Have Dots & Have Nots

The staff at your brick-and-mortar business are jealous of your dotcommers. How can you keep the peace?

Magazine Contributor

January 1, 2001 8 min read

This story appears in the January 2001 issue of Entrepreneur. Subscribe »

Shawn Jenkins could guess what was coming. One of his employees at American Pensions sat across from him with a legal pad full of numbers-and asked for more money. What made this different from other discussions about pay? This brick-and-mortar employee with some database experience had done his research on salaries in the high-tech industry, and he knew how much tech workers earn. He also had an ever-present reminder of this profit potential: the company's new dotcom subsidiary, Benefitfocus.com Inc. "He asked for a raise, and it was due to our dotcom venture," Jenkins says.

Jenkins, 33, president and CEO of Benefitfocus, had watched as two companies-the brick-and-mortar business and the dotcom spinoff-fought to coexist in the same building. On one side was American Pensions Inc., a 30-employee Mount Pleasant, South Carolina, company that services corporate-sponsored retirement plans and where Jenkins is a partner. On the other side of the company's headquarters was the "Green Room," an 850-square-foot room housing 11 programmers. Sales and administrative staff were in a nearby conference room. Both rooms full of people worked for Benefit-focus, a company that lets clients manage the health and retirement benefits of their employees online.

But as Jenkins found out, hiring techies creates a new pay structure-and new problems. Soaring demand has pushed compensation packages for tech workers through the roof. Estimates show that while annual pay for nontechies is increasing 4 percent per year, pay for techies is increasing 10 to 15 percent annually.

The numbers speak for themselves. According to Salary.com, a Web site that lets users view pay scales for almost any type of job, the median base salary of a Web designer with beginner's experience is roughly $51,000. Beginning webmaster? $52,000. Web content engineer? $71,000. The salaries for those jobs can top out at $55,000 to $80,000 annually. And those figures don't include stock options, percentage of company ownership and other benefits. In fact, a September 2000 study conducted by The Standard, an Internet-focused online magazine, found that overall compensation packages for IT workers average $104,000 annually.

The stellar pay of dotcommers makes nontechie pay seem paltry in comparison. Another search of Salary.com shows that a typical office manager earns about $37,000, a data entry supervisor makes about the same, and an administrative assistant pulls in a little less: $33,000. All these salaries tend to top out at $39,000 to $45,000.

Jenkins' American Pensions employees earn base salaries, quarterly incentives and annual bonuses based on the company's performance. But when Jenkins recruited for Benefitfocus, he had to go the extra mile: paying recruiters and offering part ownership and generous salaries to new recruits. Jenkins acknowledges he's paying techies more because of their technical abilities and market demand. "I'm paying people with two years of tech experience more than I'm paying accountants who have been on board for five or six years," he says.

What we're seeing today is a two-tiered pay system that shows no sign of changing any time soon. It doesn't help that the media have made geekdom cool, even glamorous, with technology CEOs as hot as pro athletes or movie stars. Nontechies may feel inadequate in pay and skills-and employers can be put in the awkward position of trying to keep everyone happy with their salaries, their benefits . . . even their line of work.

Risk & Reward

Tech workers are used to compensation packages that offer more stock options than cash, and they know the dangers of working for companies that might not make it. Although market volatility has encouraged entrepreneurs to dole out less stock, the perception remains that techies receive generous options and become instant millionaires.

Jenkins says that although American Pensions employees haven't approached him about working for the dot-com, they have made comments about the potential rewards. "Two American Pensions employees told me that in three years I'll never have to work again," Jenkins says. "I said, 'That might be true, or I might lose my house.' I think it sunk in that this is a tremendous risk. [The dot-com] could come crashing down at any time."

Many employers, however, never address the risks and instead hide their compensation strategies from employees. Employers need to explain differences in compensation as an investment in the future of the whole company, says Andrew DuBrin, an industrial psychologist and professor of management at the Rochester Institute of Technology in Rochester, New York. "The CEO has to say, 'We have to pay to scale to get the talent we need for the company to move forward.' The CEO has to show that [hiring techies] is part of a strategy to benefit everyone in the company," he says.

Outlining reasons for investing in techies isn't enough, though. Employers also need to watch for "compression," which occurs when compensation packages aren't kept competitive. Offering more to techies while failing to keep com-pensation for non-techies at market rates crushes morale.

Keeping up to market is always a challenge for Gary Erickson, co-founder (with Lisa Thomas, 45) and CEO of energy food and nutrition company Clif Bar Inc. Erickson, 44, has recruited a few techies for an in-house IT division. The techies share in a companywide bonus program: an annual payout based on company and individual performance that also makes higher salary grades eligible for larger bonuses.

Erickson says he hasn't seen tension between his techies and nontechies, but he's lost brick-and-mortar employees to dotcoms because the company is located in a technology hotbed: Berkeley, in California's Bay area. To deal with compression, the company hired a vice president of human resources to research the market and review employee salaries. "We try to be competitive," says Erickson. "We do our homework on the [salary] range we can offer."

Can't fathom the value of compensation? Read 5mn With Wage And Compensation Experts Patricia Zingheim And Jay R Schuster to spell it out for you.

Problems With Going Online

Last spring, Roberta Johnson, 45, founder and co-owner of Sportsvision-bend, an 11-year-old retail sunglasses company in Bend, Oregon, needed a techie to update the company's Web site and streamline online ordering and shipping. She offered the full-time position to John Hoffman, 29, director of Web design at a nearby Web development firm.

But for Johnson, courting a techie was scary: "This was the first hire I've ever made that involved both my accountant and my lawyer-the accountant to tell me what it would take to afford this guy, and the lawyer to draw up the deal."

In the end, Hoffman's compensation package included a competitive salary, flextime, a signing bonus, a percentage of monthly gross sales and a percentage of ownership in Sportsvisionbend's dot-com division. Hoffman accepted and is matter-of-fact about what he earns. "Employers need to give [techies] compensation packages that value them," he says. Sales on the Web site have grown 119 percent since Hoffman started.

But conflict arose when Johnson asked her salespeople to tell customers they could shop online. Nontechies wondered who would get the commissions on sales through the Web site. After a tense staff meeting, Johnson dropped commissions completely and increased wages to compensate for the loss. "When the salespeople were on commission, they didn't want to talk about the dotcom. It was competitive," she says. "We're more of a team now."

Being Left Behind

It's typical for owners launching dotcoms to handpick a few employees from the brick-and-mortar side and bring them over to the new venture, something that can create resentment if companies aren't careful. "People who stay on the traditional side of the company think, 'It's not fair; my co-worker went over there, and now he's a millionaire.' They also think that this new business wouldn't exist if it weren't for them," says Bill Coleman, vice president of compensation for Salary.com.

As new techies come on board at Benefitfocus, Lynn Harrill, investment operations manager for American Pensions, wonders whether they understand that the traditional company's success is what made the dotcom a reality. "I don't sense that this connection is being made by techies coming on board," she says.

Jenkins decided not to move anyone from American Pensions to Benefit-focus for two reasons: American Pensions employees didn't have the programming skills needed to do the work, and, most important, Jenkins wanted to keep the flagship company stable. "I didn't want our clients to think we were raiding our traditional company," he says.

Benefitfocus is 500 percent ahead of projections and on track to bring in $5 million in sales in the next 12 months. "It took us 12 years to grow to 30 people [with] American Pensions, and I'm projecting 100 employees working on the Benefitfocus side in the next year," Jenkins says. But non-techies aren't eligible for Benefit-focus stock because they aren't employed by the dotcom (although Jenkins is working to change that), and Jenkins admits "they feel left behind."