Why would an employer pay its tech workers extra cash for a skill or certification if they’re already getting a salary and annual bonus?
There are a dozen good reasons why, and they all share one thing in common: None would be necessary if the company’s compensation structure and pay practices were agile enough to successfully compete for talent in volatile labor markets.
The nature of the tech labor marketplace is exactly that, though, where the market value of a job or skill can move like a roller coaster depending on what’s hot and what’s not at any given moment. If your employer doesn’t have built-in flexibility to react quickly and correctly it may be in real trouble finding and keeping people to execute tech enabled business strategy.
Who needs skills pay and why
How do you know if your employer is a victim? Say, for instance, your company doesn’t normally have trouble retaining tech talent and suddenly the best people start walking out the door. Most likely your company wasn’t able to match competing salary offers.
Then, to make matters worse, it’s soon discovered that the competing offers were actually realistic average local market salaries for these positions — your employer was actually underpaying people what they were worth from the start. It’s called “salary compression”: when market driven pay for talent is growing at a faster rate than the annual salary increases employers are able to offer their workers.
Compression is a widespread systemic reality that tends to be much worse in the tech workforce because of the rapid evolution of technology, skills, and jobs. Every employer must decide whether to fix it permanently (very difficult) or patch it occasionally (less difficult and more practical).
If there is little leeway in the incumbent’s salary range to sweeten the pot on a counter offer, and a promotion is not a viable option, paying workers extra cash for critical skills and certifications can be the perfect solution. Especially when workers possess the very hot certified or noncertified tech skills that other employers are aggressively targeting.
The trick is to tie this extra cash directly to current market value for the hot skill or certification and guarantee that premium for some period of time, usually one year or more. When time’s up the employer can check whether market value has changed and decide if it makes sense to continue to pay the skills premium and how much to pay. Or, switch it out for another hot skill that’s become more valuable to the organization.
Perhaps the hidden advantage of using skills pay to solve short term compensation practice shortcomings is it buys you valuable time to work on a more permanent fix to structural problems. In addition to salary compression, this could include replacing bad salary surveys that aren’t providing accurate local market salary levels against which to measure pay for your most important tech talent.
What is the current cash market value of a skill?
Extra pay awarded to 69,900 U.S. and Canadian IT professionals for 880 certified and noncertified IT and business skills — also known as skills pay premiums — has been tracked and updated quarterly since 1999 in the IT Skills and Certifications Pay IndexTM (ITSCPI). Two thousand nine hundred and eighty five private and public sector employers currently provide this data to Foote Partners, covering a total of 255,600 IT professionals at these companies.
Market values for 468 noncertified IT skills in the most recent ITSCPI data update are averaging a respectable equivalent of a 9.2% of base salary with a median range from 1% to 19%. The current quarter’s result (through October 1st) is the seventh consecutive quarterly rise in overall pay for noncertified skills and the 39th gain in the past 48 quarters — a steady, sustained performance stretching back to mid-2004 that has been driven mainly by sustained gains in noncertified applications development, database, messaging/communications, and management/methodology/process skills.
The following noncertified tech skills are earning the highest pay premiums right now. They’re averaging cash premiums equivalent to 15% to 19% of base salary typically paid out each pay period as a cash bonus in addition to salary. Shown in descending rank order of market value including ties, arranged alphabetically within each rank.
- Data Architecture
- (Tie) Data Governance
TOGAF (Enterprise Architecture)
- (Tie) COBIT
Complex Event Processing/Event Correlation
Security architecture and models
- (Tie) Big Data analytics
Predictive Analytics and Modeling
- (Tie) Business performance management (software/systems)
Security skills (DW/BI, ERP, Web, project
Other great uses for skills premiums
Skills pay can also be used as an inducement in recruiting a prospective employee via internal transfer, or as the basis for a sign-on bonus for securing external candidates on the open market. It can be used as a de facto retention bonus.
Perhaps my favorite use for skills pay is as an incentive to encourage workers to develop their abilities so that they can have an impact in executing short- and long-term business strategies already identified and communicated by the employer. Right now that might be big data, cybersecurity, cloud and mobile computing, DevOps, and digital engagement.
But in technology, you never know what it will be next.