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Methodology

The CIO Salary Survey was an 11-part questionnaire that asked respondents a range of questions regarding general demographic details about their organisation, their salary level, job function and IS staff salaries.

This year the questionnaire was inserted into select issues of CIO in June, followed by a direct mail-out in July.

There were 360 completed surveys returned (one respondent did not indicate salary range) which were analysed by statistician Angela Chan. In 1999, 332 completed surveys were returned.

At the Bargaining Table

Tips for negotiating your next compensation package (especially if it's with a dotcom)To lawyer up or to not lawyer up - that is the first question facing CIOs as they approach the bargaining table.

Though most prefer to negotiate their own deals, those who have a hard time talking money shouldn't hesitate to bring in a lawyer. The same goes for nervous neophytes. "If someone is doing this for the first time, they'd better have a lawyer or a good friend or colleague who can coach them," advises Dana Deasy, CIO with Siemens, the German global manufacturing giant.

Even intrepid CIOs who do their own deals would be well advised to have a lawyer look over their employment agreement. "We're talking of upwards of a million dollar deal," says head-hunter Beverly Lieberman of Halbrecht Lieberman Associates, a US company that specialises in recruiting CIOs and CTOs. "We're talking about relocating your family."

Be forewarned, however: some people take a dim view of lawyers acting as bargaining agents. "I only negotiate with principals," says Dave Nerrow of CMGI@ventures in Massachusetts. "If they bring in a lawyer, I tell them to go look for another job."

Perhaps self-servingly, Lieberman also advises using competent recruiters: "I'm technically being paid by the client, but if I don't do well by the candidate, they'll say no." But Deasy remains sceptical of head-hunters: "At the end of the day, they're looking out for themselves. Like real-estate brokers, their job is to close the deal."

Don't forget to factor in cost-of-living increases in long-distance relocations. Deasy says he always asks for two family visits during negotiations, so that his wife and son can check out prospective neighbourhoods. "The Internet is also a great tool for figuring out local living costs," he adds.

Don't dive for every last cent in the deal, and don't insist on getting every last detail in writing. These deals are complicated enough without you inserting every little party-of-the-first-part. Besides, says Russell Reynolds' Dave Brown, "if you start nit-picking, the company begins to wonder how excited you are to work there".

Don't make exotic demands. If you must relocate your mother-in-law, ask for more money in your signing bonus. "Signing bonuses are used liberally to solve issues," says Spencer Stuart's Rich Brennan. "Companies will do lots of things to meet a candidate's needs."

Repeat after me: Don't sweat the small stuff.

"If you're the right person for the right job, it usually goes smoothly," says Brennan. "If it's the right deal, it's going to happen."

- John Strahinich

When CIO magazine interviewed 360 executives with responsibility for their enterprise's information systems earlier this year, it found two individuals who had wangled salary packages in the $301,000-$350,000-a-year bracket. Admittedly it is a lot of money, but it remains well shy of the amount that a partner in a large firm of accountants or a law firm might expect. Yet the role of a CIO is no less strategically important to a corporation than is the advice of a lawyer or accountant, surely.

Those two well-paid executives, however, were the exception rather than the rule in the CIO survey. Just 52 individuals earned more than $151,000 out of the total of 359 who replied with salary figures. CIO found 198 of its sample (55.2 per cent) of information executives earned less than $100,000. To put that in perspective, this figure is considerably less than the public relations person in a law practice or accounting firm might expect. Earning less than $60,000 were 42 respondents - not much above the receptionist in either of those firms. Given the typical 60-hour working week demanded of senior IT executives, $60,000 a year works out to around $20 an hour.

The CIO survey did note that the salaries had been nudged up slightly since 1999, but it was a nudge rather than a bounce.

