Posts Tagged‘salary’

Dealing With The “Skills Shortage”.

Canberra is a weird little microcosm as its existence is purely because the 2 largest cities in Australia couldn’t agree on who could be the capital of the country and they instead decided to meet, almost literally, in the middle. Much like Washington DC this means that all of the national level government agencies are concentrated in this area meaning that the vast majority of the 360,000 or so population work either directly or indirectly for the government. This concentration of services in a small area has distorted many of the markets that exist in your typical city centres and probably most notable of them all is the jobs market.

To put it in perspective there’s a few figures that will help me illustrate my point more clearly. For starters the average salary of a Canberran worker is much higher than the Australian average even beating out commodity rich states which are still reaping the benefits of the mining boom. Additionally Canberra’s unemployment is among the lowest in Australia hovering around a staggering 3.7%.  This means that the labour market here is somewhat distorted and that’s especially true for the IT industry. However, like the manufacturing industry in the USA, there are still many who will bellyache endlessly about the lack of qualified people available to fill the needs of even this small city.

The problem is, as it always has been, simple economics.

I spent a good chunk of my career working directly for the public service, jumping straight out of university in a decent paying job that I figured I’d be in for quite a while. However it didn’t take long for me to realise that there was another market out there for people with my exact same skills, one that was offering a substantial amount more to do the same work. Like any rational person I jumped at this opportunity and have been continuing to do so for the past 6 years. However I still see positions similar to mine advertised with salaries attached to them that are, to be fair, embarrassing for anyone with those kinds of skills to take when they can get so much more for doing the same amount of work. This has led to a certain amount of tension between Canberra’s IT workers and the government that wishes to employ them with many agencies referring to this as a skills shortage.

The schism is partly due to the double faceted nature of the Canberran IT market. One the one hand the government will pay you a certain amount if you’re permanently employed with them and another if you’re hired as an outside contractor. However these positions are, for the most part, identical except that one pays an extraordinary amount more at the cost of some of the benefits (flex time, sick/annual leave, etc.). It follows that many IT workers are savy enough to take advantage of this and plan their lives around those lack of benefits accordingly and thus will never even consider the lower paid option because it just doesn’t make sense for them.

This hasn’t stopped the government from trying however. The Gershon report had been the main driver behind this, although its effects have been waning for the past 2 years,  but now its the much more general cost reductions that are coming in as part of the overall budget goal of delivering a surplus. The problem here however, as I mentioned in the post I just linked, is that once you’re above a certain pay grade in the public service you’re expected to facilitate some kind of management function which doesn’t really align with the requirements of IT specialists. Considering that even outside of Canberra’s arguably inflated jobs market such specialists are able to make far more than the highest, non-managerial role in the government it comes as no surprise that the contractor market had flourished the way it did and why the implementation of the Gershon report did nothing but decimate the government’s IT capability.

Simply put the skills/labour shortage that’s been experienced in many places, not just Canberra, is primarily due a disconnect between the skills required and the amount organisations are willing to pay for said skills. The motivation behind the lower wage costs is obvious but the outcome should not be unexpected when you try to drive the price down but the supply remains the same. Indeed many of the complaints about a labour shortage are quickly followed by calls for incentives and education in the areas where there’s a skills shortage rather than looking at the possibility that people are simply becoming more market savy and are not willing to put up with lower wages when they know they can do better elsewhere.

I had personally only believed that this applied to the Canberra IT industry but in doing the research for this post it seems like it applies far more broadly than I had first anticipated. In all honesty this does nothing but hurt the industry as it only helps to increase tensions between employers and employees when there’s a known disconnect between the employee’s market value and their compensation. I’d put the challenge to most employers to see how many good, skilled applicants they get if they start paying better rates as I’d hazard a guess their hit rate would vastly improve.

Salaries, Skill Shortages and Market Economics.

Over the weekend I was fortunate enough to be involved in a piece for the Canberra Times on salaries in the ACT, thanks wholly to my journalist friend who set up the connection.  Whilst the online version doesn’t show me in it (you’ll have to buy the paper for that!) the main thrust of it was that, for men at least, the highest paying industry you can be in is ICT. Whilst my part was merely to put the human element into the story it got me thinking about my career to date and why the IT industry in Canberra has been so lucrative over the past half decade or so. As far as I can tell it’s a local phenomena to Canberra thanks to a few obvious factors.

