How much CIO pay is too much?

How on earth can organisations justify paying their IT executives millions of dollars in bonuses, or in the case of the public sector, handing out salaries of half a million dollars? news editor
Renai LeMay

(Credit: CBS Interactive)

commentary There's no doubt Australia's IT industry has suffered its share of financial pain over the past 12 months.

The list of staff cutbacks by large vendors and IT departments of major firms has been staggering. And that doesn't take into account more subtle pressures that have gone unreported: pay, promotion and hiring freezes that will have frustrated workers at all levels in many different organisations.

Even contractors — who often do well in an economic crisis as companies look to temporary solutions to headcount problems — have had a hairy time, as Sir Peter Gershon took the Canberra IT labour market by the scruff of the neck and gave it a vigorous pat down.

But there are some IT staffers who don't appear to be suffering the pain in equal measure: certain CIOs.

Take the example of Westpac chief information officer Bob McKinnon, who took the bank's technology reins in mid-2008 in the wake of the appointment of Gail Kelly as its chief executive. Westpac's annual report revealed yesterday that McKinnon had picked up a cool $2.09 million for his services to the bank over the 2009 financial year, including a staggering $900,000 in short-term incentives — that's more than his base salary, which was $738,000.

Not bad work if you can get it.

It's a similar situation at Victorian IT shared services agency, CenITex. reported this week that controversial CenITex executive Thana Velummylum — formally a contractor — had inked a new pay deal with the agency; his company Pharma Insight will receive $900,000 for two years' of his time.

Given the unwelcome political attention that his last contract caused when it came to light, I was surprised that CenITex didn't cut his pay.

In both cases (Westpac and CenITex), it's hard to see how each organisation can justify paying their executives what those further down the ranks would consider pretty astronomical sums.

With the merger of St George and other systems revamps going on, there's no doubt there is a lot on McKinnon's plate. But the question that has to be asked is: has the CIO personally made enough improvements to Westpac's IT division to warrant short-term cash incentives worth more than his actual salary?

My answer is "probably not".

The only other CIO from the major four banks to have his pay disclosed this year was Michael Harte from the Commonwealth Bank. Harte picked up even more than McKinnon, netting $2.7 million in total, of which $1.2 million was composed of short-term bonuses.

Yet, Commonwealth Bank is currently attempting a $730 million core banking replacement which should, if all goes well, greatly increase user functionality. Westpac on the other hand, although it hasn't suffered any major IT meltdowns that have been reported in the past year, and it does have a number of projects on the boil, doesn't appear to have made any major IT strides.

To add insult to injury, McKinnon's massive golden pay cheque came as Westpac revealed in May that it had made significant reductions to its full-time headcount over the previous six months — with support operations (including the bank's technology division) losing 769 full-time equivalent staff.

Cutting staff while handing management mammoth bonuses ... it's a classic recipe for anger and resentment amongst the troops.

Velummylum's astronomical remuneration is even more hard to believe, given that his employer is a government agency.

As the state opposition put it earlier this year, Velummylum is likely to be one of the highest paid government public servants in Victoria, despite that he's not an agency chief executive, managing director or secretary of a department.

Instead, his title is the more modest one of "transformation manager" for the agency's Efficient Technology Services program, which creates the common ICT services used to supply shared services to agencies' needs.

His remuneration levels are especially galling given the notoriously low pay levels for public servants in general. It's a well known fact that government jobs are generally safer than those that depend on the vicissitudes of profits in the private sector — but you pay for that comfort with a lower salary. Velummylum doesn't appear to have that problem.

Board chairmen often justify astronomical salaries for their executives by stating they are simply paying the necessary amount to attract the top candidates.

In both cases, given the current labour market, I'd be willing to bet that more than capable staff could be found for half their pay — or less. The most likely candidates would be internal staff who could be promoted to their new positions with only a modest pay rise.

Are some CIOs and other technology executives paid too much? How much is a fair rate for a top bank CIO or a government IT manager?