As the IT-job market improves, employers need to revise pay, benefits, and workplace policies to ensure their most valuable people don’t leave

Tom Gagné knows that keeping top tech talent requires making work fun. But “fun” at work isn’t about foosball tables anymore. As chief technology officer at HCS Payment Services Inc., a small company that depends heavily on technology, Gagné’s version of fun is to keep Fridays clear of major projects, so IT people can explore pet projects that have a shot at helping the company. Fun also means people knowing that their work is important. HCS’s IT people regularly attend meetings with top managers, including the company’s chairman, and monthly pizza-and-subs meetings bring the tech and business staffs together to discuss business strategy and IT projects. That helps keep the Friday “fun” work aimed at potential business needs. One IT worker used his creative time to rewrite the company’s user interface, which ended up being deployed and improving many of HCS’s applications.

“I suspect there are jobs that pay more, but the work wouldn’t be as interesting or fun,” says Gagné, whose IT team makes up about a fourth of HCS’s 35 employees and includes a few contractors and several former contractors who were hired full time.

Gagné is living in the new world of IT-employee retention. Employers aren’t in mass-hiring mode (OK, except Google), and they aren’t straining to keep every one of their IT people. Plenty of companies continue downsizing IT payrolls by outsourcing to lower-cost countries. But that has only ramped up the pressure on the most-valuable IT employees and made keeping them happy and on the job all the more important. Employers need to re-examine retention tactics for those key people, especially as the IT-employment market improves. Whether it’s dusting off perks that have been scarce since the dot-com boom days–remember signing bonuses and skills premiums?–or offering clear strategies for career advancement, companies need to take stock of people they can’t afford to lose, and what it will take to keep them.

Low Grades Managers don’t give their companies high marks for keeping top talent. Just 49% of managers say top talent tends to stay at their companies, according to a survey of 10,000 employees by staffing company Hudson. And even that grim outlook by managers may be rose-colored; 35% of workers say top talent tends to stick around.

In the economic downturn of the last several years, many IT people who lost jobs struggled to find new work, and many with jobs were glad to have paychecks, even if they were dissatisfied with their responsibilities, workloads, or lack of raises. With the employment market slowly rebounding, many IT professionals are antsy to make a job change.

A recent InformationWeek.com online poll of 146 IT pros reveals that 69% were either actively or somewhat actively looking for a new job at another employer. The top five reasons cited: dislike of current employers’ management or culture (64%); desire for higher compensation and more personal fulfillment (both at 56%); desire for more interesting work (50%); and the need for less stress (34%).

Meanwhile, employers are getting anxious about attracting and retaining good IT people, especially those with critical skills and experience. Our poll shows that 53% of respondents say their companies are experiencing a shortage of IT workers. Turnover is the No. 1 reason for the shortage (46%), followed by difficulty finding specific skills (33%) and company growth (31%).

The latest figures from the U.S. Bureau of Labor Statistics show the job market is improving for IT pros. According to analysis of the bureau’s data, IT unemployment last quarter hit 3.2%, 1.5 percentage points lower than a year earlier. The number of IT professionals with jobs rose 17,000 from the second quarter to the third quarter, to 3.44 million, which is up from 3.32 million in the third quarter of last year. The number of unemployed IT pros fell to 113,000 in the third quarter, compared with 164,000 jobless a year ago.

Skills That Matter Given the pending exodus of retiring baby-boomer IT professionals, who’ll take their years of business, industry, and technology experience with them, and the decline in the number of young people entering the IT workforce, recruitment and retention problems are likely to worsen in coming years–though not necessarily across the board. Companies are looking to attract or keep IT workers with specific, highly valued skill sets, including experienced application developers, business analysts, and IT-system architects, particularly those who have deep understanding not only of technology, but of how technology fits into a business and industry.

“Hiring is extremely selective right now because of risk avoidance,” says David Foote, founder and chief research officer of Foote Partners, which conducts quarterly surveys analyzing skills and pay trends. The risk comes from companies that have sent application development offshore and are now hedging their bets, trying to avoid the cultural, management, and other problems that have plagued some outsourcing arrangements. They’re either keeping more work in-house or paying more attention to the skills of employees working with outsourcers, both of which are driving up pay. A recent Foote Partners study shows that salaries of IT pros with application-development skills soared about 18%, and salaries of those with enterprise-application talent jumped 11% during the last 12 months, a trend Foote attributes to this “risk-avoidance” behavior.

At financial-services firm ING Group N.V., group chief architect Raymond Karrenbauer sees a market shortage of experienced senior IT talent in areas such as Java and .Net development, databases, and IT architecture. “There’s an overabundance of lower-tier and intermediate-tier talent and a lot fewer of those in the senior tiers who understand the complexity of code, how it all fits together,” Karrenbauer says. It’s that need for senior-level experience and top-notch performers that’s driving up the salaries of certain key skills, he says.

ING focuses a lot of attention on holding onto and developing its top tech talent, those who management has identified as having great skills and experience, by grooming them for even greater responsibility and career advancement at the company, says Karrenbauer, who himself was recently promoted from CTO to his new post. ING annually identifies the top talent it wants to develop, whether through cross-training among different parts of the business or sending those people to school for advanced education. Karrenbauer mentors 12 IT staffers who are on the fast track. In fact, one of them may very well become the next CTO. “I get to cherry-pick these people,” he says.

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