(IDG) -- CIOs at many large retailers are finding that they must not only pay full price, but also liven up their corporate culture if they are to woo away from richer companies the talented IT workers they need.

Even with lower profit margins than most other businesses, retailers now must offer competitive pay, flexible compensation and creative rewards.

Moreover, CIOs such as Evelyn Follit at Fort Worth, Texas-based Tandy Corp. find themselves changing cultures even as they change compensation -- which Follit calls "a requirement just to play the game in today's marketplace."

"We have extreme pressures," she said. "Creative management -- that is the bottom line today."

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Follit, who was hired last year as vice president of human capital with a mission of making Tandy's information technology culture more competitive, is manipulating several levers to improve Tandy's recruitment and retention of key people with hot skills. Currently, 40% of the $5.4 billion electronics retailer's compensation budget is given out as spot bonuses and other forms of variable compensation. Workers also can earn flex days, profit sharing and fun trips to amusement centers. And IT staff can dress casually -- which has prompted employees from other business units to meet in her department so they can dress down, Follit said.

David Foote, managing partner at consultancy Cromwell Foote Partners LLC in Stamford, Conn., said retailers, which traditionally had little precision in business operations such as marketing, buying and inventory management, now face pressure to implement sharp data warehousing, forecasting and other applications to keep up with innovative competitors. That has caused IT shops once based almost entirely on old-school hierarchies and pay scales to refocus on creative ways to compete for workers with hot skills. "You've got to really be way out of the box," Foote said.

Out on the margins

Follit's challenge, as she scrounges for staffers who can fix the year 2000 problem, conduct an enterprise resource planning implementation and ensure the success of a new 5,000-store frame-relay network, is that she is competing against AMR Corp., the parent of American Airlines, and other Dallas-area employers. Last year, AMR's profit margin was 5.3%, while Tandy's was 3.5%. Nevertheless, Tandy was obliged to offer the same 4% to 6% increase in pay that other Dallas-area IT workers received.

Competition also concerns Toys R Us, Inc. CIO Tom Reinebach. The company's human resources department traditionally has compared its IT pay with that at other retailers. But at headquarters in Rochelle Park, N.J., local competition is really with Merck & Co., which had a margin of 19.5% last year. Toys R Us's margin was 4.4%. Until recently, the toy retailer supplemented its staff with scores of contract programmers who didn't count as paid staff. Now it is cutting those contractors and investing more money and career development in its full-time employees (see related story).

Seattle-based Starbucks Coffee Co. has struggled to fill IT jobs as it has grown by nearly a store a day in recent years, said CIO Deborah Gillotti. IT has grown from 30 workers in 1993 to 225 workers now -- and the budget calls for 250.

Despite Starbucks' hip, upscale image, the company found itself in the same boat as older retail operations. "How do you make them want to stay? You have to make it fun," Gillotti said. Starbucks holds a "celebrate success" program every quarter to recognize what has gone well. Gillotti surveyed workers to find out what perks they want. (Many said telecommuting.) Starbucks is also investing in cross-training to help workers with out-of-date skills develop new ones.

"They have come a long way, and IT has been right in the middle of it," Foote said.