Hey, Big Spenders

In the new economy do hot skills equal cold cash? Well, yes, no and maybe according to the first local e-commerce salary review.

As a company that works hard to stay at the forefront of e-commerce, Dun & Bradstreet is used to finding itself under the eye of new economy companies looking to snag red-hot e-business recruits.

"We're a company that's been targeted by a lot of the dotcoms because we were early adopters and leaders," says managing director D&B Australia & New Zealand Christine Christian. "They look to our people as potential candidates so we've got to develop strong retention strategies to keep them. That doesn't just mean money but also making sure all of our people are involved in strategic planning, that they all feel like they're making a contribution to the business."

However, things are slowly changing. The April "recalibration" of dotcom company share prices - call it a "plunge", if you prefer - has eased the strain for bricks-and-mortar companies, according to the results of the 2000 Mercer Cullen Egan Dell and Korn/Ferry International study E-commerce Remuneration Review.

Korn/Ferry International principal Julie Perigo says the study shows that since the tumultuous events of April, bricks-and-mortar companies have been having a much easier time recruiting and retaining high-calibre staff to guide their e-commerce activities. Until April, attracting the skilled staff they needed was the bane of bricks-and-mortar organisations looking to build an e-business strategy. Dotcoms also had an edge when it came to retaining the hot shots of the e-business world. Now the plight of the bricks-and-mortar businesses has eased significantly.

"What we've found is that it's now somewhat easier for the bricks-and-mortar companies. They've felt in general that they've been able to buy time and it's become easier again for them to attract people since the April recalibration," Perigo says. "On the other hand, the dotcoms, having been flavour of the month, are now finding that people have been getting wary about diving in. Certainly at CEO level, the kind of letters of offer or contracts that they're looking at are much tighter than they were earlier in the year."

In fact, according to Mercer Cullen Egan Dell practice leader for information services Ilya Bonic, since April bricks-and-mortar companies have found themselves increasingly able to rely on their existing brand and security to attract and retain people. "It means they can give [recruits] the opportunity to grow and develop in this new area of business without necessarily taking the risk of working in one of the start-up-type companies," he says.

Early Days

E-commerce in Australia is still in its infancy. The average time the E-commerce Remuneration Review survey group had been formally engaged in e-commerce was just 16 months (see Figure 1). With so much yet to learn, and so many mistakes still to be made, many organisations - e-space [the report's term for dotcoms] and traditional alike - are grappling with the most effective ways to manage their human resource issues in a climate of growth and relative uncertainty.

What unites them all is the need to find the right people, and once found, manage their ongoing development within the company. In the e-commerce world the study has found a range of "hot" jobs, including Web developers, sales executives and senior executives, are posing the greatest challenge to recruitment . "There is a genuine challenge to find the necessary mix of skills and experience in a tight labour market and bring them into the organisation," the study finds. "Significant energy is being invested on attraction strategies," it observes.

Web developers and designers are still commanding a premium in terms of the amount of money needed to buy those skills into the organisation. Almost every organisation surveyed - dotcom and bricks-and-mortar alike - is complaining of trouble attracting sales staff of the right calibre and level of commitment.

Yet Perigo says, despite the challenge, 30 per cent of bricks-and-mortar respondents do nothing special to attract or retain staff, a result she describes as "a bit of a surprise". For the remaining 70 per cent of bricks-and-mortar companies, remuneration and attempts to provide interesting and challenging assignments are the most popular attraction and retention strategies. She believes this represents somewhat of a change from previous attitudes.

"The emphasis now is on good projects as opposed to the notion that once you come in here you'll be here for five or six years. There's more project orientation to make sure that there are some interesting and challenging assignments," she says.

In contrast, the e-space companies are somewhat more proactive, with only 17 per cent saying they don't do anything special to attract and retain staff. The rest see attraction and retention as significant strategic issues for the organisation. They place training and good mentoring alongside remuneration as incentives, as well as working with interesting people. "A company which puts a lot of emphasis on training is appealing to people who are looking to developing their careers in the long term," Perigo says.

Projecting Needs

The E-commerce Remuneration Review study also finds it is proving difficult to project staffing needs in such a dynamic environment. To overcome this difficulty, Bonic says, dotcoms often prefer to use contractors rather than hire permanent staff during the early days of the company. "They use the contractors for a while, then, when business is established, use those contractors to train up some permanent staff."

Bonic says dotcoms find this a cheaper way of bringing people on board. It not only lets them avoid high buy-in rates but also means they can avoid having to offer significant equity to individuals to join the company because the business is up and running by the time they make significant hires. "That said, though, they also commented that contractors weren't necessarily a cheap option, either," he adds.

While bricks-and-mortar companies also have problems projecting staffing needs, they tend to have larger IT workforces. The companies have the option of training up people, or moving them into the e-commerce arena.

Perigo says it appears the bricks-and-mortar companies are more tightly budgeted and tightly forecast. "Probably one of the key differences is between processes and fluidity," she says. "Processes within bricks-and-mortars to do with budgeting, forecasting, and the different salary bands within an organisation are somewhat more set.

"In the e-space, it is much more fluid. While that can be an attraction away from [the] bureaucracy [of traditional companies], it does tend to mean that every day sets a new precedent and the forecasting, particularly in the B2C space, I would say is much more difficult."

