Understanding Compensation Trends: Making Sense of Mixed Messages

Understanding Compensation Trends:
Making Sense of Mixed Messages
June 18, 2003

Reports over the past year provide mixed messages on compensation trends for technology workers:

"Tech workers may want to cut another notch in their belts because they'll most likely have to tighten them next year." - Siliconvalley.com

"IT workers suffered nearly a 10 percent drop in pay rates in the first quarter of this year..." - InternetNews.com

"Although the hiring outlook remained bleak, the survey found that three out of four companies had maintained the salaries of existing technology employees. Of those companies that changed compensation, only 8 percent lowered pay, while the rest increased paychecks." - InformationWeek

Yet even another article mentions salaries rising, falling, and rising again during the first quarter of 2003. So what do these mixed messages mean? Our research shows little is gained from sweeping generalizations regarding salary trends.

A simple comparison of differences among median pay rates for data collected over the past six months with data from the last two years reveals some interesting facts. Across 500 high-tech industry positions, salaries for half of the jobs are up, whereas half are down. The top ten percent of jobs are up over 6% and the bottom ten percent are down over 6%. This comparison illustrates the complexity of compensation in the technology industry. Compensation for all jobs is not heading in one direction.

Also in the
June eBulletin

- Insights on Financial Ratios: A Comparison of Four High-Tech Industry Sectors

Last Month's Survey Results
- Responding to SARS: HR Initiatives Needed

Other Recent Articles
- Sales Impact Drives Sales Pay
(5/03)

- Pay Levels Rise Faster for Accountants than Developers (4/03)

- A Rising Tide Lifts All Ships: Setting Appropriate Executive Goals
(3/03)

The first of the quotes above suggests that tech workers may have to tighten their belts because salaries are falling. However, when news reports state that salaries are falling, they are not falling for the vast majority of individuals who remain within the same position working for the same company. Table 1 below displays an analysis of average changes in compensation for companies submitting two consecutive years of data.

Table 1: Comparative Pay Changes Across Two Years within the Same Companies
Senior Software Developer (6+ yrs of experience)	Base Salary		Target Total Cash Comp
Senior Software Developer (6+ yrs of experience)	$1,000's	Change	$1,000's	Change
Prior Year	82.0		86.2
Current Year	84.3	+ 3.1%	88.1	+2%
Senior Staff Accountant (6+ yrs of experience)	Base Salary		Target Total Cash Comp
Senior Staff Accountant (6+ yrs of experience)	$1,000's	Change	$1,000's	Change
Prior Year	50.7		52.8
Current Year	55.8	+ 11.1%	57.5	+ 9.6%
Data based upon non-weighted job averages from over 150 high-tech firms. Source: Culpepper Compensation Survey database, June 13, 2003.

Since turnover rates range from 19 to 27 percent, approximately three-fourths of the employees are the same across both years. Thus, if salary reductions were a common occurrence, these numbers would decrease, not increase. In addition, only 16 percent of Culpepper participants have no plans for salary increases for the year 2003. Currently, 2003 salary increase budgets are running at an average 3.55 to 3.77 percent for operations and technical professionals, respectively.

The quote from InternetNews.com states that IT workers experienced nearly a 10 percent drop in pay rates in the first quarter of the year. An analysis of three jobs from our survey over this timeframe indicates this may be true for market pay rates on certain positions, but is certainly not true across the board (Table 2).

Table 2: Changes from 2002 to the First Quarter of 2003
MIS Manager (7+ yrs of experience)	Base Salary		Target Total Cash Comp
MIS Manager (7+ yrs of experience)	$1,000's	Change	$1,000's	Change
Year 2002	97.8		106.4
1st Quarter 2003	90.9	-7.1%	97.3	-8.6%
Technical Writer II (4+ yrs of experience)	Base Salary		Target Total Cash Comp
Technical Writer II (4+ yrs of experience)	$1,000's	Change	$1,000's	Change
Year 2002	59.6		62.1
1st Quarter 2003	57.3	-4.0%	59.4	-4.4%
Senior QA/Testing Analyst (6+ yrs of experience)	Base Salary		Target Total Cash Comp
Senior QA/Testing Analyst (6+ yrs of experience)	$1,000's	Change	$1,000's	Change
Year 2002	72.6		76.0
1st Quarter 2003	72.3	-0.5%	75.4	-0.8%
Data based upon non-weighted job averages from over 150 high-tech firms. Source: Culpepper Compensation Survey database, June 13, 2003.

Data collected over the past year, compared with that of the year before, provides a broader perspective on the complexity of salary trends. Table 3 illustrates how different positions have experienced quite different changes in market pay rates over a two year period.

Table 3: Changes across a Two-Year Span
Customer Hotline Manager (+7 yrs of experience)	Base Salary		Target Total Cash Comp
Customer Hotline Manager (+7 yrs of experience)	$1,000's	Change	$1,000's	Change
Prior Year	81.1		88.1
Current Year	73.6	-9.4%	78.8	-10.6%
Senior Database Admin. (+6 yrs of experience)	Base Salary		Target Total Cash Comp
Senior Database Admin. (+6 yrs of experience)	$1,000's	Change	$1,000's	Change
Prior Year	87.8		93.1
Current Year	88.8	1.1%	94.0	0.9%
Systems/Network Admin Mgr. (+7 yrs of experience)	Base Salary		Target Total Cash Comp
Systems/Network Admin Mgr. (+7 yrs of experience)	$1,000's	Change	$1,000's	Change
Prior Year	82.7		89.0
Current Year	87.2	5.5%	94.1	5.7%
Data based upon non-weighted job averages from 113 high-tech firms for the Customer Hotline Manager and over 160 firms for the Senior Database Admin and Systems/Network Admin Mgr. Source: Culpepper Compensation Survey database, June 13, 2003.

Of the three quotes at the beginning of this article, InformationWeek provides a reasonable description of high-tech company practices. The author of the article avoids making claims about the general direction of all technology worker salaries.

When reading about trends in compensation, be aware that sweeping statements regarding technology salaries may not capture the true nature of compensation shifts. There is not a consistent decrease or increase in all jobs in the technology industry. Current and reliable salary data is essential to set your salaries at appropriate levels.

- Will Parsons

Understanding Compensation Trends: Making Sense of Mixed Messages June 18, 2003

Understanding Compensation Trends:
Making Sense of Mixed Messages
June 18, 2003