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Volume 14, Number 43 -- October 31, 2005

iSeries Salaries Are Shaping Up to Rise 2006

by Timothy Prickett Morgan

It's that time of the year again. Not only are you looking ahead to the holiday season and lots of cheer, but you have probably sat through your annual review or soon will. And you are also keeping a careful eye on the IT manager and bean counters your boss keeps meeting with as they work together to figure out what the IT budget is going to look like in 2006 and, more importantly, what your cut of the loot is going to be.

It is probably safe to say there is never a time when people do not want a raise, but there are times when it just doesn't seem likely. We have put a few years between us and the last IT recession, but no one would be foolish enough to call the IT market, or indeed the economy in general, robust, much less booming as it was at the end of the last century. The good news is that pockets of the U.S., European, and Asian economies have improved, although there are still challenges as globalization wreaks its havoc on local industries the world over. (This is as good a time as any to remind everyone that the nature of an economy--even one in depression--is that it never comes to a complete standstill. People need to feed, clothe, and shelter themselves as well as work, and this provides a baseline of economic activity.) Moreover, the rising costs of energy, based mostly on the strong upswing in oil prices, is having a ripple effect on all economies, which are largely based on the nearly free energy we obtain from the use of oil. I know oil doesn't feel free, particularly when we are paying $3 to $4 a gallon at the gas pumps, but the reality is that it is relatively inexpensive compared to what it will eventually be and, equally importantly, compared to alternative energy sources that we would have had to use in the past 100 years had oil not been created in such bounty by Mother Earth. I am no economist, but it seems fairly obvious from my copious reading on the subject of energy in recent months that we have hit or will soon hit global peak oil production. With China consuming massive amounts of resources, including oil, as its economy explodes with growth, we have too many people chasing a static amount of oil supply. Gulf War II and hurricanes Rita and Katrina may have only accelerated a problem that was going to sock us anyway: the unavoidable rising costs of energy. So much of what we eat, make, sell, and distribute is based either directly or indirectly on oil, that the effect of energy prices on the global economy is magnified. But an economy is a resilient thing, and we will learn to absorb that cost. We really don't have a choice, other than economic collapse.

That may seem like a sidetrack when discussing IT salaries in general and salaries at iSeries shops in particular, but energy price increases are a big factor in the cost of living raises many IT staff get as well as the costs of doing business at the companies where you work. It puts something of a squeeze on your employer, to put it bluntly. You need more money to live, and you deserve it, but the company will have to pass the rising costs of energy on to your customers just to keep your pay the same. If your company raises prices a little bit more to cover the cost of employee raises, then you actually take part in the creation of the next wave of inflation. Two weeks ago, the Social Security Administration announced a 4.1 percent cost of living increase for the 2006 fiscal budget, and Uncle Sam raised the cap on Social Security wage taxes from $90,000 to $94,200. Some 11.3 million of the 161 million U.S. citizens who kick in to the Social Security fund will see tax increases in 2006, and the good news (if you make less than that) is that all of those programmers with a zillion years of experience as well as the IT managers who make a lot more than you do will be hit with this tax increase and you won't be. The changes in the Social Security benefits and tax rates are just a reflection of the Consumer Price Index, which is one measure of inflation. At this time in 2004, the CPI was running at an annualized basis of 3.3 percent, and in the September survey this year, the annualized rate spiked to 5.1 percent. A very large portion of that increase comes from higher energy costs. People on fixed budgets need more money to cover their costs, and that extra money has to come from somewhere.

To get a sense of what iSeries salaries are doing, I talked to Nate Viall, the well-known OS/400 market compensation expert based in Des Moines, Iowa. Viall normally does an in-depth salary survey this time of the year, but because of a personal issues, he has been unable to chase down salary data as aggressively as he has in the past. So he is only willing to give out some rough projections about what OS/400 salary increases might look like in 2006. (I am now going to ask you to do me a personal favor, which I do not do very often. Please send Viall an email and tell him you want to participate in his salary survey. If enough of you contribute data quickly, he can case the market better and help all of us understand what is going on out there in OS/400land when it comes to salaries.

The inflation rate, Viall predicts, is going to be a big factor in salaries at all kinds of IT shops in 2006. "The CPI will drive salaries upward," says Viall. "Large companies in particular are very sensitive to this number. And regardless of what is happening with the iSeries platform and issues of supply and demand of iSeries talent, employees can expect salary increases of between 3.5 percent and 4.5 percent in 2006."

What salary trends will look like in the aggregate are a bit of a mystery, mainly because there are a number of different factors that are pushing salaries up and then pulling them back down again. First and foremost, a lot of IT shops are again being asked to cope with smaller IT budgets in 2006. Luckily they have been focused on increasing the utilization of IT assets and attacking the capital expenditure side of the IT budget. The operational side of the IT budget is certainly not immune to pressure, particularly in areas where there is server sprawl and companies are installing virtualization and systems management technologies to more fully automate the creation and maintenance of servers and their applications. While no vendor says this and no IT shop wants to admit it, the primary driver behind the deployment of these tools (Tivoli Orchestrator, Opsware, N1 Systems Manger, System Insight Manager, and so forth, depending on the platform) is not just to increase the efficiency of IT operations. It is to also get rid of some people. (There, I said it.)

