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CIO pay: Under the radar and maybe rightly so

The good news is that the public outcry over excessive pay for U.S. executives is unlikely to extend to CIOs anytime soon. The bad news is, well, the same.

The excessive and often unwarranted pay packages for American CEOs are finally starting to rankle. The recent ouster of The Home Depot Inc.'s overpaid and underperforming former CEO, Robert Nardelli -- helped off his high horse with a $210 million golden parachute strapped to his back -- left the investing public angry.

Will CIOs find themselves in the cross hairs of an outraged public, or for that matter, under scrutiny by Wall Street analysts?

Unlikely, say compensation experts, and not just because of the relatively modest average salaries for CIOs in the United States: $120,250 to $200,000, according to the 2007 salary guide from recruitment firm Robert Half Technology. That is a 3.1 % increase over last year.

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"Historically, CIO salary has not been as politically charged, partly because the conflict-of-interest issue is not present. The CEO can stack the board with friends who determine pay," said analyst Sam Bright at Forrester Research Inc. in Cambridge, Mass. "There is lower visibility for CIOs, so there is not as much controversy around their pay. IT is out of sight and out of mind."

Bright said it will be interesting to see what story lines develop around overpaid and underperforming CIOs. Until now, anyway, unsuccessful CIOs tend to go away quietly, not attracting much press, in part because it is "fairly easy to replace them," Bright said. But he said he can imagine a couple of scenarios where CIO pay could draw public scrutiny.

"If CIO pay were to go up while there is significant outsourcing and staff layoffs, that could stir controversy, or if there were a major security breach," he said. But more likely the CEO would simply fire the CIO in the event of an embarrassing incident, he added, and "that isn't the same as shareholder activism."

Gartner Inc. analyst Diane Berry is not seeing much movement in CIO salaries. Data from the Stamford, Conn.-based consultancy shows a 5% increase in base salary over last year and median total compensation of $288,000. But IT salaries can vary significantly, depending on the size of the company (the larger the more pay), the sector (financial services pay top dollar) and whether the CIO is considered a "strategic player" or more tactical. "It really depends on where you sit on that pendulum," Berry said. "Incentives can amount to 50% of pay, if not more, for CIOs who are aligned to the business."

That jibes with what headhunter Chris Patrick is seeing in the marketplace. Patrick runs the North America technology practice at Egon Zehnder International. The firm has recruited CIOs for Motorola Inc., PepsiCo Inc. and Pharmacia Corp., to name a recent few of the heavy hitters on its client list. The company has also found berths for IT executives at early-stage companies.

While CIOs are an "emerging presence" in the executive suite, Patrick said, IT executives who possess the capitalist's killer instinct for making money are still in short supply. He cited Michael Capellas of Compaq Computer Corp., MCI, Hewlett-Packard Co. and now Serena Software Inc. as an example of geek made good.

"I don't talk to a single CIO who doesn't aspire to be there, but though many aspire, few are really qualified. Those that do understand business are in demand. They command high compensation," said Patrick, pointing to the $15 million or so Hewlett-Packard offered CIO Randy Mott just to lure him from Dell.

Hotshot CIOs hired by Fortune 50 companies command salaries that start at $400,000 and go up from there, Patrick said. Add bonuses and other perks and the pay packages can swell to well in excess of $1 million.

More typical, he tells clients, is a base salary of about $300,000 plus bonuses of 40% to 60% of pay, depending on how much is tied to business performance, Patrick said.

"Tying compensation to business performance is hard in IT, because of the 'necessary evil' component: The phone's gotta work, the computers have to turn on," he said. "Most companies just look at IT as a cost." The exceptions are companies where IT is the business, at an Inc., for example, or at one of the large tech companies, Patrick said, where the CIO is "truly viewed as a strategic force" in the business and pay packages -- as they do for CEOs -- include significant equity.

"You get what you measure," Patrick said. The problem for many CIOs is that IT has operated in a "black box" for so long -- good cover, perhaps, for the CIO who spends millions of the company's money on a failed ERP project but not so good for the IT executive who understands the need to show ROI. "The CIOs who really have a leg up on anybody today are the ones that have operations experience; even if they don't have [profit and loss] experience they at least understand it," Patrick said.

Forrester's Bright agreed, noting another brake on escalating CIO pay. "My gut feeling is that Wall Street analysts are not fluent enough in IT issues to calculate how or if IT could impact performance."

Let us know what you think about the story; email: Linda Tucci, Senior News Writer

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