The study says that, to overcome projection difficulties, organisations need to be responsive. Staffing needs change with the needs of the business and this has led to laying off some staff and hiring new staff to realign the skills of the employees with the business objectives.

Another differentiator is that the e-space companies are much more willing to pay what it takes to get the right person on board (see Figure 2). Bonic says about 20 per cent of e-space companies say having identified the right person for the job, they will pay "pretty much whatever it takes" to get that person on board. Only 5 per cent of bricks-and-mortar companies share this view.

He says that this is probably because bricks-and-mortar companies are not only more disciplined but also have more structures and processes in place for working out exactly how much someone should get paid and how they should fit into the organisation. "So, while the e-space could concentrate on the individual, the bricks-and-mortar company would concentrate more on the role and the skills that were being brought to that role," Bonic says.

Bricks-and-mortar companies are more likely to use a traditional market-data approach to determine what salaries to pay their staff. The focus is on the position, and the objective is to find out what other organisations are paying people in similar positions. On the other hand, the e-space companies tend to have jobs that are more difficult to match to the external job market. As a result, they are more likely to tailor remuneration to the individual. Assessing an individual's impact on the performance of the organisation is likely to influence remuneration.

Interestingly though, the researchers found no widespread evidence of "pay gone mad", despite finding isolated instances where a policy of "pay whatever it takes" is in effect, even where contrary to company policy. The survey also finds just under one-quarter of organisations are prepared to pay some form of sign-on bonus to attract the right skills. About the same number are prepared to pay a skills allowance to staff to acknowledge "hot" skills.

Another finding flies in the face of conventional wisdom: the fact that general executives in the bricks-and-mortar companies are being paid more than those who are working in the e-space (see Figure 3).

Perigo says there is also a significant portability issue for e-space companies. "If you look at the distribution of pay within the bricks-and-mortar companies, it's tight across the whole range of the survey," she says. "But if we look across the e-space companies, we've got some people paid very low for the same role, and some people paid very high. I guess it's a function of where the business is in its life cycle, how much money it's got and how well it's performing."

Variable and Performance Pay

The vast majority of organisations provide their non-executive staff with short-term incentives (STI), generally provided on an annual basis. In contrast, just under half of the organisations offer non-executive staff access to long-term incentives (LTI), generally provided in the form of equity. The survey finds most executive staff are eligible for STIs while increasing numbers are becoming eligible for LTIs, with a number of organisations commenting on the increasing importance of LTIs in designing executive reward plans.

Some organisations don't intend to increase the fixed pay of their executive staff over the coming 12 months, but will instead focus on improving the LTI component. Vesting periods for LTIs are shorter for e-space companies than in the bricks-and-mortar companies.

"E-space companies are characterised by businesses in the early stages," the report says. "In these situations, executive salaries are often capped, and therefore earlier LTI vesting periods provide scope for balancing reward, maintaining salary package competitiveness, and allowing executives to realise the gains from their efforts in building the business during its growth phase."

Pay Equity

Most organisations, and particularly the e-space ones, report fairly flat structures within their e-businesses. "More than 50 per cent of e-space companies provide the same fixed pay salary to their senior executives based on reporting level within the organisation, regardless of their role. Similarly, the allocation of shares/options to senior executives in the e-space companies is more likely to be determined by reporting level within the organisation than on performance measures," the report says.

Pay equity is a key issue for bricks-and-mortar companies. Many of them identify tension between e-commerce and non-e-commerce staff because the former receive better remuneration and more flexible working conditions.

Perigo says many bricks-and-mortar companies commented about being constrained from offering better conditions by internal parity. According to Perigo, one technology multinational said it would love to offer higher salaries and "a really whiz-bang working environment that would be as sexy as the e-space [companies], but we can't do it because of the relativity - because basically the other 85 per cent of the workforce would get jealous".

Remuneration Movements

Survey participants expect median fixed remuneration movements among e-commerce staff to move at about 5 per cent over the coming months, with a typical range for movements of between 3.1 and 7 per cent (see Figure 4). Average movements are forecast to be even stronger, at about 6 per cent. Bonic says there are significant differences between bricks-and-mortar and e-space companies on the issue of remuneration movements.

"The bricks-and-mortar companies are more in line with what we'd expect as an average increase in the IT market, which is something like 5.5 to 6 per cent, on average," he says. "The e-space companies are thinking of budgeting more along the lines of 6.5 to 7.3 per cent."

He says this may reflect the notion that the larger established organisations, with larger established IT workforces, are less inclined to differentiate between the e-commerce workforce and the rest of the IT market. E-space companies, on the other hand, have a very specialised focus, are smaller, and hence need to look more closely at such issues.

High Rewards

Finally, the survey highlights just how much it pays for some people to be in e-space (see Figure 5). For instance, it shows marketing executives are being paid between 20 and 30 per cent higher in e-space organisations than in bricks-and-mortar companies. Likewise, Web content and development people are being paid in the order of 30 per cent higher than their counterparts in bricks-and-mortar organisations.

"The other two areas where there seems to be a large difference are in account management and business development roles where they're probably 20 per cent higher in the e-space organisations," Bonic says. "And the Web graphic designers similarly are earning 20 per cent-plus higher in the e-commerce or e-space organisations vs bricks-and-mortar."

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