'Hot Skills': Most Popular Compensation Strategies for Technical Expertise

By Jennifer Berthiaume and Leigh Culpepper Jan 14, 2008
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In a war for talent, organizations must find effective and creative ways to attract, retain and motivate employees with highly desirable skill sets. A Culpepper Pay Trends Survey on strategies and best practices for compensating technical and scientific employees with "hot skills," conducted in November 2007, shows that the most popular methods for compensating these in-demand (but not necessarily executive) employees include hiring bonuses, market pricing targets and base pay premiums.

Juiced-Up Compensation
Companies compensate employees with hot skills in various ways, with most incorporating premiums into an employee's base salary or providing an employee with a hiring bonus.

Table 1
Methods for Compensating Employees with Hot Skills

Compensation Method

All Companies

Company Size
(# of Employees)

Up to 100

Over 100 to 1,000

Over 1,000

Incorporate premium into base salary

63%

62%

53%

70%

Hiring bonus

62%

50%

53%

74%

Annual bonus

25%

35%

23%

20%

Slot employee in higher salary range

23%

27%

23%

20%

Review pay more than once a year

23%

31%

23%

17%

Slot job with hot skills in higher grade

18%

12%

17%

22%

Project completion bonus

12%

23%

17%

2%

Salary supplement

11%

12%

7%

13%

Quarterly bonus

8%

12%

10%

4%

Semi-annual bonus

4%

8%

3%

2%

Other

10%

8%

13%

9%

Note: Percentages add up to more than 100% since companies may use more than one method to deliver skill premiums.


Hiring Bonuses
Nearly two-thirds of technology and life science organizations use hiring bonuses as a method to attract and recruit talent with hot skills. Hiring bonuses typically range between $2,500 and $10,000.

Table 2
Amount of Skill Premium as a Hiring Bonus (US $)

Skill Premium as a Hiring Bonus

All Companies

Company Size
(# of Employees)

Up to 100

Over 100 to 1,000

Over 1,000

Less than $500

3%

15%

0%

0%

$500 to $999

6%

8%

0%

9%

$1,000 to $2,499

16%

8%

6%

24%

$2,500 to $4,999

24%

15%

32%

24%

$5,000 to $9,999

24%

46%

25%

15%

$10,000 to $24,999

2%

0%

6%

0%

Over $25,000

0%

0%

0%

0%

Varies

25%

8%

31%

28%


Market Pricing Targets
When market-pricing pay for employees with hot skills, nearly half of companies target between the 60th and 75th percentiles, compared to market.

Table 3
Market Pricing Targets for Employees with Hot Skills

Percentile Targeted
(Compared to Market)

All Companies

Company Size
(# of Employees)

Up to 100

Over 100 to 1,000

Over 1,000

50th percentile

11%

0%

4%

21%

60th percentile

19%

24%

12%

21%

67th percentile

6%

12%

4%

5%

75th percentile

35%

36%

42%

30%

90th percentile

2%

4%

4%

0%

Above 90th percentile

1%

4%

0%

0%

Varies

26%

20%

34%

23%


Premiums as a Percent of Base Salary
Hot skill premiums as a percent of base salary typically range between 5 percent and 15 percent of base salary.

Table 4
Amount of Skill Premium as a Percent of Base Salary

Skill Premium
as a Percent of Base Salary

All Companies

Company Size
(# of Employees)

Up to 100

Over 100 to 1,000

Over 1,000

Less than 5%

3%

0%

6%

3%

5 to 9%

27%

31%

18%

29%

10 to 15%

38%

44%

38%

36%

16 to 20%

6%

6%

13%

3%

21 to 25%

0%

0%

0%

0%

Over 25%

2%

0%

0%

3%

Varies

24%

19%

25%

26%


Best Practices Tip
Although incorporating hot skill premiums into an employee's base salary may be the least difficult way to deliver premiums, problems result from this approach. Providing premiums within base salary compounds the costs of regular salary increases, incentive payouts (if determined as a percent of base salary) and other benefit costs such as 401(k) contributions and disability premiums. When the hot skills cool down, rescinding the premium requires a base salary cut, a difficult action to communicate to an employee without affecting morale and productivity.

Paying skill premiums as a separate salary supplement or cash bonus avoids these problems. Additionally, these practices allow for variation in the payment of premiums as skills cool and others heat up. Hiring bonuses, used by nearly two-thirds of technology and life science organizations, avoid the problems associated with providing premiums in base pay.

Identifying Hot Skills
The most common method for identifying hot skills is feedback from managers, followed by changes in new hires' salary demands.

 


Skill Assessment Frequency
Sixty-one percent of companies assess when skills cool and others heat up on an "as needed" basis, while 20 percent of companies review hot skills on an annual basis and 12 percent review them semi-annually. There are no notable differences between company size or industry sector.

Table 5
Skill Assessment Frequency

Review Period

All Companies

As needed

61%

Annually

20%

Semi-annually

12%

Quarterly

6%

Every two years

1%


Technical Skills: What's Hot Today?
Some of the technical skill sets considered most desirable today include:

  • Applications: Oracle, PeopleSoft, SAP, Siebel 
  • Databases/Storage: Oracle database, Data warehousing & storage 
  • Networking/Telecom: Cisco, IP & VOIP technologies, IT/network security
  • Software Development: Java, .NET

Data source Culpepper Pay Trends Survey of 199 Companies

Breakdown by size:

  • Up to 100 employees: 26 percent.
  • Over 100 to 1,000 employees: 31 percent.
  • Over 1,000 employees: 43 percent.

Breakdown by sector:

  • IT/high-tech/technology: 72 percent.
  • Bioscience/life science: 18 percent.
  • Other: 10 percent.

Breakdown by country:

  • United States: 88 percent.
  • Canada: 8 percent.
  • Other: 4 percent.

Jennifer Berthiaume is a research associate/editor at Culpepper and Associates Inc., which conducts worldwide salary surveys and provides benchmark data for compensation and employee benefit programs. Leigh Culpepper is president and CEO of the firm.

Reposted with permission
Source: Culpepper eBulletin, December 2007.

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