Electronic Design

Finally, Salaries Are Rising Again

Despite insourcing, outsourcing, benefit losses, and the gender gap, your paychecks may see some small increases.

Few issues generate more passion these days than the controversy surrounding H1-B visas. Many U.S.-born engineers, including those who already have been displaced or consider themselves vulnerable to displacement, say the program costs countless American engineering jobs. Yet corporate OEM executives say their businesses, and the competitiveness of the American technology industry as a whole, depend on a deep pool of engineering talent, including workers from other countries. But is there any legitimacy to the argument that the presence of H-1B workers suppresses the wages of American electronics professionals?

The growing popularity of H-1B visas, which let employers fill specialty occupations with foreign workers, continues to be a contentious issue within the high-tech community. To ensure that American workers aren't adversely affected, employers are required to meet certain labor conditions, including paying H-1B workers wages comparable to those of U.S. workers in similar positions and locations.

The Department of Labor's Wage and Hour Division is responsible for ensuring that H-1B workers are actually filling the role listed in the employer's application and receiving the required wages. U.S. industry spokespeople say repeatedly that H-1B visa holders are paid the same wages as similarly qualified American citizens. Numerous studies and reports, though, suggest otherwise:

  • According to documents filed with the U.S. Department of Labor (DOL), immigrant engineers with H-1B visas may be earning up to 23% less on average than American engineers with similar jobs.
  • A General Accounting Office report showed that some employers said they hired H-1B workers in part because these workers would often accept lower salaries than similarly qualified U.S. workers. However, these employers also claimed they never actually paid H-1B workers less than the required wage.
  • A report from the Center for Immigration Studies found that in spite of the requirement that H-1B workers be paid the prevailing wage, H-1B workers earn significantly less than their American counterparts. For example, 47% of applications for H-1B computer programming workers were for wages below even the prevailing wage claimed by their employers.

According to IEEE-USA vice president Ron Hira, the whole concept of "prevailing wages" is useless as a safeguard for U.S. and H-1B workers. "Proponents of the H-1B program say that by law, H-1B workers must receive prevailing wages. But this is a legal façade so full of loopholes that it is frequently gamed by employers to pay below-market wages," Hira says. "This is another myth of the H-1B program, that prevailing wages are the same as market wages."

A review of the DOL's 2005 database of Labor Condition Applications (LCA)—the form employers must complete to verify their responsibilities for wages, working conditions, and benefits—confirms that employers are regularly allowed to pay H-1B workers wages that are well below market rates. That's because, under the law, U.S. employers have three options for determining an H-1B employee's prevailing wage.

According to the DOL, an employer can request a "prevailing wage determination from the appropriate State Workforce Agency," use a "survey conducted by an independent authoritative source," or use "another legitimate source of information." But despite the law's clear intent, Hira points out that companies can easily circumvent the "prevailing wage" requirement by:

  • Selecting a survey source with the lowest salaries
  • Misclassifying an experienced worker as entry level
  • Giving the person a lower-paying job title, rather than one that legitimately reflects the work to be performed
  • Citing wages for a lower-cost area of the country and then sending the employee to a higher-cost area.

In addition to being able to exploit these loopholes, companies using H-1B workers have almost no chance of ever being investigated. And even if they were investigated, these loopholes are so large that most employers would likely escape unscathed since they're following the letter of the law, if not its spirit.

It's important to note that the DOL uses an automated review process to look for missing information or obvious inaccuracies on LCAs. Human beings rarely, if ever, look at the applications. This limits the likelihood that a wage discrepancy will be discovered or investigated. Also, if the Department of Homeland Security (DHS) finds that an H-1B worker's income on his or her W-2 form is less than the wage claimed on the original LCA, it does not have a way to report the discrepancy to the DOL.

"It's a self-policing system that is never actually checked," Hira points out. "The law itself is written in a way to invite exploitation. It should be no surprise that firms take advantage of the loopholes."

IEEE-USA President Ralph W. Wyndrum Jr. believes proposals now before Congress to raise the H-1B visa cap should be scrapped until significant workforce protections for U.S. and H-1B employees are instituted. "Not paying market wages to H-1B holders is unfair to both foreign and domestic high-tech workers," Wyndrum says.

"H-1B employees are being taken advantage of, and some U.S. workers' salaries are likely suppressed by the influx of thousands of additional job competitors," Wyndrum continues. "The wage problem is one symptom of how deeply flawed the H-1B program is."

The full impact of H-1B visas on domestic engineering wages may not be felt for some time. For now, at least, it appears that salaries have finally turned the corner following the sluggishness in wages that has overshadowed the industry after the September 11, 2001 terrorist attacks.

Salaries going up
The base salary of the average engineering professional in 2006 was $87,395—up nearly 3% over last year. Bonuses were up 9%, and stock options and other forms of compensation grew an even more robust 12%. Total income in 2006 (base salary plus bonuses and all other sources of income) was $96,320, compared to $93,056 in 2005.

These gains in income were in line with what engineers told us they anticipated in 2006. But while paychecks are starting to look better, engineers worry that future earnings may be sandwiched by two potentially powerful forces: the outsourcing of design work to cheaper labor markets overseas and the influx of lower-paid foreign workers.

