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How to Pay Tech Professionals in a Digital World

It’s difficult to find an employer that isn’t struggling to come up with its own unique tech staffing model that balances four things: the urgencies of new digital innovation, combating deepening cybersecurity threats, ever-changing customer sophistication and keeping increasingly complex systems and networks running smoothly and efficiently.

Getting compensation right for technology professionals has been an especially nagging problem. Compensation and benefits (C&B) teams have experienced decades of constant market price volatility for tech jobs, driven by the swinging pendulum of hot skills and tech labor supply and demand. No less of a challenge has been the multidimensionality of hard-to-fill technology positions with their countless combinations of skills, knowledge and experience in jobs that no salary survey can possibly capture.

And it’s not just the technology skills that make it difficult: Try calculating pay and balancing internal equity when there’s also hybridism in how these jobs fit along a tech-business continuum. Layered throughout the enterprise, tech jobs often require knowledge and experience in specific company products or services, business processes and solutions and even industries and customer niches.

It’s About to Get More Complicated

Several emerging, game-changing technologies are altering the landscape of not just businesses, but the private lives of billions of people. Here’s a short list destined to make life more difficult for total rewards professionals already struggling with their enterprise tech workforce:

  • Artificial Intelligence/Machine Learning
  • Next-gen Internet of Things
  • Blockchain
  • Automation and Robotics
  • Big Data/Advanced BI analytics
  • Cybersecurity
  • Health-care tech/Telemedicine
  • Cloud computing
  • Mobility
  • Edge computing
  • Quantum computing
  • Exponential energy/Carbon-reducing technology
  • Autonomous vehicles
  • Web 3.0

If these disruptive technologies existed independent of one another, it might not be nearly as frightening from a labor demand perspective. But they don’t: They are all part of one gigantic, dynamic, digital mesh. This is placing more stringent demands on organizations to plan, build and manage a workforce capable of capitalizing on the promise of revenue generation and the competitive advantage these disruptors offer.

The good news is 2018 was a breakthrough year, as many employers finally began to take stock of how poorly prepared they are from a talent perspective for developing or consuming these revolutionary technologies. The two big discoveries our firm’s 3,300 research partner employers have made are that the road ahead will require significantly updating their human resources models and processes and that it will be a long and perilous journey.

The Challenge

In a process reminiscent of a 12-step program, the past few years has witnessed employers first facing up to the reality that they have been trying to squeeze performance out of underperforming HR management systems, outdated compensation practices and ad hoc work-around solutions that no longer work for their tech professionals. Too often absent is the kind of agility, flexibility and power required to do competitive combat in this digital universe.

Second, they realized a need to build a new foundation on top of the teetering one they currently have in place, all while keeping up with day-to-day demands of serving their current tech workforce.

Finally, most are seeing the C&B solution as not just an HR activity, but as an enterprise fix requiring the active participation of key personnel who have a stake in managing technology jobs. In some cases, there are corporate cultural imperatives that need to be addressed. In all cases, senior executives and managers have the responsibility of determining job content, defining skills and projecting labor demand based on business strategy and timelines going forward. They’re good at doing this but rarely do they allocate enough time to these tasks.

This is a challenge that has moved well beyond simply choosing between contingent workers, full-time tech professionals and a variety of third-party services options. Labor market shortages will persist, if not worsen, for all these options, meaning employers will need to amp up efforts to develop their own talent in-house and install more robust and flexible compensation practices.

Tech skills pay programs will buy you valuable time to work on more permanent fixes to structural problems that for years have encouraged managers to game a broken system to get what they need.

These changes won’t happen overnight. “Clean sheeting” organizational systems and practices isn’t realistic. Building a new human resource foundation under what you’ve already got, and incrementally strengthening that foundation over time, takes a concentrated effort. Practically speaking, it takes a few fiscal cycles just to get budgets in line as a cascade of carefully orchestrated pay programs and recruiting and training efforts are launched for optimally restructuring the workforce for the disruptive digitalization.

Ironically, C&B groups will be able to count on digital technology for help. Eventually, artificial intelligence (AI) will be ubiquitous in tasks such as matching internal jobs to external compensation benchmarks, recommending optimized pay raises and breaking with predetermined process cycles to tailor pay and benefits reviews to individual employee circumstances. It’s still early stage: For example, only 9% of organizations said they are currently using AI in their compensation processes, while 32% are just thinking about it, according to the WorldatWork/Salary.com survey, “The Compensation Function of the Future: Looking Ahead to 2020.”

Ground Rules for Paying Tech Professionals

Rule #1: It’s nearly impossible to rely on salary and bonus alone.