I’ve always been interested in computers but when it came time to choose my career I wasn’t really looking to end up where I am now. By training I’m technically an engineer and by rights I should’ve been seeking jobs in embedded systems or at the very least a software engineer role. It wasn’t for lack of trying however, after languishing on a help desk for a year and a half I finally struck out at my first programming job, applying for a junior developer position at the Australian Treasury Department. Funnily enough I actually got that role although instead of taking it I foolishly used it as leverage to get a similar job at my current work place. That of course was an unmitigated disaster as I was put into a team that didn’t want nor need me and less than 6 months later I jumped ship into my first system administrator role.

After making that jump the prospect of taking a massive pay cut to be an actual engineer didn’t look so appealing.

In fact the next few years saw me go on a roller coaster ride of several jobs in the IT industry. It wasn’t because I couldn’t hold a job down or I got fired for incompetence, more it was that I found people were more willing to pay market rates for new hires than they were to promote someone internally. The reason for this was simple, there’s has always been a shortage of skilled IT people in the Canberra area. The reasons behind that are twofold: all government departments have their head offices (and therefore the majority of their IT infrastructure) in Canberra and the population here is just over 350,000. This means it’s a seller’s market here when you’ve got skills in IT and it has been for the past 5 years.

Realistically it’s just another example simple economic principles in action. There’s a relatively fixed supply of skilled IT workers in Canberra and in order to increase that supply they have to make it attractive for people to consider making the move. The first, and usually primary, motivator for most people is base salary and when you’re competing against private industry in other states the wages have to be comparable for people to consider making the move. Over the years this quickly put the average IT wage well out of the reach of normal APS brackets and thus we saw the birth of the contractor industry in Canberra in order to keep the level of skills required in the region. There was of course the dark times when the Gershon Report was in full swing which kept the IT market down in Canberra for a short period of time but it rebounded with renewed gusto the second people realised work wasn’t getting done.

However I strongly believe that this is a local maxima, focused tightly around the Canberra region. Put simply the factors involved in driving IT salaries up just don’t exist in the same concentration outside Canberra as every other major city has a higher population and much smaller government presence. This doesn’t mean IT isn’t worth anywhere in Australia outside of Canberra, far from it. IT skills are amongst some of the most portable talents to have as nearly every industry in the world relies on IT for critical business functions. If you’re really trying to make the most of the IT industry in Australia (and you’re not an entrepreneur) then you really can’t go past Canberra, especially as a starting point.

Blame the CEOs (or Watch Where You Point Your Fingers).

Time after time I’ve been regaled with stories of greedy executives and their board members taking away lucrative packages whilst their companies flail in the wind. Whilst I admit that there are some particularly nasty individuals who have rode companies cheerfully into the ground whilst making themselves personally rich, there are quite a few executive staff out there who cop flack just because their position comes with what appears to be a large pay check. When in reality, their success is so deeply tied to the company’s profitability that if the company were to fail, they’d be as bankrupt as their workers.

Yet again I’m looking at the media for mis-representing the situation in order to create headlines to sell papers (funny little circle of corporate greed here). Let’s have a look at some companies and what their CEO’s are taking home in pay:

  • Accenture: CEO William D. Green takes home total compensation of US$15.2 million. Of that US$1.5 million is actual salary, with the rest being restricted stock options. Ignoring for a second that his salary is a drop in the bucket of Accenture’s total revenue ( US$25 billion, that’s with a B people) most media shops would report that as $15 million in actual pay, not unexercised stock options. In reality, if Accenture was to go down the toilet he’d still be well off, but almost 10 times poorer then what the media would have you believe.
  • HP: CEO/Chairman of the Board/President/Director Mark V. Hurd would appear to be living quite well as the top dog in this computing giant. His total compensation comes out to a total just on US$42.5 million, but his situation is a little bit more complicated. His total salary + bonus comes out to be about US$6.8 million and to be honest you won’t find many salaries higher than his, since once it’s past that the company can’t deduct it as an expense (same with bonuses, they’re seen as gifts). Over US$30 million is tied up in restricted stock options and what’s called a non-equity incentive plan. In essence should the company fail to perform either on a single year or over a period of time, he can lose a significant amount of his compensation. 1 bad year will hurt him for up to the next 3, so I wouldn’t be surprised to see his compensation fall in the coming years.
  • Apple: Steve Jobs, technological wiz kid, visionary (HA!) and CEO of Apple computers. By far the most interesting of the lot, his total compensation directly from Apple is a grand total of US$1. He does have unexercised stock options worth about US$8 million but if the company were to tank, he’d be left with what he has in his bank account. Many Google executives have similar arrangements, although I bet most of their money doesn’t come directly from their respective companies (think speeches, seminars and gifts from other companies).