These raw statistics, however, mask a more complex situation which is unfolding for CIOs. The CIO survey is based on responses from a broad sweep of executives who claimed responsibility for their organisation's information systems. Their job title ranged from CIO to CEO, through IT manager to computing consultant. This wide spectrum of job titles may go some way to explaining the similarly broad range of salary packages uncovered by the survey.

What the survey did not root out was the handful of CIOs working in Australia whose compensation packages (including stocks and options) reach up into seven figures - way, way higher than the average Australian CEO. None of these responded to CIO's poll.

However, they do exist. Each year executive search firm Heidrick & Struggles places eight or nine CIOs in Australia, all earning more than $350,000 a year and some with packages topping $1 million.

Similarly, Korn/Ferry has just completed two CIO searches where the total compensation package topped $1 million in each case.

The enormous range of salaries reflects the enormous range of talents being sought to run information systems in the nation's organisations. The talents required to run a local government authority computer operation are vastly different from the talents required to develop information systems and strategies which will allow a multinational corporation to lever itself into the global e-commerce space.

Says Gerry Davis, partner with Heidrick & Struggles: "You are looking at a whole series of markets. The needs of a dotcom start-up or an incubated business in a corporation require different skills from a functional (IT) head in a bricks-and-mortar corporation. It depends on the criticality of the role, and there are different breeds of CIO."

Earlier this year, research firm GartnerGroup commented on this fracturing of the CIO role, particularly in those organisations with a strong e-commerce focus. Gartner says that four "species of the CIO genus" are emerging in leading enterprises. The first has a strategic role and conceives the information systems most appropriate for the organisation. The second is effectively the chief technology or chief infrastructure officer, who delivers services. The third CIO species actively seeks out new business opportunities for the corporation by leveraging off information technology. The final CIO is tied to a specific business unit within the enterprise; for example, this CIO may be in charge of an e-incubator within the firm.

The remuneration package which each individual might negotiate would differ markedly from those of the other three. For example, a group four CIO, placed in a business incubator, might seek a significant stake in any initial public offering, which could take the total compensation package into high six or low seven figures.

Of course, recruitment consultants and executive search firms remind the market regularly that it takes more than filthy lucre to find and keep IT talent. It takes intellectual stimulation and management commitment to the information systems department.

Yet as Scott Petty, CIO of ComTech, pithily notes: "You come to work to get paid."

Importantly, though, Petty notes: "I don't think I'd change roles for $30,000 more. The most important thing is the commitment of the organisations to information technology. If the organisation is a laggard then the role of the CIO is limited. You can't effect strategic change, you're just directing the operations."

Whatever the publicly stated commitment to information technology, most companies surveyed by CIO spend less than 3 per cent of their total budget in information technology. That is the case even for Australia's largest companies.

When AMP chief executive Paul Batchelor enthused about the importance of technology in a speech made to the American Chamber of Commerce in October, he committed the organisation to a technology spend of $2 billion over the next two to three years. It sounds an enormous amount of money, but in context, for a company which makes $100 million in revenues each day, the IT spend as a percentage of revenue drops to around 2.5 per cent. Even so, Batchelor has nailed his computing colours to the mast and acknowledges the importance of information systems to AMP's future.

Hand and Glove

ComTech's Petty believes it is critical that the strategic direction of the company and the strategic direction of information technology are tightly meshed. For that reason he is a big believer in linking the performance of a CIO (measured against well-defined metrics) to his or her remuneration.

Emerging into the CIO role from a consulting position, Petty was comfortable with the notion of linking his performance to his pay - and as much as 42 per cent of his annual remuneration comes from performance-related payments. "It is normal in our company and I believe it is a better way to work and to determine the goals. It keeps the planning process tight and takes away the less scientific ways of measuring what you do."

Each year, when ComTech writes its IT strategic plan, it lays down the business objectives for the coming year. It conducts a strengths, weaknesses, opportunities and threats analysis and then determines the architecture it will work towards and the projects that need to be completed, the service-level agreements (SLAs) that need to be achieved, and so forth.

