IT staff salaries will increase by as much as 10-15 percent over the next three years, according to META Group (Nasdaq: METG), a leading provider of information technology (IT) research, advisory services, and strategic consulting. This salary inflation will drive up labor costs through 2007, when they will represent upwards of 55 percent of an organization's IT budget.

According to META Group analysts, as the economy improves during the next 12 months, key IT employees will seek "greener pastures" with competitive firms. To prevent a mass exodus of highly valued employees, CIOs will need to pay closer attention to their human capital management programs, including management development, employee welfare/morale programs, recruiting/retention programs, and perhaps most important, compensatory strategies such as performance-based incentives.

"The 'grass is greener' mentality must be dealt with head-on," said Maria Schafer, senior program director with Executive Directions at META Group. "CIOs must begin to work more closely with human resource professionals to implement strategies that address human capital management trends and innovative retention programs - an area in which IT has historically been reactive rather than proactive."

META Group analysts point to a range between 4 percent and 6 percent as the "magic" turnover rate threshold. Analysts believe the IT organization must devise particularly innovative retention strategies such as enabling more flexible work rules (e.g., job sharing, teleworking), since staff turnover has long plagued the industry, specifically for talent with desirable application development, security and networking skills.

According to the 2004 IT Staffing and Compensation Guide, an annual report released by META Group, 24 percent of respondents indicated that IT professionals in the application development field were the most difficult IT employees to retain. Similarly, those polled indicated high turnover among employees who specialize in security (13 percent) and those who hold networking job functions (13 percent).

"As the economy heats up, so does the desire and incentive to seek higher-paying work and greater development opportunities," said Schafer. "Although this is true throughout all industries, it is particularly indicative of an industry such as IT, which has had one of its longest periods of job and salary stagnation. A steadily improving economic climate is already changing these dynamics, and CIOs must tackle this issue immediately, using a variety of tools to compete with competitor firms - or face a real workforce crisis in the months to come."

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