Tim Ramsay faced numerous challenges in his search for a security manager for the University of Miami late last year. For starters, the tight IT labour market in southern Florida was forcing the university to compete with international banks, travel companies and other organizations for the same scarce talent.

Moreover, although Ramsay's ideal candidate was a seasoned security chief who could set a vision and create policies for the university, he realized after the first handful of interviews that it would be difficult to find someone who had all the qualities he was looking for.

But Ramsay also faced a more far-reaching problem. Once the university extended a nearly six-figure offer to a candidate, Ramsay would need kid gloves to handle the reaction from IT staffers, who would know the salary range based on the job title and grade. "There's no easy way to be competitive with new hires without running the risk of creating an internal morale problem with incumbents in the same job class," says Ramsay, the university's associate vice president of IT.

Ramsay is referring to the compensation squeeze play that he and other IT leaders are currently facing. As demand for certain types of IT competencies has heated up, particularly for niche skills in areas such as industry-specific ERP technologies or upper-echelon .Net development, companies have had to pump up their offers to snare the right people.

At the same time, CIOs are under enormous pressure from senior management to hold down their IT labor costs. Executive uncertainty about the economy has kept overall salaries down, and the increased use of lower-paid IT workers overseas has helped depress wages for developers, help desk technicians and other technologists whose jobs are vulnerable to outsourcing, notes Craig Symons, an analyst at Forrester Research.

In fact, the average salary budget increase for IT employees has barely kept up with inflation. In 2006, the average IT salary rose just 3.1 percent, according to Computerworld's latest salary survey. And Gartner forecasts that 2007 IT staff budgets will rise just 3.5 percent, says analyst Diane Berry.

So while IT leaders are whipping out their checkbooks to court coveted candidates, they're also trying desperately to find ways to keep their top performers from moving to greener monetary pastures.

"You constantly have to worry about it," says Dan Demeter, CIO at Korn/Ferry International, a Los Angeles-based executive recruitment firm. "If you bring someone in at the higher end, you don't want [IT staffers] wondering why a new person has been brought on for so much money."