"We ought to stop hiring imported workers for half the going rate and make the H-1B system do what it really claims to do: make workers available that are otherwise not available," said one survey respondent. But another engineer noted: "I think over-restricting H-1B engineers will simply accelerate the outsourcing of jobs. But having it less restricted will cause older engineers to be laid off for younger, less expensive ones."

Executives who participated in the Electronic Design survey include both leaders of large corporations and owners of small engineering firms. Their incomes depend more on bonuses and incentives. They average $120,224, ranging from $157,250 for managers at Fortune 1000 companies to $109,241 for those at smaller firms.

Engineers involved in design and development now bring in $92,132 annually, compared to the $82,268 earned by engineers involved in other functions like manufacturing and test. Meanwhile, engineering managers in general average $121,328.

The three industries that were tops in compensation this year were semiconductor houses ($125,106), medical electronics firms ($103,700), and computer manufacturers ($102,722). The higher salaries being commanded by designers at chip houses is no doubt reflected in the fact that these companies are also the most active in looking to hire new engineering talent.

In the past, engineers working in U.S. contract manufacturing firms earned the lowest salaries of any OEM industry, as these companies help their clients cut costs by suppressing their own wages. But the average compensation paid to these workers rose significantly in 2006, perhaps because many contract manufacturers are moving away from commodity-type designs to more specialized work in niche markets and vertical applications that require a higher level of design expertise.

While that may be good news for engineers at domestic EMS organizations, the bad news is that more work moved offshore in 2006 as domestic OEMs expanded their engagements with engineering resources in India, China, Europe, and the Pacific Rim (see "Does Outsourcing Lower U.S. Engineering Salaries?" at www.electronicdesign.com, ED Online 13698).

Here's another sign of the healthy state of employment in the industry: almost half of this year's survey respondents said they had been contacted by a headhunter or recruiter at some point during the year. "We are now making extra efforts in terms of education and benefits and are taking the time to talk to those who are most likely to be recruited in order to retain key personnel," noted one engineering manager.

Perhaps not surprisingly, nearly 40% of our respondents said they believe their company is more focused on employee retention this year than it was a year ago. "Having competent personnel alleviates problems of having to train new workers, but at the same time allows new workers to learn from those who are already in the loop," said one engineer.

But the fact remains that most engineers aren't feeling the love—at least not yet. "In my opinion, our organization views engineers as commodities that can easily be replaced. They give lip service to the adage that 'our employees are our greatest resource,' but their actions are generally contrary to that principle," one respondent said.

Location, location, location
Two factors linked to higher wages are company size and geographic region. As might be expected, larger companies dish out bigger salaries, bonuses, and pay raises. They're also more generous when it comes to non-cash rewards and benefits such as stock options, 401(k) plans, pensions, continuing education opportunities, and health coverage. On average, though, engineers at smaller companies feel more secure in their jobs and are more satisfied with their current paychecks—so bigger isn't necessarily better for everyone.

It should come as no surprise that in regions where the cost of living is high, paychecks are higher, too. Areas around Massachusetts and California, traditional technology hotbeds, attract more jobs and higher pay. This year, New England (Massachusetts, Connecticut, Maine, New Hampshire, Vermont, and Rhode Island) took the top spot as the best place for engineers to earn a living, averaging $112,838 and edging out the Pacific (California, Washington, Oregon, Alaska, and Hawaii), where total income averaged $111,032. Next up were engineers in the West South Central states (Arkansas, Louisiana, Oklahoma, and Texas), who averaged $104,538 and saw the greatest percentage increase in their paychecks (9%).

Engineers in the Mountain states (Arizona, Colorado, Montana, New Mexico, Nevada, Idaho, Utah, and Wyoming) averaged $98,827, followed closely by colleagues in the South Atlantic (Florida, Georgia, North Carolina, South Carolina, Virginia, West Virginia, and Washington, DC), who averaged $98,402.

The Mid-Atlantic (New York, New Jersey, Pennsylvania, Delaware, and Maryland) averaged $96,001, while the East South Central states ( Alabama, Kentucky, Mississippi, and Tennessee) averaged $93,274. The East North Central states (Indiana, Illinois, Michigan, Ohio, and Wisconsin) averaged $87,957.

Pulling up the rear in 2006 were engineers in the West North Central states (Minnesota, Iowa, Missouri, North Dakota, South Dakota, Nebraska, and Kansas). Their incomes dipped a bit to $81,197 after experiencing healthy gains the previous year.

As in past years, chip designers took home the most pay in 2006, averaging $113,320 plus a whopping $11,786 in bonuses and other incentives. Rounding out the other six-figure compensation earners were computer product designers ($106,608), medical systems designers ($105,216), software designers ($104,200), communications systems and equipment designers ($103,579), and avionics/marine/space systems designers ($101,282).

Some of our survey findings confirmed things you'd logically expect. For example, more engineering experience usually translates into higher pay. The older you are, the more you make (at least until you reach the age of 55, when salaries begin to dip). And if you want to earn more than the average engineer, you'll need to tack on some graduate courses to your bachelor's degree.

