Offshore Outsourcing Hits IT Pros Where It Hurts (Part 1 of 3)

Is the offshore trend driving down compensation levels across the IT industry?

The debate over offshore outsourcing typically focuses on its most prominent consequence: The perceived bleeding of American jobs overseas.

But according to salary researcher and management consultancy Foote Partners LLC, there’s another no-less troubling consequence of the offshore trend: It’s driving down base and premium compensation levels across the IT industry, for both certified and uncertified professionals alike.

Connecticut-based Foote Partners says that premium (bonus) pay for certified and uncertified IT workers declined still further in 2004, continuing a trend that began last year. That this trend is coincidental with another trend—the offshore outsourcing of American jobs—is suggestive, so much so that Foote researchers have connected the dots in a rather interesting way.

Offshore outsourcing is the bogeyman, they say, because it gives American firms more clout by reducing their dependence on the pool of onshore skills. This has allowed them to drive down premium pay (i.e., bonuses) for IT workers in a number of positions—including jobs that aren’t typically sent offshore.

David Foote, President and Chief Research Officer for Foote Partners, argues that the drop in premium pay isn’t necessarily a byproduct of shrinking IT budgets and economic downturn, however. After all, Foote said in a statement, “Premium bonus pay for many IT certified and non-certified skills that had been performing steadily in our quarterly research began to slide noticeably in 2003.”

Moreover, he says, there’s a correlation between the outsourcing of certain skills and a decline in the premium pay associated with them. “These skills coincided with many of the same employment areas that have been most susceptible to offshore outsourcing. Moreover, we've identified a similar trend in our base pay survey research."

Foote Partners' research is based on a sample size of 1,840 public and private sector organizations—including educational institutions—in the United States, Canada, and Europe. Nearly half (43 percent) of the organizations sampled have annual revenues, premiums, or (in the case of government or not-for-profit entities) budgets in excess of $500 million. The research firm says that it also interviewed more than 400 human resources departments.

Foote Partners surveyed premium pay for 58 IT skills certifications as well as for non-certified skills. Its results were somewhat sobering. On the heels of healthy growth through 2001 and 2002, for example, overall premium pay for skills certifications dropped by 5.6 percent in 2003.

Not All Bad News

The good news, of course, is that this decline appears to have stabilized in 2004 (it’s up one percent in Q1), such that median premium pay now averages 7.7 percent of base pay.

The best news (for IT professionals with any of a range of skills certifications, that is) is that they’re generally faring better than colleagues who lack skills certification or who work in non-certified skills areas. Foote Partners calculated a 16 percent drop in pay for non-certified skills over the last two years, compared to 6.5 percent decline in the average value of skills certification.

One reason that premium pay has stabilized is because demand for workers with project management, information security, and enterprise systems and networking skills has increased, researchers say.

Not all skill certifications have been quite as fortunate, however. Take the beleaguered programming sector. Foote Partners found that pay for both non-certified application programming and enterprise application development skills declined by an additional 2 percent in Q1 of 2004, and by between 19 percent and 21 percent over the last two years alone. The upshot, the research firm argues, is that many application development certifications have lost almost 15 percent of their value.

“This is premium skills pay that has traditionally been used to retain and motivate workers. As more programming work is transferred offshore or at least directed away from IT full-timers, premium pay becomes unnecessary,” explains Foote. “This continues to be a trend for some skills pay and also for base salaries. It’s one of the reasons why IT certifications pay has been declining in since 2003 after a pretty healthy run during this prolonged economic recession.”

All’s not lost, however. Foote Partners identified a variety of “hot spot” skill certifications in which compensation levels have actually bucked the prevailing trend. We’ll discuss these skills—along with other certifications that are likely to resist the offshore phenomenon—next week.

About the Author

Stephen Swoyer is a Nashville, TN-based freelance journalist who writes about technology.