This year, for example, the company decided to introduce a time and billing system for professional services. Petty says that in the past the company had achieved $17,000 per billable resource, but with the new time and billing system it wanted to be able to increase that figure to $20,000. If Petty were able to achieve that, then his performance bonus kicked in. "More importantly, I got even more if I got it to $22,000 per billable resource," he says. "What I like is that if you pull out the benefits for the organisation and then build them into the salary, you get a more accountable business and more focus on delivering what the business really needs."

Admitting that his predecessor in the role was not paid on a performance scale, Petty nonetheless says: "I'd be surprised if I was an anomaly. Senior management roles tend to have a performance element built in."

Eventually, though, he concedes that he's "probably one of a growing minority".

The CIO poll found that in 58.6 per cent of cases there is no link between performance and pay. Only 55 individuals stated that 10 per cent or more of their current salary was performance-related, which is only slightly up from the situation in 1999 when 48 people had 10 per cent or more of their salary related to performance.

Mark Lelliott, principal of the technology officers practice of search specialist Korn/Ferry, believes that the higher up the executive food chain the CIO sits, the greater the link bet-ween performance and remuneration.

"It is dependent on the size and scale of the role. The norm is around 20 per cent; but when you get into the really big hitters, it can be around 60 per cent." The "big hitters" Lelliott defines as those individuals who can command compensation packages of high six or even seven figures, and who are considered within their enterprise as key strategic executives.

One of the recent CIO placements in which Korn/Ferry was instrumental was the appointment in October of Cassandra Matthews to the new position of BHP vice president and CIO. Formerly vice president and CIO for PECO Energy in Pennsylvania, Matthews is charged with e-enabling all of BHP's transactions within two years. She reports to BHP chief strategic officer Brad Mills and is a member of BHP's strategy committee.

Without giving away Matthews' salary, Lelliott says that those companies which were intent on finding the right talent to run their information systems operations were prepared to compete for talent by matching international salaries that seemed particularly generous given the relatively undervalued Australian dollar.

That competition is intense. "If you look at the US market, the top 50 CIOs would be looking at compensations packages all in seven figures." Lelliott says that these "stellar CIOs" might be fielding "five, six or seven" calls a week from executive search companies, corporate head-hunters, or CEOs. "It is a war for talent - for high-profile, high-performance CIOs. In what used to be an employer-driven market, we have lost the war and the candidates have won," he adds.

Lelliott says that last year in North America alone Korn/Ferry ran 120 top-level CIO searches. He describes them as "cabinet-level CIOs", and the firm employs a team of 23 partners and principals just to search out these top-level talents. He believes that there would also be a handful of CIO roles in Australia where the entire compensation package also stretched above $1 million. "There are a number of CIOs who would be earning north of the [CEO's] $584,000 figure. I can think of double figures," says Lelliott, who has just completed two CIO searches in Australia where the compensation package exceeded $1 million.

It's a fair bet that Nick Tate, director of the information technology services for the University of Queensland, isn't in the million-dollar brigade. In his former life as a merchant banker with Macquarie Bank, he would perhaps have been more familiar with figures ending in six zeros. Now he's a public servant, a bracket which Korn/Ferry's Lelliott claims could deliver CIOs with a typical salary range of $150,000-$300,000.

Tate's remuneration is linked relatively closely to his performance, and certainly any salary upgrades reflect past achievements. Unlike some public servant CIOs, however, Tate's computing operations are not run as a cost centre but as a profit centre. Responsible also for the AusCERT security operation which offers its services to Australian and New Zealand enterprises, only about 35 per cent of Tate's IT budget comes from university funds the remainder comes from the AusCERT fees charged.

"I am measured on those financials," Tate says and claims that his organisation has to compete with third-party information services suppliers right up to IBM GSA. But he is also measured on the value he can deliver to the university - for example, in terms of e-enabling the education services.

