project launch. But over the last two years the rewards have been increasingly used as organizations gear down projects during a merger or plant closure.

According to the survey, 42 per cent of technology organizations used a formal retention bonus program in 2002 while 60 per cent used signing bonuses and 75 per cent had a stock option plan. (For an in-depth look at what organizations are doing to hold onto workers during tough times see the Jan. 13, 2003 issue of Canadian HR Reporter.)

Even though stock markets have taken a beating, 70 per cent of technology organizations still believe options are at least moderately effective in attracting talent, 65 per cent said options motivate individual performance and three-quarters said it’s important to provide them to keep compensation competitive.

But the future of stock options as a reward is very much in the air. Canada’s accounting authority, the Accounting Standards Board, is drafting rules requiring companies to expense stock options. Currently most businesses do not have to include the cost of stock options. Ponting said it’s speculative at this point but accounting changes will definitely impact how stock options are handled.

“One likely result will be organizations being more restrictive in who they give them to,” she said. Technology organizations in particular tend to hand out stock options to many employees. So accounting changes could mean the options are only given to top performers. She also suggested many organizations would reduce the total number of stock options given.

“There’ll be a lot fewer of these mega-grants,” she said. “It becomes more of a resource that needs to be managed.”

The study looked at 170 technology organizations, covering 60,000 employees.

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