May 31, 2002 InfoWorld
"Mastering the moment" By Eve Epstein

Making the most of survey results

The data from the InfoWorld 2002 Compensation Survey is a snapshot of the complex and ever-changing IT compensation landscape. No single factor can stand alone to determine IT staff compensation structures or your company's standing in the overall market. Instead, look for patterns in the survey that are relevant to your particular situation.

About two months into his job as CTO of Oxygen Media, Curtis Brown made a dramatic presentation to the company's senior managers that demonstrated just the kind of bottom-line thinking they wanted to hear.
Brown's due diligence on the state of technology at the New York-based entertainment company produced a four-page Excel spreadsheet listing all the major technologies Oxygen employed at the time, including many the CTO felt were redundant. Brown faced the other managers, held up all four sheets, and then put down two pieces of paper. Holding up the remaining two, he said, "This is how much technology we can use." He then jettisoned one more, adding, "I think we can get down to one sheet of technology.

"In a year when the high-tech sector has suffered deep losses, the business side is holding CTOs more accountable than ever for results and savings. These key players are maintaining high salaries, are using both technology savvy and business sense to help create efficiencies and keep an eye on ROI, and are simultaneously searching for new technology that will help launch products and generate future revenue growth.

Of the 195 CTOs who responded to the 2002 InfoWorld Compensation Survey, 41 percent report base salary increases in the past 12 months; 62 percent report receiving some kind of bonus. CTOs report an average salary of $143,802, excluding bonuses, profit sharing, and other forms of compensation. (See charts "IT executive base pay" and "Executive bonus pool.") The April 2002 survey had a total of 3,295 respondents representing executives, midlevel managers, and staff members.

Brown, whose salary has not changed since he made that proposal about two years ago, has delivered the efficiencies he promised. "I think we're just a hair over one sheet of technology, and that's what we needed," he says.

Those cuts, which resulted in a 50 percent reduction in Brown's staff, represent the kind of attention to finances that companies are looking for -- and are finding -- in their CTOs. (See chart "Staffing woes.") "I'm comfortable saying I've saved tens of millions of dollars at Oxygen," Brown says.

The recruitment picture

Steady salary rates for CTOs reflect the numbers that IT executive recruiters see in the marketplace. Jim McFadzean, partner in the Silicon Valley recruiting firm Ray & Berndtson says that while the overall number of openings has dropped off, pay for high-level technology executives has not. "I have not seen any dramatic change in compensation," McFadzean says. "I think if anything, it's maintained or gone up.

"Not surprisingly, what has changed since the dot-com bubble burst is a wariness on the part of job seekers about stock options, though options haven't gone away entirely as an incentive. "The equity holding in most cases is still an integral part of negotiating for the offer," McFadzean says.

Despite holding strong in pay, the number of high-level IT executive posts has dropped. Barry Honig, president of Riskon, a Tenafly, N.J., placement company that deals primarily in the financial services sector, says he has placed five to 10 CTOs in the past year. He saw CTOs leave the financial services sector to go to dot-coms when the bubble was expanding, and then try to return when it burst -- only to find fewer slots. But he adds, "The number that has been lost is not that great. What's really happened is that people who are in those slots are not interested in moving."

IT executives such as Brown, who are already in CTO positions with established companies, say recruiters are still calling, although not as often as they called two years to three years ago. Deb Mukherjee, CTO of Cognizant Technology Solutions, an IT software services consulting company in Teaneck, N.J., wasn't looking to leave his job as CTO of Farmers Insurance, until a recruiter tapped him about a year ago.

"They solicited me, and at that time I hadn't even known about Cognizant as a company," Mukherjee says. "I was quite comfortable and happy working at Farmers, but the insurance industry as a whole was not doing too well. There were a lot of economic issues, and investments that could have been made were not being made.

"But not everybody is interested in making a move. Although job security is one reason for staying put, other reasons are surfacing. Honig says that the IT executives he has gone after recently have told him, "I've built up political, social capital -- I have friends," as a reason to remain with a company. CTOs responding to InfoWorld's compensation survey had been with their current company on average 6.4 years.

Mukherjee was lured by the prospect of trying something new for substantially more pay. He speculates that if he were to look for a job now, he might not be paid at the same level. "People would look at my salary as being too far on the outer edge.

"Executive recruiter McFadzean says salaries run the gamut, with compensation hovering at about -- or even above -- the average InfoWorld found in its survey, but rising to as much as $350,000 in base salary for a CTO with experience and a proven track record. "CTOs are garnering some very high compensation, especially if they're any good," he says.

Honig agrees and says that reductions have come primarily in bonuses. Companies are also reluctant now to offer a length-of-employment guarantee tied to compensation, he says. "Traditionally at the more senior levels, someone would be offered a one-to two-year compensation guarantee ... that would be a cash buyout," he says. "Now, companies are not wanting to put these guarantees on the table."

The right skills for the times

Alex Zoghlin, CTO of the online-based travel company Orbitz, was the first employee hired at Chicago-based Orbitz before its June 2001 launch, and as such had the luxury of fashioning his own lean, Internet-based company.

As a technology-focused company, Orbitz relied on Zoghlin as a key manager. "It's a difficult job for the CTO to know and understand marketing, finance, strategy, and technology. Old vice presidents of technology were good at keeping the lights on," Zoghlin says. "Today requires a different skill set. Now we are seeing the emergence of the CTO lifting himself out of the grind of keeping the data warehouse up, to seeing what marketing, sales, and the strategy people want.