Looking at figures like this you can see that many executives are financially bound to the success of the company. This is a common (and strategically sound) idea, since the CEO is the one who holds all the risk for the future viability of the company. People will often pine about the disparity between the top dog and blue collar worker but they fail to see the disparity in accountability, responsibility and skill that is involved in attaining such positions. An entry level worker simply does not have the skills and experience required in order to guide a company to financial prosperity.

However I do not support companies who have received government bailouts giving their executives any form of bonus, additional stock options or continued non-equity compensation. If a company is failing so badly that the government needs to save it your performance as a CEO is tantamount to the company being bankrupt, and your pay should reflect this. It would seem that President Obama also supports this viewpoint.

So, the next time the media sends you a story about the CEO or executive board being paid millions whilst the working class suffers please do a bit of digging to see exactly what their getting paid. Once you’ve done that have a look at the shareholders of the company to, as they’re the people most responsible for driving the CEO to ensure the long term survivability of the company.

Really, it’s better to keep your finger pointed squarely at yourself so you act, rather than blaming everyone else for your problems.

Why you shouldn’t hire me.

In today’s rough and unforgiving economic climate many companies are seeking to reduce costs and improve their return on all previous investments that they’ve made. This, combined with several reports from market experts (Gershwin being a good example), has lead to an overall decrease in the amount of temporary workers hired and a push to bring a lot of talent in house. It would seem that the best option would be to secure employment now and skill up during these hard times and cash it all in when times come good again. You’d be crazy not to do it.

That is, unless you’re like me. I’m an IT contractor, and businesses will look at me first for the chop.

But what does trimming the contractors actually net for my employer? In my current position I’m doing what a contractor is supposed to be doing, filling a skill gap for either a temporary vacancy whilst they find a full time employee or bringing in additional skills required to implement various projects. Reducing your numbers of people like myself isn’t a bad thing, but it will reduce your capability to deliver on required projects. It would seem however that there are some places that are content to use contractors as full-time replacements. Using contractors in such a way is going to cost you much more than it would to properly fund the rightly skilled full time employee. However short term budgeting will show a cost saving with the contractor, since you’re not going to have to pay things like superannuation and insurance.

So what should employers be doing in order to whether these tough times? The answer isn’t what most employers want to hear, since they’ll be looking to reduce costs in the short term in the hopes that everything will come good. However, these are the factors that I have seen grab and retain exceptionally skilled people:

  • Attractive salary packages: The old saying “Pay peanuts, get monkeys” is appropriate here. Too many times I’ve seen employees with great skill and corporate knowledge walk out the door for something as small as $5,000 a year more at another company. On average it will cost your employer 1.5x your yearly salary to let you go. Grabbing someone early with a higher wage will keep them interested for longer, save any workplace issues.
  • Clear career paths: This was the reason I left most of my previous jobs. I always made it clear where I wanted to be heading with my superiors. However when it came time to make good on a described career path I always hit a dead end. It was at that point I would start looking for another job, since it was obvious that they made promises that they couldn’t keep.
  • Flexible working arrangements: Nothing says you trust your employees more than allowing them to work from home a day or two a week. We place an extremely large value on face-time with each other and that’s not a bad thing. However options such as working remotely can be a huge benefit to your employees, and will more then likely have them staying on for longer. As long as you establish clear deliverables for your employees does it really matter whether they complete them whilst at work or at home?

All these things will cost the employer something but in return they will get an employee who is loyal and willing to go that extra step for the company. I’ve seen many places with just one of the 3 above and they think that will keep their employees going. It will for a time but eventually they will start to desire more of these options, and if they’re determined they’ll find it.

I think this is why the Australian Public Service has a track record for keeping people for large periods of time. Whilst the salaries might not be the greatest (although they are pretty amazing for entry level workers) the flexible working arrangements and very clear career paths tend to keep people on for many years. I was a public servant for almost 3 years before I turned to private industry, and I couldn’t of done uni and full time work without the arrangements they had available.

After all this, if you still want to hire me remember this: I’m not a permanent replacement and I work for the highest bidder. It’s capitalism in its purest form, but I’ll be sure that you get your moneys worth.

I can’t guarntee that from all contractors though 🙂