So there is the normal budgetary pressure. But there is also an increase in spending on application development and the project management associated with it. IT shops want to cut their capital and systems-related operational expenses a lot, but are willing to give some of those cuts back to implement new applications that have been sitting in the backlog for years. In July, Foote Partners, an IT compensation consultancy based in New Canaan, Connecticut, said that after trying out offshore application development and outsourcing, companies were beginning to invest again in their own people to write in-house applications. In the first six months of 2005, skilled application development salaries were up 2.3 percent among a portion of the 50,000-strong IT base that Foote Partners surveys, and in the third quarter survey completed between July and September, application development salaries were up an incredible 13.2 percent. (These surveys are obviously across all platforms, not just on the iSeries.) As for iSeries programmers, Viall echoes that the situation is improving. After flirting with the $60,000 salary level across all programmer experience levels a few times in the past couple of years, the most recent data he has compiled shows OS/400 programmers have solidly crossed the $60,000 threshold and are not going to see this number decline, barring some economic catastrophe.

Viall says it is not entirely clear what effect the aging of the Boomer generation or the lack of newbie iSeries programmers will have. Based on his analyzing of salary data from IT job posting sites like Dice and Monster, the IT market in general has seen an influx of less-experienced newbies, and this is bringing down average salaries even though no one is being fired. This is, of course, the reverse of what happens in a recession, when companies let go of their least experienced people and hold on tightly to their best people (meaning, they give them some of the savings), which makes average salaries at IT shops rise. This salary decline has not yet happened in the iSeries market, according to Viall, mainly because we are not adding a lot of entry programmers and new customers. But as we add more customers, that could change the nature of the equation. Another factor that might bring down the averages is when some of the Boomers decide they have had quite enough and they cut back their responsibilities and pay, or decide to become part-time consultants rather than full-time employees. Many of the Boomers are not going to keep working until they are 66 or 67, and when they leave in big numbers, there will be lots of excess salary to go around, to be sure, but a lot of company experience will walk out the door and it will be costly to replace it.

With the iSeries market being somewhat insulated, it is reasonable to wonder if RPG programmers are getting paid more or less than, say, Java programmers out there in the market at large. To get some sort of sense of this, I played around with the most recent Dice IT salary database, which is not a rigorously scrubbed data set like Viall's data is. But it is at least something to go on. (You can see this Dice salary database at this link.) I just queried full-time employees and looked at any record in the Dice database for developers and project managers with either RPG or Java in their experience. (The Dice site would not let me shake out the overlap in those two data sets.) Across all job titles in the United States, those with RPG experience average a salary of $73,840 (1,362 respondents), with a mean salary ranging from around $67,000 to a high mean of over $87,000. If you just look at RPG developers (266 respondents), the mean experience level is 8.8 years and the mean salary is $68,001. Project managers (70 respondents) had a mean salary of $87,934 and an average of 6.3 years of experience. Now, for Java, there appears to be more money there. Some 13,307 full-time respondents reported Java experience (an order of magnitude higher than for RPG), and their mean salary was $82,947 with 5.2 years of experience. There were only 2,209 Java application developers in the survey (as opposed to vendor programmers or systems programmers and such), and they reported an average salary of $80,519 and 5.4 years of experience. Base salaries for 1 to 2 years of experience were in the low $60,000s, cresting around $90,000. Project managers with Java experience averaged about the same experience, and had slightly higher salaries on average than their RPG counterparts, with $93,915 in annual compensation. If you trust Dice's data, there is a slight premium for Java over RPG.

Viall downplays this data, saying there is not a big premium for Java programmers these days. That was not the case a few years ago, when Java was relatively new and the experience levels out there in the IT base were low. Having both RPG and Java experience was definitely worth a premium. "Over time, a developer is a developer, and the IT market will level the playing field," he says.

So what does matter when it comes to IT hiring and pay? "There is a real concern about quality," explains Viall, whose recruiting business has picked up substantially in the past year. "It may sound old-fashioned, but character counts, quality matters, and knowledge of business processes is important. To use the car analogy, we have a lot of mechanics out there, but what businesses want are engineers."

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Editor: Timothy Prickett Morgan
Contributing Editors: Dan Burger, Joe Hertvik, Shannon O'Donnell,
Victor Rozek, Kevin Vandever, Hesh Wiener, Alex Woodie
Publisher and Advertising Director: Jenny Thomas
Advertising Sales Representative: Kim Reed
Contact the Editors: To contact anyone on the IT Jungle Team
Go to our contacts page and send us a message.


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