As one reader put it: "Engineering is an exciting and challenging career path, with many opportunities to work on projects that impact human health and other world problems, including security and the environment. While it takes a person who is willing to invest time and energy in education—and continuing education—the end result is a profession that provides a good salary path and a career that can result in a lot of satisfaction."

Indeed, continuing education is an ongoing process for most engineers. In addition to staying current with the help of technical journals like Electronic Design, nearly two-thirds say they stay fresh by attending seminars and reading engineering textbooks. And about half depend on white papers, industry trade shows, conferences, online seminars, and vendor-sponsored education (such as webcasts) to keep up to date.

As in the past, this year's survey showed that while women certainly possess the right stuff and the appropriate attitudes toward the profession, engineering continues to be significantly less financially rewarding for them than for men. In 2006, male engineers average $87,600 in base salary and $8955 in bonuses and other income for a total compensation of $96,556. Women, by comparison, average just $73,137 in base salary and $7221 in bonus and other income totaling $80,355—a difference of nearly 17%.

Many factors may contribute to the discrepancy. For example, despite the fact that men and women hold similar jobs, work similar hours, and have similar education, men on average are older and have been working in engineering longer than women. But even when those differences are accounted for, there's no getting around the fact that there remains a huge disparity in the earning power of men and women in engineering.

The workaholic pressure so common among engineers is on the rise. Engineers are working longer hours than ever—54 hours a week, when you factor in work done at other locations (including home) and time spent on call. That represents an hour more on the job than a year ago. The good news is that longer hours also usually translate into bigger paychecks at the end of the week. "Compensation (real and non-cash) has improved," said one engineer. "While the work and the workload have increased, compensation has increased to match. Health and other benefits remain unchanged, as have incentive programs. All changes are permanent—at least until next review."

All about the benefits
While the base salaries being served up by OEM design houses are on the rise again, employers are tying any additional rewards to performance—and are being stingy with other forms of compensation. For example, 55% of engineers said their cash bonuses this year were tied directly to personal performance, up from 40% a year ago. In addition, 51% remarked that their bonuses were tied to the performance of their company or division.

"As a somewhat mature startup company, the non-salary-based compensation is still a bit weak in comparison to more established companies," one reader said. "I expect that as my organization continues to grow, items such as matching 401(k) and better health benefits will expand. Time-to-market pressures are a big issue, so I also expect that bonuses and stock options will be floated as performance increases."

Another reader noted: "Compensation policies are becoming more performance-based at the corporate level and the individual level. Responsibilities are increasing for health care, but nothing else at this time. This business is cyclical, and we are at the peak of the cycle. That implies that we will see new pressures on wages, bonuses, and benefits in the next few years as the business cycle enters a declining phase."

For the second straight year, fewer engineers are being offered 401(k) match plans (54%), profit sharing (27%), stock options (21%), or stock purchase plans (18%). But nearly 13% said they'd received bonuses for patent awards this year.

"The employee payment for benefits is increasing, bonuses are gone, and travel has gone down from business class to coach. In general, all perks have gone down, and these moves appear to be permanent. The incentives are very small, usually on the order of $25 to $100 and only a couple during a year," one employee noted. "The worst policy is the performance review process. Goals are decided on the corporate level and set very high (i.e., we must meet seven out of nine requirements) in order to gain any merit increase in base pay."

The number of engineers receiving health benefits from their employers also continues to decline, with only 62% covered under company health plans this year compared to 70% two years ago. The fact that salary increases are being overshadowed by increased healthcare costs was a common grievance.

"More of the cost of health care is being passed to employees," complained one engineer. "My understanding is that this is common to the industry. I see a major problem with healthcare in the U.S. I am more concerned about this than most other issues, since this will impact retirement survival for most people."

But many OEMs are finding ways to balance fiscal realities with the need to care appropriately for their valuable engineering staff. "Things are getting better, although for a while there they were pretty bleak," said one engineer. "However, it has been quite some time since I've received a bonus of any sort, even though I've been completing projects. I believe part of the problem is management changing their minds about what their priorities are, which makes it difficult to complete a project before moving onto something else."

Companies are clearly willing to spend in areas where they see some near-or long-term benefit. Some of the non-cash or indirect cash rewards that engineers mentioned they'd received in 2006 include further education and training (25%) and tuition reimbursement (18%). "Retention is a big issue because the stock value has dropped," said one engineer. "Once stock options are under water, their value as compensation diminishes. So salaries and work/life balance compensation must, in part, pick up the slack. Other ways we get compensated here include tuition reimbursement, time off—and interesting work."

One corporate executive told us: "Good engineers are an asset. Getting and keeping good engineers is tougher today than before." So in addition to benefits and non-cash awards, companies need to keep their eye on the total pay package.

See Associated Table: AVERAGE SALARIES BY TITLE, WHERE YOU WORK, AND TOTAL COMPENSATION

See Associated Table: AVERAGE SALARIES BY FUNCTION, INDUSTRY, AND DESIGN WORK

See Associated Table: AVERAGE SALARIES BY COMPANY SIZE, EXPERIENCE, AND EDUCATION

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