(IDG) -- On the Eastern Shore of the Chesapeake Bay, in easygoing Cambridge, Md., business casual is the rule rather than the exception at electronics maker Philips Technologies.

Come summertime, the living is easy. The company shuts down at 2:30 p.m. on Fridays so employees can beat the rush to the beach. Salaries aren't especially high, but the quality of life is.

Still, just across the Bay Bridge lies the region's triple crown of riches: Annapolis, Baltimore and the Beltway. And for Steve Hammond, Philips' information technology director, that presents a threat to the stability of his IT staff.

"Cambridge is definitely a lifestyle choice," Hammond says. "There's no doubt that any of my people could take another job within an hour or two from here and get $10,000 to $15,000 more per year."

Meeting in the middle

Changes in compensation, including base salaries and bonuses, from 1997 to 1998:

Job title
Compensation

CIO/VP of IS Down $8,000

Director of networks Down $1,900

LAN manager Up $1,000

Senior programmer Up $2,000

Database manager Up $2,500

Hammond's counterparts in and around major metropolitan areas across the country are facing the same challenge: hanging on to indispensable IT staff members when other companies seem willing to up the ante for their skills.

Several information systems organizations continue to bloat salaries as a means of retaining and recruiting employees. But after years of raising wages to market rates and beyond, many managers are cutting back on base pay increases and looking for salvation in innovative bonus programs and noncash incentives.

In fact, the typical increase in IS salaries from 1997 to 1998 was between 3% and 5%, according to Computerworld's 12th Annual Salary Survey, conducted in June. That increase is in line with most occupations and considerably lower than the previous year's 11% average.

Although 12.6% of the 807 IS managers who responded said they doled out more than 10% extra per employee this year, most (52.1%) tried to hold the line: 20.8% said their staff averaged a 4% increase, 17.5% said 3%, and 13.8% said 5%.

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"Two years ago, we were offering people lucrative salaries and above-average raises. This year, the average was 4%," says Frank Santariga, MIS manager at Chrysler Capital Corp. in Stamford, Conn., which is in the New York metropolitan area. "We haven't had people leave for higher salaries because ours have typically been above the job market. But we need to keep people here, and I knew that if I didn't provide some increase, we'd start losing people."

Indeed, nearly one-third (32.4%) of respondents reported double-digit turnover percentages. Hoping to stem the tide, even companies that are reluctant, or unable, to fatten regular paychecks are paying year-end performance and loyalty bonuses, as well as project incentives, referral fees and nonmonetary performance awards, at all levels of the IS organization.

Average additional compensation ranged from $16,960 for chief information officers to $4,803 for voice and data communications managers, $3,552 for database analysts, $3,338 for project leaders, $2,687 for senior systems analysts and $1,682 for webmasters.

An IS executive at one East Coast manufacturer, who asked not to be identified, is considering a millennium bonus: If IS employees are still there on Jan. 1, 2001, they could be eligible for a payout of 10% to 15% of their annual salary. "The challenge of replacing people when they leave has been absolutely unbelievable," the executive says. "It's not uncommon to have positions open for as long as four months."

Even when turnover isn't a big problem, forward-thinking managers are rewarding employees to make sure it doesn't become an issue. At systems integrator The Green Pages in Kittery, Maine, 15% of each IS staff member's salary is tied to financial results, and 5% is based on individual performance. Last year, IS salaries grew 30%.

In addition, the company has created a President's Club that offers the highest performers annual, all-expenses-paid long weekends in places such as the Bahamas, says Peter Matthewson, an IT specialist. Only two people have left IS in the past two and a half years.

"We want people to build relationships with our external and internal customers," Matthewson says, explaining the company's generosity. "We have a grill outside, and we have barbecues and parties. We have on-site day care. We have an in-house trainer on-site leading aerobics and yoga classes. People want to come to work every day."

The salary survey reflects the axiom that every action has an equal and opposite reaction, however. For every company like The Green Pages is one like Sherwood Foods, a Detroit-based wholesale grocery distributor where the average IS salary increase for this year was only 2%.

It would be futile to ask for larger increases because "management is miserly," says Paul Dholakia, Sherwood's data processing manager. "Management doesn't see IT as critical until something breaks down."

But Dholakia doesn't have a turnover problem. His IT environment still consists of dumb terminals hanging off a midrange server connected by modems and multiplexers and in-house software that has been in place for years.

"We aren't dealing with client/server or a cutting-edge system," Dholakia says. "That has a lot to do with retention because there are not a lot of companies competing for these skills. If we suddenly became a PC-based environment, things would turn 180 degrees."

Salary increases also were lower in more remote areas such as Sioux Falls, S.D., and Conway, Ark., where quality-of-life issues keep employees from moving on.

First National Bank in Sioux Falls gave network manager Ken Birnstiehl a 7% raise after he implied he would leave, but only after he reluctantly agreed to take on three direct reports. The rest of the bank's IS staff earned an extra 4%.

At Conway Regional Medical Center, located about 30 minutes from Little Rock, Ark., MIS director D. K. Martin accepted a 2% pay increase so he could give his staff 4% extra in their paychecks.

"I only have one trained person taking care of all of our networking, and his skills are certainly in high demand," Martin says. "But he wants to stay in this area, and we are taking advantage of that. He's probably making at least 20% below market value for his skills."

Bob Sachs, assistant director of corporate MIS at steel tube maker John Maneely Co. in Collingswood, N.J., a suburb of Philadelphia, says his department nearly doubled IS salaries this year because of 50% turnover last year. The company also offered new recruits project incentives and longevity incentives. At the end of each of their first three years, new hires will get a bonus payout that will increase each year.

"I have the feeling that base salaries are close to standard for the Northeast, but we are studying our structure because we're not sure we're in line with the market," Sachs says. "But with the current demand, it's hard to know from week to week what is current."

Recognizing the lure of the cities across the bay, Philips' Hammond used national IT salary data and an analysis of the local market to convince his executive management that without substantial salary increases, the company was at risk. With a lean staff and mission-critical applications running on an AS/400 platform, Philips couldn't afford defections.

Hammond won his people two consecutive annual increases of between 8% and 20% each. Nonetheless, his most valued employee — a senior programming manager who received the biggest raise — handed him two weeks' notice this summer.

"He was offered a sign-on bonus, a higher salary, a big year-end bonus and stock in the company for a job across the bridge," Hammond explains. He says he worries that Philips' executive management will tire of his efforts to satisfy salary demands. "They know we have done a lot for this guy, and yet he still got all these other perks. So they fear that it's like a roller coaster on its way down — it is hard to stop."

Goff is a freelance writer in New York.