"Near term, we don’t see any change in the IT labor market," says Mike Valek, vice president of Hudson’s IT practice. "Longer term, technology has become so prevalent in every business that we don’t see any major pulling back in IT hiring."

    In a recent survey of 1,400 chief information officers by Robert Half Technology, CIOs reported that it now takes an average of 56 days to hire a staff-level IT employee and 87 days to land a new IT manager, well beyond acceptable time-to-fill rates for companies where IT talent is already stretched too thin. Recruiters are spending more time sourcing but reaping fewer results; time-strapped hiring managers are unable to devote additional effort to recruiting and evaluating candidates.

    Nationwide, 14 percent of companies plan to increase IT hiring in the second quarter of 2007 and 2 percent plan to decrease hiring, according to the Robert Half survey. In the second quarter of 2006, 12 percent of companies planned to increase hiring and 4 percent planned a decrease.

    For the past eight quarters, the proportion of companies projecting increased IT hiring has remained in the 12 percent to 16 percent range, with projected decreases running between 1 percent and 4 percent.

    The most active hiring is at companies with more than 1,000 employees, where one-fifth are planning to expand IT staffing in the second quarter of 2007. The finance, insurance and real estate industry leads all sectors in hiring projections, with 38 percent of the CIOs planning to hire on additional IT staff in the second quarter and only 1 percent projecting a decrease, according to the Robert Half survey.

    With supply already tight and high levels of hiring projected for the year, recruiters will face extraordinarily tough competition for IT candidates. Company recruiters working to meet the need for higher internal IT headcounts are competing against outsourcing and technology vendors, consulting firms and staffing agencies for the same talent.

    Heavy hiring at the technology companies will wipe out a large part of the available pool. Culpepper’s survey on hiring plans for 2007 reports that 53 percent of technology companies with more than 1,000 employees plan to increase staffing this year, with 27 percent reporting that they plan to increase headcount by 20 percent or more.

    Smaller technology companies are recruiting at an even faster pace, with 90 percent planning to increase staffing in 2007 and almost one-third reporting that they will expand headcount by 20 percent or more. With the supply of H-1B visas already exhausted for the year beginning in October, recruiters will not be able to source abroad for IT talent.

Converting contractors
    Employers are increasingly anxious to convert IT contract workers into permanent hires, but the supply is limited, especially for the advanced work that is most in demand. In Hudson’s IT practice, one out of every three of contract employees converts to a permanent hire.

    Among those with highly specialized skills, however, the conversion rate is only 10 percent to 20 percent. "Some senior-level subject-matter experts are contract mercenaries," Valek says. "They enjoy the financial benefits, and they are difficult to bring into permanent positions. We see more conversions among junior and midlevel employees."

    For high-level free agents, temp-to-perm is always a possibility, Snelling COO Dan Glazier notes. "But this is a candidate-driven market," he says. "If a worker has been on contract for many years and is older, his or her perspective on benefits may have changed and the temp-to-perm offer may be more attractive." With other contract employees, however, employers may have to work hard to make the conversion attractive.

    At the higher skill levels, workers earn 15 percent to 30 percent more as contract employees. "The benefits for permanent positions tend to be slightly better, especially if it's a Fortune 500 company, so contract workers will weigh this tradeoff," Glazier notes. Snelling’s studies show that benefits are important to temp workers, but not as important as wages.

    "With contract rates 15 percent to 30 percent higher for technology jobs, there’s not much an employer can do to convert a candidate," says Scott Ragusa, president of Winter, Wyman. "Another 5 percent to 10 percent in salary is not going to do it. Also, the client company should be aware that it is selling the firm to the candidate and should be sure to offer the candidate challenging work."

    Valek reports that Hudson has seen some upward momentum in salaries for permanent positions. "With the tight labor markets, more employers are going straight to permanent positions instead of looking at contract employees," he says.

