Creative Destruction And The Rising Tide of IT Pay Cuts

Creative Destruction And The Rising Tide of IT Pay Cuts - A rising tide of IT professionals is seeing its annual compensation decline. CIO is asking IT Pay Cuts: Are You Next?

As more companies enforce across-the-board pay cuts and unpaid furloughs, a rising tide of IT professionals is seeing its annual compensation decline and must decide whether to switch employers as a result.

Among the companies that have instituted broad pay cuts this year are National Public Radio, the New York Times, Nucor and the Georgia State government. These organizations are slashing the pay of even their most in-demand IT staff, such as Web developrs, information security specialists, enterprise resource planning gurus and IT architects.

For example, one Indiana firm eliminated annual bonuses at the end of 2008 for all of its employees, including the IT staff. A few months later, all employees making more than $90,000 saw their salaries cut by 10%, which impacted two IT managers. Both IT managers left the firm within a few months of the10% pay cut, a knowledgeable source said.

IDG, the parent company of Network World, instituted across-the-board pay cuts of 10% in May. Rob Rebecchi, Manager of Technology Support Services for IDG, says his group of five analysts, who handle tech support calls for the Framingham, Mass., publishing firm, was affected by the pay cut.

Overall, IT pay and perks continues to shrink in 2009. A Janco Associates survey released in June found that total compensation for IT professionals fell an average of 19% between January 2008 and June 2009.

Another factor impacting demand for IT professionals is the fact that many high-tech workers are delaying their retirement or re-entering the workforce post retirement.

"There is now a surplus of seasoned IT professionals available. For the second time in less than 10 years, retirements are being put off because of the downturn in the stock market and the resultant reduction in savings available to support IT professionals as they retire," Janco's report reads. "Added to this is an influx of retirees looking to get back into the job market due to the massive reduction in their investment portfolio."

Boomer Retirement

There is much more in the article including more links. Here is one of them pointing to a misdiagnosed analysis of the situation as it looked in July of 2007.

Please consider IT jobs get hot as baby boomers retire.

While talent pool shrinks, job-seeking IT professionals have the upper hand.

IT professionals could use the inevitable retirement of millions of baby boomers to get higher salaries, better benefits and long-term job security, according to Forrester Research, but at the same time, IT managers will face a skills shortage that could hinder IT's ability to support a business.

With an estimated 25 million Americans set to retire by 2020 across all industries, Forrester Research says IT job seekers will have the upper hand when dealing with hiring managers eager to replenish lost expertise. According to Robert Half Technology's survey of about 1,400 CIOs some 16% planned to hire IT professionals during the first quarter of this year -- a number that represents the largest hiring increase since the fourth quarter of 2001.

"The IT job market is hot once again. High demand for constrained pool has shifted the leverage to candidates," the Forrester report reads

"It professionals have more options and are pickier in their employment choices. Because there is great demand, IT workers, especially those with highly sought after skills, require extra wooing from IT leaders," Forrester says.

Macro Picture Not Pretty

Forrester completely missed the macro call.

Boomers are delaying retirement, competition for jobs is intense, companies are slashing perks and even salaries.

Extreme Networks replaces CEO, lays off 70

Perusing around the Network World site I quickly discovered this October 23, 2009 article hot off the presses: Extreme Networks replaces CEO, lays off 70

Ethernet switch vendor Extreme Networks is replacing its CEO and laying off 70 employees in an effort to quickly improve the company's bottom line and set it up to run profitably with lower revenues.

CEO Mark Canepa, who took the position in 2006, has resigned, but will remain for a short period to help recently hired CFO Bob Corey transition to Acting CEO. The company is seeking a permanent replacement. Canepa receives $639,354 severance.

As part of the restructuring, the company also eliminated the job of chief counsel, getting rid of Robert Schlossman, and replacing him with Vice Presideint Diane Honda, according to a filing this week with the Securities and Exchange Commission. Judging from the company Web site, the head of human resources and head software developr are also gone.

The company didn't say where the 70 layoffs would come, but it represents about 9% of Extreme's workforce.

The company's stock prices hit a low of close to a dollar in March, struggled back to just over $3 last month then dipped to about $2.25 over the past weeks.

"They're in a tough spot," says Zeus Kerravala, an analyst with Yankee group. "This is a company that's truly having a hard time finding its way." He says the company is smaller than its main competitors, HP, IBM, Cisco, Juniper and Brocade (which has reportedly put itself up for sale).

"When you look at all the network vendors out there, what problem is it that Extreme is trying to solve that isn't being solved by somebody else?" Kerravala says. "If you look at data centers, all the emphasis is on converged fabric, and they just don't have a roadmap to get there. I think they'll go the route of Enterasys. They'll get smaller and smaller and continue to exist off their installed base until their assets get acquired by somebody else."

Shrinking To Zero

Read that last paragraph carefully. "Extreme Networks will get smaller and smaller and continue to exist off their installed base until their assets get acquired by somebody else."

That is a general condition among the smaller players, not specific to Extreme Networks.

To paraphrase Janice Joplin ...

Zero's just another word for nothin' left to lose
Nothin', don't mean nothin' hon' if it ain't free, no no

Alarm Bells For Brocade?

Alarm bells have to be going off for Brocade employees given this headline - For sale: Cisco data center rival Brocade.

According to the Wall Street Journal, Brocade has enlisted Qatalyst Group to shop the company around. Likely suitors are HP and Oracle, among others, the WSJ reports.

HP, Oracle and Brocade all declined comment for the WSJ story Network Specialist Brocade Up for Sale. Brocade, which told Network World it does not comment on "rumor or speculation," has a market cap of $3 billion. HP also declined to comment to us on the speculation.

Turmoil In Industry

Inquiring minds interested in technology are listening to Denise Dubie of Network World tackle the question What would a Brocade sale mean?

The seven minute podcast is quite interesting as it contains a discussion involving a veritable who's who in the storage industry including IBM, EMC, Cisco, Oracle, Network Appliance, QLogic, Hewlett Packard, and Emulex.

That was a blast from the past for me for sure.

Consolidation Will Cost Jobs

The one question not addressed is what it would mean for jobs. The answer should be clear. Mergers and buyouts are going to cost jobs.

Please consider a slideshow of IT's Most Notable Layoffs 2009

The companies include Sun, Polycom, Sonus, Cisco, Nokia, Citrix, IBM, Sprint, Intel, Microsoft, Sophos, Ericsson, Logitech, Motorola, Lenova, and EMC.

I am quite impressed with the depth of the content at Network World. Those in the IT business (or those following it) may wish to bookmark the previous link.

20 Most Useful Career Sites For IT Professionals

CIO states "A rising tide of IT professionals is seeing its annual compensation decline and must decide whether to switch employers as a result."

I ask "go where?" Even if one could land another job, that person would be low on the totem pole constantly worrying when and if "last hired, first fired" was about to hit.

Nonetheless, those out of a job need to know where to look and even some with a job may be seeking better opportunities.

For those out of a job or looking to switch, Network World has a nice slideshow of the 20 most useful career sites for IT professionals which goes far beyond the obvious Monster, CareerBuilder and HotJobs sites.

Creative Destruction

Layoffs were the story in 2008-2009. Mergers, consolidations, global wage arbitrage, outsourcing, and even bankruptcies will combine to pressure IT salaries and benefits in 2010.