Mary Powderly-Hughes also works in the public sector, currently as IT manager for the corporatised City West Water in Victoria and formerly for the Victorian Work Cover Authority. In both roles she has had her pay linked to performance.

Currently around 20 per cent of her remuneration is performance-related, and previously it was 10 per cent. "It is a very good idea," she says. "Although most people when they get to the CIO level are so motivated that when it comes to the crunch, the bonus is not much of a consideration. I'd be trying just as hard without the bonus. But in theory it is a good thing."

Powderly-Hughes' bonus is linked not to the organisation's success but to her personal performance. Reviewed annually in a qualitative assessment, it is her ability to meet specific CIO goals which is being rewarded, rather than the effect her achievements might have on the organisation. "In an ideal world, you might get a percentage of the savings you achieved for the organisation," Powderly-Hughes says, but she believes that there would be a substantial overhead in attempting to work out what benefit could be attributed to which individual.

You Get What You Pay For

Heidrick & Struggles' Davis believes that the remuneration for IT roles and the way in which performance is rewarded again reflects the many different incarnations of the CIO role. "It always used to be an homogeneous market. You came out of applications or strategy or architecture and moved into the CIO role. This is no longer the case," he says.

In addition, some companies are still getting over the "deep cynicism" management felt about IT performance. Davis believes that this cynicism emerged as a combination of CIO naivety and too many high fallutin' promises and the occasionally unrealistic ambitions which CEOs held for their information systems ability to contribute to the bottom line. While that cynicism is wearing away, where it persists CIO salaries are tightly reined.

Now, though, as AMP's Batchelor and his ilk accept the strategic importance of IT, there is a battle to find the right, seasoned CIO executives and woo them with internationally competitive remuneration packages. "There has been a problem with supply and we have got an influx of people from overseas. This is natural," Davis says. "When you are going to (executive) search you want someone who has been there and done that."

The overseas search, however, means matching the remuneration packages on offer internationally, leaving some companies "in a bit of a spot with the declining Australian dollar", Davis admits. He confirms that "it is increasingly hard to attract the elite athlete from offshore. There will be some prepared to move for "lifestyle", but typically lifestyle is not all that important. They want the remuneration packages that they are already picking up plus an investment in the company."

Davis warns companies that to pick up top talent from overseas, corporations need to be prepared to pay compensation packages for CIOs which stack up against the salary package a CFO might demand. For start-up companies, that might include being prepared to sign over 2 to 4 per cent of the issued capital in an initial public offering to a CIO as well.

Given that there is no such thing as a free lunch, even in the IT sector, the CEOs want the CIOs to put a little skin in the game in return for the more generous compensation packages.

Davis says that top-level CIOs generally expect to see an incentive component ranging between 40 to 70 per cent of their total compensation package. "For example, on a base salary of $400,000, you might expect $160,000-$280,000 on top, depending on performance," he adds. Really hot talents might also expect to find themselves locked in for a period with special retention programs that financially dissuade a CIO from leaving the company before a certain date.

Lelliott credits Victorian minister for State and Regional Development John Brumby with the best explanation for the rising demand for, and remuneration being paid to, top-notch CIOs. "John Brumby was talking at a company for which we had done a CIO search and he says that next year there would be a confluence where there were a billion people with wireline telephones, a billion people with mobile phones and a billion people connected to the Internet.

"It has taken us 100 years to get to the wireline phone billion, 25 years to get to the cell phones' billion and 15 years to get to that level of Internet penetration," Lelliott says. "It is the best global example of the velocity and change. When you have an environment morphing like that, then you need a CIO who is a business person first and an arch technologist."

Where chief financial or chief marketing officer is more functionally specific a role, the CIO needs to bridge the strategic business and the information systems requirements, Lelliott says.

With the big bucks at stake it's maybe worth boning up.

Join the CIO Australia group on LinkedIn. The group is open to CIOs, IT Directors, COOs, CTOs and senior IT managers.

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