    Don Weis, vice president of national recruiting for Spherion, advises HR executives to exercise caution in trying to convert contract employees. "It can be a great opportunity, but there may be difficult issues involved in trying to convince a passive candidate to accept a permanent position."

    The salary difference between contract and permanent employees is an integral part of the negotiation process. "Companies that do it right have it all worked out in advance, with details on the benefits and bonuses offered, so they can sell the offer to the candidate and get the employee on board," Weis says.

    The key is to determine what is important to the candidate at that particular time. Benefits may not be appealing, particularly if the candidate has coverage through a spouse. "You must find what appeals to that individual," Weis notes.

    In response to tighter labor markets and the need to convert contractors, employers began raising wages for permanent positions in the last half of 2006, reports Eric Buntin, managing director of Randstad USA. "The 15 percent to 30 percent wage differential for contract workers is shrinking to 10 percent to 25 percent, and some temps are beginning to respond to this by becoming more willing to look at permanent positions," he notes.

    Raising wages to turn temps into permanent hires or to bring in new hires often creates problems down the road when internal pay equity falls apart. Hourly wages for technology workers rose 3.1 percent in 2006, according to Yoh. Overall technology wages are up 15 percent from 2002, restoring most of what was lost when wages crashed during the 2001 recession.

    Starting salaries for IT project managers will rise 4.1 percent in 2007, with the range running from $72,750 to $106,250, according to Robert Half Technology. But high-demand skills such as service-oriented architecture and business process re-engineering could see starting salary increases of 10 percent or more.

    Culpepper reports that half of all technology and life sciences companies are using signing bonuses to bring on talent. Among firms with more than 5,000 employees, three-quarters are offering signing bonuses. The vast majority pay a flat dollar amount.

    For technical managers and professionals, a slim majority of companies pay signing bonuses of $1,000 to $4,999, but one-third pay $5,000 to $10,000. For executive positions, signing bonuses may exceed $50,000.

    At 54 percent of the technology and life sciences covered in the Culpepper report, signing bonuses are paid in one lump in the first paycheck. Among companies that split the payout, most provide full payment after three months.

    Data from the first quarter of 2007 indicate that labor markets for technology employees will continue to tighten. From February to March 2007, employment in computer systems design jumped 7.1 percent, according to the U.S .Bureau of Labor Statistics.

    Unemployment for workers with a bachelor’s degree or higher dropped from 1.9 percent in February to an even lower 1.8 percent in March. For the information industry as a whole, unemployment is a low 3.2 percent.

    The IT skill sets most in demand— Microsoft Windows administration, network administration, database management and other specialized fields— exist in relatively fixed quantities that are quickly depleted during an expansion.

    "Employers are quickly coming to the realization that the market is tight and they are reviewing the skill sets they require," Valek notes. In Hudson’s IT practice, contract work represents 80 percent of the business, and its recruiters must constantly pull in new employees to replace the contractors lost to permanent positions. "The supply problem is in the senior positions," Valek says.

    "We use all available techniques for sourcing. When I walk past our recruiting bullpen, it’s not uncommon for me to see people using LinkedIn or other networks. IT professionals are the first adopters of any technology developments, so we have to stay ahead of them."

    Hudson’s recruiters are having a particularly difficult time filling positions for project managers and subject-matter experts. "We have to be more proactive and invest more in the recruiting base," Valek says. "We are becoming more specialized so that we know the right person to call from the beginning."

    For internal recruiters, short-term solutions to the IT labor market squeeze include rotating in employees from other parts of the business and training them into IT positions, pulling in third-party recruiters or dedicating internal recruiting staff to IT hiring. In the long term, careful staff development, succession planning and building internal recruiting resources with a deep knowledge of the company’s IT needs will be necessary.

    Experts agree that CIO involvement is essential. Recruiters are only fully effective when they can evaluate all the alternative methods for meeting staffing needs—permanent hire, contractor, outsourcing—and the CIO must set the guidelines for this process.

Workforce Management Online, April 2007 -- Register Now!