"A lesson learned from the past year, Zoghlin says, is that strategy becomes all-important in a competitive market. "The market is a well-known entity," he says. "Sometimes, fiduciary responsibility doesn't exist in IT organizations. In our case, we have a line-by-line plan. I make sure so we can be held accountable.

"The CTO role does require a renaissance background in both technology and business, but it's precisely that combination that is paying off in the marketplace. Oxygen Media, for example, did not have a CFO until almost a year after Brown started with the company. "I think I have had a great deal of responsibility and later collaboration with our CFO vis-ý-vis getting our finances in line, watching our spending, [and] tracking our spending," Brown says.

CTOs who can marry their financial tracking ability to technology know-how find they are prized within the organizations. Enzo Micali, CTO of Westbury, N.Y.-based retailer 1-800-Flowers.com, has kept an eye on the bottom line by bringing several capabilities in-house that were done outside the company previously. "We brought our Web capability in-house in the year 2000," he says. "We found that we could be much more efficient internally." Overall, Micali says he runs a "lean and mean" operation. "In the last year, IT costs have gone down.

"Bill Shea, the company's CFO, says Micali's efforts are closely watched. "IT is crucial to the overall financial picture at 1-800-Flowers.com," he says. "Technology is what drives our company and it plays a significant role in almost every aspect of our business.
"To that end, Shea says he works closely with Micali. "Whether we get together on our own to review a project or meet as part of a larger group, our paths regularly intersect." (See chart "The company's money.")

Carrie Todd, CTO of 1st Advantage Federal Credit Union, in Newport News, Va., says the most important skills in her tool kit are communication and leadership abilities. "Ideally, you want to have the operations leadership take ownership for both the information processes and technology that they use daily," she says, adding that she "must be sensitive of people in the organization who are not necessarily technology-oriented and learn how to guide them through technology changes.

"The marriage of business and technology does not mean that companies only care about nontechnical skills. Companies value the CTO's technical experience and how that plays in the overall corporate mission. On the technical side of the skill set, high-level IT executives with deep-seated background in infrastructure are currently in demand, says executive recruiter Honig.

"The majority of the expenditures that occur come from the infrastructure side -- the datacenters, the networks," Honig says. As a result infrastructure CTOs are highly sought after in the financial services sector. "The feeling is that if [these companies are] going to be cost-conscious, they want the person who has significant experience with the largest line item." These IT executives with infrastructure skills can also move across industries more easily. "Datacenters, networks, databases -- that all transcends the industry," Honig says. "They want us to find people who can do that well.

"As for the sectors that are providing more fertile ground for jobs these days, McFadzean mentions Web services and security as areas where there is new demand. "Security is the hottest," he says.
More influential than ever

The downturn in the economy along with the increased visibility of CTOs as crucial players in maintaining financial health and stability have only increased the visibility and influence of CTOs within their organizations and with outside partners.

Allan McLaughlin, CTO of the information service LexisNexis in Dayton, Ohio, says his role has become "more visible and influencing" during the past year. "People are beginning to notice that good CIOs/CTOs recognize that technology is not the endgame," he says. "Technology is, however, a key enabler.

"McLaughlin reports to his CEO, with a "dotted line" reporting structure to the CTO of LexisNexis' parent company, publisher Reed Elsevier. "This helps to build leverage and influence on best practices across diverse business units within our parent global corporation.

"CTOs often have frequent interaction with key executives in marketing, sales, and finance. Micali says he is in constant contact with the head of merchandising, the head of marketing, the head of the company's gift center, and describes his position as the hub of a wheel, with spokes reaching out to every part of the company. "It's all the other business owners within 1-800-Flowers.com," he says. "The challenge for the CTO is to connect the dots. Every business owner I meet with has a technology challenge.

"Zoghlin, CTO of Orbitz, describes an even tighter connection, suggesting profound influence. "We don't use technology to better the process of other departments," he says. "Technology is the company.

"And even when technology is not the company, CTOs influence the company's role as technology adopter. Most CTOs who responded to InfoWorld's Compensation Survey say they are early adopters of new technology on a personal level, but indicated their companies take a more conservative approach. (See chart "CTOs and technology adoption.") This suggests that CTOs are choosing technology that fits the overall business strategy, rather than pushing for the bleeding edge at every turn.

A brighter future?

Is the job market going to pick up for CTOs? Will there be new opportunities for those who want to leave their current posts, or for those who hope to move up into the CTO ranks from lower-level IT management jobs?

CTOs and recruiters express cautious optimism that the need for people with CTO-level expertise will increase in the near future, especially for those who can spot trends early and translate them into sound business strategy. "I must say that in the last 45 days the activity level has picked up," says Ray & Berndtson's McFadzean. "Things are starting to happen." According to a May 2002 workforce report from Information Technology Association of America, managers are optimistic about IT hiring in the next 12 months. ITAA projects an aggregate demand for IT workers of 1,148,639 in 2002, of which 578,711 positions are expected to go unfilled due to a lack of qualified workers.

Some CTOs also see signs of an improving economy. Cognizant's Mukherjee says he recently met his former Farmers boss at a conference, who had optimistic news about his old company: "Farmers Insurance is doing great. The rates have gone up, so the company's ... making money.

"But even as companies start to do better, CTOs say they don't expect a return to a boom-time mentality, and many say the downturn has provided a real-world education they'll always value.

Oxygen's Brown goes back to that key presentation he made to his top executives, when he offered to cut IT inefficiencies, as a defining moment in thinking about the CTO's role. "I think [I learned] principally how to make hard choices to help companies get strategically aligned with what they can afford."