There are too many moving parts in constructing tech jobs, especially in the digital mesh. Attracting, retaining and incentivizing tech talent often requires paying extra cash over and above salary for specific certified and uncertified tech and business skills critical to job performance. Skills cash pay premiums solve a myriad of problems including:

  • Salary compression: Bringing total cash compensation to true market levels when annual salary increases for hot jobs fail to match external market pay growth;
  • Market volatility: Making pay adjustments for short-term ups and downs in hot tech skills demand that attract the attention of recruiters searching for skills gaps to exploit;
  • Retention: Leveling the playing field for tech labor market competitors who attempt to use high salary/low bonus compensation philosophies to convince people to jump ship;
  • Hiring: Justifying sign-on bonuses by tying them to specific hot tech skills and certifications;
  • Incentives: Communicating to workers which skills will boost their visibility, accelerate their promotability and earn them more total cash compensation if they qualify; and
  • Job equalization: Maintaining true job alignment by using cash premiums to keep similar jobs appropriately leveled and graded across the enterprise, thereby avoiding artificial promotions and title inflation.

Tech skills pay programs will buy you valuable time to work on more permanent fixes to structural problems that for years have encouraged managers to exploit a broken system to get what they need. Employers can use skills pay to differentiate tech workers who perform essentially the same core job and are graded similarly ‑ software engineers, for instance ‑ but work in areas with significantly different skills requirements, such as e-commerce groups versus the data center. This can also reduce the number of job titles in the organization by focusing more on roles than titles for salary comparisons and further fine-tuning pay through cash premiums.

The trick is to tie this extra cash directly to current surveyed market values for skills/ certifications and guarantee the premium for a relatively short period of time, usually one year. After the premium’s time period expires, the employer can check whether cash market values have changed and then decide if it makes sense to continue paying the premium or reprice, if necessary. Or, switch out last year’s hot skills group for new ones that better match the latest skills demand and acquisition plans.

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Architecture-Driven Pay Practices for the Digital Age

With their digital futures in mind, senior executives have been asking not just HR leaders, but also business line and technology leaders to be more accountable in solving tech labor issues. Scrutiny of their performance has intensified, starting with greater security (against dreaded cyber attacks), advanced analytics (for making more informed decisions) and capitalizing on fast-moving opportunities such as blockchain, Internet of Things, AI, cloud, mobile and a variety of other digital innovations.

With new pressures to execute more predictably in unfamiliar areas, applying architecture principles and practices to managing the tech workforce is widely observed as providing, by far, the most consistent, viable solutions to systemic tech compensation problems.

So-called tech people architecture (TPA) is very similar in principle to traditional architecture initiatives, but it is applied to tech workforce management practices. There are capability road maps, phase-gate blueprints and performance metrics. Governance issues need attention and business strategy drives it all. But with TPA, it’s about how key human capital management elements such as job definition and design, skills demand and acquisition, compensation, incentives and recognition, professional development and work-life balance plug into an overall optimized operational model that is different going forward than it has been in the past. The model is tuned to new technologies, constantly changing business environment, and culture and performance philosophies. And, like any disciplined architecture approach, it promotes scalability and flexibility.

Across our research partner network of thousands of employers in the United States and Canada, we’ve observed results from TPA efforts that include:

  • Reducing by 50% to 70% the number of tech-related job titles necessary to plan and administer pay;
  • Reducing tech staff churn in key roles, especially the most experienced tech workers;
  • Less uncertainty about how much to pay tech professionals, especially new jobs and the “Swiss Army knife” hybrid positions;
  • Narrowing or altogether eliminating persistent internal technology skills gaps;
  • Reducing job definition/design chaos around tech jobs that don’t fit in very well with established tech roles;
  • Mapping out how workers can move more effectively through promotions and career paths; and
  • Increasing consistent availability and quality of skills and workers and achieving higher utilization rates.

Why does TPA work when other solutions have not? Because business architecture practices have been successful for over a century; they are familiar to both business and technology executives. When technology architecture became popular 30 years ago, companies were able to achieve an understanding of what they had systems-wise and could erect guardrails to avoid unwise future technology investments. They could instead focus on more vital things like scalability, systems integration and providing tech solutions to further company strategy, all within a process inclusive of all the various stakeholders who share risk in the outcome.

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TPA is generally a five-step process and doesn’t have to be a big initiative with lots of fanfare. In fact, it’s common to see TPA initiatives improve the ability of companies to transform to new tech workforce models in targeted employee segments such as info/ cybersecurity, digital product development, mobile platforms, cloud computing and big data analytics.

The one constant between small and large initiatives is committed participation of managers in all five steps:

  • Defining standard tech roles;
  • Aligning current and future jobs to each role;
  • Documenting jobs and building a role architecture framework;
  • Melding an agile compensation structure within the framework; and
  • Making sure tech rank-and-fi le professionals understand their job expectations, career paths and professional development opportunities in the new role architecture.
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By this time next year, it can be expected that a number of new TPA success stories will be available in the compensation and benefits space, serving as solid examples for how to tame the digital monster at your doorstep.

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David Foote David Foote is co-founder and chief analyst at Foote Partners LLC in Vero Beach, Fla. He has been a WorldatWork member since 1995.

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