IT Salaries: Up, Flat, or Down in 2005?

With only another six weeks of business left in 2004, IT plans and budgets for 2005 are being mulled over. The data on the American and worldwide economy is mixed, as it has been for years, but there are encouraging signs that companies have adjusted to the uncertain conditions and the economy is improving enough to actually consider hiring IT staff again. But there are a few issues that loom large and could affect your potential raise in the coming year.

The prospects that IT personnel will see an increase in compensation are pretty good, but the average increases look a bit on the thin side, according to a recent survey by Robert Half Technology, the Menlo Park, California, IT staffing unit of Robert Half International. Don’t let those averages scare you, particularly if you have lots of IT experience and know a lot about the business your company is in. If that’s the case, you will do much better than the averages.

“As the economy gains momentum and businesses pursue new technology initiatives, the need for experienced IT professionals will continue to rise,” said Katherine Spencer Lee, executive director of Robert Half Technology, in a statement accompanying the survey results. “While average starting salaries should remain relatively stable in 2005, compensation levels within many specialties will increase as demand for these skills becomes more pronounced.”

Robert Half Technology is projecting that that average starting salaries in the United States will go up 0.5 percent in 2005, compared with a 1.6 percent decline that the company was projecting in 2004 this time last year. Spencer Lee said that IT personnel with expertise in security and quality assurance will be in high demand, and therefore will probably see higher salary increases. She said that system auditors, who have been driven crazy by compliance issues, will see their compensation rise by 5.1 percent (on average), with a range (depending on experience, industry, and geography) of $63,250 to $81,750. Programmer/analysts around the United States will see an average increase of 3.6 percent, with compensation ranging from $52,500 to $83,250. Robert Half Technology predicts that network security administrators will have a salary range of $63,750 to $90,500, and that their salaries will rise by an average of 2.3 percent; whereas quality assurance and testing managers will have starting salaries of $64,750 to $86,750, an increase of 2.2 percent on average. The company expects that system analysts will see more modest gains of 1.9 percent in salary increases (to a range of $56,000 to $80,500) and that starting salaries for Web administrators will decline by 1.9 percent, to a range of $48,250 to $70,750. Starting salaries for desktop support techs will drop by 3.8 percent, to a range of $44,500 to $63,250, Robert Half Technology said. The company expects that IT hiring will be strongest in the financial services, real estate, and business services industries, which not only rely heavily on IT for differentiation but are all strong drivers in the recovery in the U.S. economy.

So how will salaries do in the OS/400 market in the coming year? To find out, I talked to Nate Viall of Nate Viall & Associates, an IT recruiter and compensation analyst for the IBM midrange for the past 23 years. “We’re probably going to see the same pattern that we have seen in the past three years in the OS/400 market,” said Viall. He expects that, across all job titles, geographies, and industries, IT personnel will do somewhere between 1.5 and 2 percent better than the cost of living index (one measure of the inflation rate), which is running at about 2 percent right now. Viall said that, at a lot of companies, salary increases across all jobs in 2005 (including all jobs at the company, not just those in IT) will be in the 2 to 3 percent range, so IT personnel will do better than their coworkers in other departments.

However, salaries could spike for a couple of different reasons. For one thing, IT shops have been doing more for less over the last three or four years, and people are getting just plain tired. If IT managers, programmers, and administrators have to do more, they are going to want to get paid more, particularly with the news that the economy has stabilized and might be growing again. “These people have hunkered down for three years, and now it is payback time,” said Viall. But there is perhaps more going on than meets the eye.

Viall also said that he is seeing an uptick in hiring in the OS/400 market for new jobs. Now, ever so slowly, the most forward-thinking companies with budgets for IT projects are starting to poach employees from other companies, and they are going to try to steal the best candidates before the economy recovers more strongly and there is a frenzy to chase top IT talent. Once this process begins, everyone starts pursuing the IT talent they will need for long-overdue projects and to replace IT staff members who may have left because they got a better offer. And if companies want to keep the talent they have (especially after they lose a hot manager or programmer), they will have to pay raises to existing employees to retain them. All of these forces put upward pressure on salaries.

So did the capping of H1-B visas early last year, Viall said. And if Congress listens to the whining of the big players in the IT industry, which complain endlessly about the lack of indigenous IT talent, and raises the number of H1-B visas again, there will be huge numbers of people from outside the States who will get jobs that might otherwise go to U.S. citizens. Viall said that IT students who graduated in 2001, 2002, and 2003 did not have many job offers, and that many had to take jobs below their training. But, in 2004, about half of the students had a job when they graduated, and the top quarter had more than one job offer. It is probably not a coincidence that this was exactly the same time that the number of H1-B visas available to the IT industry was curtailed.

Another potential problem in predicting IT salaries in 2005 and beyond is that IT shops, particularly OS/400 shops, have not done entry-level hiring in the past couple of years. So there will be a dearth of IT staff with a few years of OS/400 experience when and if the massive game of musical chairs begins. Viall said that his salary survey data suggests that companies are already promoting from within to fill entry IT positions, with many employees, for example, starting at the company in 1998 but having only two years of IT experience.

Perhaps one last factor could put more upward pressure on IT salaries this year: baby boomers saying that they have had quite enough. For those boomers who have accumulated a nest egg for retirement, there is little reason to stick around working until they are 65. They can take their 401(k)s, pensions, and savings and retire now and enjoy their life before health issues slow them down. Viall said that anyone who thinks boomers will work until they are 65 or later is in for a big shock. It just so happens that the vast majority of the most experienced IT people are between 55 and 60, and even if only a small percentage of them start retiring early, it will send big ripples through IT budgets worldwide.