Compensating Tech Workers—Best Practices for Retention

It’s challenging to reward tech workers, says consultant David Wudyka, but you have to find a way to do it or you’ll lose them. Wudyka is the founder and managing principal of Westminster Associates, a Massachusetts-based human resource and compensation firm that specializes in pay, performance, and productivity issues.

His tips came during a recent webinar sponsored by BLR/HRhero.

Why Tech Employees Are Different Than the Rest

• They tend to be more highly educated, and therefore looking for more compensation
• They may have higher expectations in their jobs, take pride in their work
• They’re feeling the fatigue of the recession more than other workers. Many employers push their tech employees more aggressively during tough times (particularly since many are exempt employees).
• They’re more likely to "vote with their feet." Even in a rough economy, tech workers—particularly those with “highly sought-after” skill sets—can move to different employers more easily than their non-tech counterparts.

In many organizations, there’s little wiggle room today to use significant base pay increases as a retention tool. Simply put, the money’s not in the budget.

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This problem is critical at small to mid-size organizations, because studies show tech jobs at companies with 5,000 or more workers pay almost $20,000 more per year on average than similar jobs at companies with fewer than 50 workers.

Fortunately, Wudyka says, many tech workers want to be the big fish in a smaller pond. At large firms, they tend to be pigeon-holed into narrow roles, whereas at smaller firms, there’s often more opportunity to grow.

Is My Pay Fair?

Wudyka believes that the key retention issue for many tech workers with their base pay isn’t the amounts involved, it’s the question of "Is my pay fair?"

These employees understand the recession, but they want to know that their employer has set their base pay at the most competitive level possible, given the salaries their peers are earning.

So, set your base pay levels for the most competitive amounts possible, Wudyka says. Maintain your midpoints at a competitive level (the midpoint should be the average pay or competitive rate for any job in a given pay grade relative to market place).

Communicate this information to your tech workers. Let them know that you do regularly monitor the marketplace to insure that pay levels are fair.

If there’s a good reason why your base salary levels fall significantly below your competitors’ pay, explain the reason so that your tech employees feel in the loop.

Many employers have had to do this in the last three years. It will help if you explain, for example, that the action was taken in the interest of saving the company and saving jobs.

You may lose some employees, says Wudyka, but experience suggests that honesty will be more helpful than stonewalling.

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Short-Term (Variable) Pay

Short-term variable compensation is tied to the achievement of goals. The way you calculate this pay is typically set in advance and communicated to your tech employees, so that they know the goals , standards, and measures, and their tools for getting there.

Variable pay may relate to:

• sales or production volume
• customer satisfaction levels
• meeting of specific project deadlines
• other factors

The more influence your tech employees have on reaching the desired goals, the more they should potentially earn in short-term compensation.

The Comp Strategies: Long-Term Compensation

Long-term compensation typically includes stock options or bonuses that vest over a longer period of time.

For many years, stock options and long-term bonus structures have been widely used with tech employees. However, the struggling economy pushed the value of many of these plans below their intended levels, greatly reducing their value.

It can be demotivating when employees reach their assigned goals but their rewards lag due to factors outside of their (and your) control (e.g. stock options that lose their value in a rough economy).

Be sure to review your long-term pay components regularly to ensure that they’re structured to deliver the highest values possible, despite the performance of the overall economy.

In tomorrow’s Advisor, perks that appeals to tech workers, plus an introduction to the comprehensive compensation website, Compensation.BLR.com.