The IT Compensation Challenge: Theorizing the Balance Among Multi-Level Internal and External Uncertainties

Attracting, motivating, and retaining Information Technology (IT) professionals has proven to be an ongoing challenge, regardless of the era in question. On average, almost two-thirds of the IT operating budget goes to staffing expenses, with managers and human resources experts struggling to balance IT compensation decisions with the uncertainties their organizations face. While there are many compensation studies that provide descriptive evidence using institutional variables, we lack a comprehensive IT compensation model that explores explanations for IT compensation decision factors from the angle of reducing IT-related uncertainties. This paper integrates concepts from traditional compensation literature, the role of non-monetary rewards, and a multi-level view of factors that influence IT compensation decisions. The use of multi-level factors is supported by traditional agency theory perspectives of compensation, and by contingency theory that looks at external and internal (organizational) contingencies. An interesting result of our analysis is that agency and contingency perspectives of risk provide insights on when fixed or variable pay plans may be more beneficial to the organization. There may be conditions when risk is logically lower, but overall IT compensation amounts will be higher. In particular, our paper proposes that IT compensation can be a viable IT governance mechanism in high-risk conditions when effective monitoring and performance measurement are less attainable, such as in outsourcing situations.