Moshav Bnei Zion P.O.Box 151, 60910 Israel Tel. 972-9-7444474 Fax.

972-97442444

SUMMARY OF ROUND TABLE REVIEW ON:

PROCUREMENT AND PERSONNEL MANAGEMENT IN
ORGANIZATIONS

Moderators of the review: Galit Fein and Pini Cohen

Nov. 2007
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Table of contents
Page

Foreword 3

Private Sector:

Examples of financial sector organizations 3

Examples of telecom sector organizations 4

Examples of Hi-Tech and Industrial sector organizations 4

Public Sector 5

Determining remuneration, tariffs & other conditions relating to outside employees 6

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Foreword

Present at the review were user organizations from various industries. Representing
the organizations were: information systems managers, finance managers, human
resources managers, procurement managers and so forth. The object of the discussion
was to raise matters with which most IT organizations are coping today in relation to
procurement and the management of outside personnel, such as: ratio between tenured
IT employees and the outside employees, pay packet revisions, and trends in the
domain; to share existing experience in this domain: and to learn the best practices of
other organizations. .

One fact that emerged from the discussion was that the ratio between tenured IT
employees and the outside employees varies greatly from one organization to another
and between different industries.

Private Sector:

Examples of financial sector organizations

• An organization in which most IT employees are tenured employees of

the company noted that it also holds long term contractors’ employees
with up to 15 years seniority in the organization. The organization does
not wish to replace these contractor employees but, for various reasons,
neither can it transform them into tenured employees of its own. The
organization prefers to work with tenured employees and therefore,
when a long term employee is required, he will be recruited as a
tenured company employee. A smaller number of contractor employees
are recruited for specific projects for a predetermined length of time
(ranging from several months to two years). Recruitment of short term
outside employees is intended to prevent the growth of the company’s
table of organization.

• An organization in which most employees are tenured employees with

a global monthly salary. The company’s employees are hired either in
accordance with a collective agreement (30%) or on the basis of a
personal contract (10%). An additional group of employees (60%) is
recruited via software firms at a fixed annual tariff. In order to give
these employees a sense of belonging, and to prevent complaints, the
organization commenced, in the past year, to transfer them to personal
contracts. Major organizations that work with 70 software firms use
pre-signed agreements whereby they are entitled to absorb the
contractor employees into the organization after one year. And in order
to protect the suppliers, they cannot absorb more than 30% of outside
employees in one year. It is important to note that the contractors
specializing in certain niche professions do not always consent to the
absorption of their employees into the customer organizations.
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Examples of Telecom Sector organizations

• Personnel are divided into tenured employees of the company, a minor

proportion of outside consultants, project-specific personnel and
outsourcing employees. Project personnel and outsourcing employees
jointly account for some 20% of total IT personnel. Outside
consultants are experts recruited for the benefit of specific projects,
who are not identified with the customer company. Project-specific
personnel are long term permanent contractor employees. A trend has
emerged in the past year of absorbing these employees into the home
organization, so that they should no longer feel like second class
employees. It is important to note that even if the insourcing process
was embarked on out of a purely managerial concept, an organization
will, by adopting it, also benefit from a savings in costs. Outsourcing
employees are those who belong to the customer or the supplier and
are recruited for the purpose of a particular project for the short term.
Frequently, when the project is over, these employees remain for the
purpose of an additional project.

• Another example of employee ratios: of the 20% outside employees

out of total information systems division, one half works at a fixed
price and the other on the basis of hours. Even where the trend is to
absorb people into the organization, it is not always possible to find
employees in the desired professions, whereupon there is no alternative
but to apply to the software firms. There is also such an entity as “half
contract employees” – namely outsourcing, in which a company pays a
supplier in accordance with SLA but requires a certain quantity of
personnel for carrying out the operation. The number of suppliers has
been restricted to 20 software firms and the recruitment process is
identical to that used for inside and outside employees.

Examples of High-Tech and Industrial Organizations

• Another organization pointed to the trend of insourcing outside

employees. Every contractor employee’s contract has a clause enabling
the company to recruit the employee after a period of 6 months, as
needed. Very few contractor employees work for the company for
more than one year. It is customary, in this sector, to work also with
freelancers. In accordance with this model, the company has direct
contact with the employee, all terms are agreed with the employee
himself, and his employment may be terminated at any given moment.

All negotiations with contractors take place on the level of a specific

employee. The pay base for contractor employees is that of the
company’s tenured employees. International companies still quote
dollar denominated tariffs, which are determined as an average per
hour tariff for the whole year (including holidays and Sabbaths). It is
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important to note that even if the dollar exchange rates have not
changed very much since the fall of the dollar, even though the decline
made itself felt in dollar denominated employees’ salaries (there was
no change even when the dollar reached NIS 4.9), still, employees are
still not seen to be exiting, despite the fact that the pressure is starting
to be felt. Contractor employees report their hours to the company’s
hours' system. Recruitment of external employees is made by the
organization’s hiring department.

Contractor recruiting also takes place via Purchase Order. Sometimes it

is easier, in this way, to obtain the budgets and the allocated positions.
Organizations also work with near-shore of Israeli contractors. When
projects are executed for customers in Europe, tariffs for contractor
employees are seen to be very costly (£ 500 in the UK, €300 -500 in
other European countries, per diem). One day’s consultation can
amount to $ 1,000 per diem, and accordingly, in such instances, the
organization must make sure that there is budgetary coverage for each
individual case.

• Another customer describes the ratio between the company’s tenured

employees and contractor employees as 50:50. Most contractor
employees have been working with the company for several years.
Most work on an hourly basis, only 20% of contractor employees work
at a fixed price. There is a group of short term project-specific
personnel (25%). This year, the organization made the transition from
dollar payment to shekel payment.

Public Sector

• A number of public sector organizations noted that they have a rigid

table of organization for tenured employees. In addition to their
tenured employees, these organizations engage temporary workers,
who are expected to leave the organization within a period of 5 years,
consultants who may be with the organization for up to 50 hours a
month, who belong to high demand domains, and employees with a
personal contract. In addition, an organization recruits project-specific
personnel for specific tasks (improvement or assimilation of a system)
for a fixed period of time. Participants noted that they prefer to
cooperate with a limited number of suppliers in order to attain
economy of scale (Microsoft, SPL, IBM etc.).

• Public sector organizations stated that several years ago, a software

firms’ invitation to tender had been issued with a maximum price per
employee. At the time, they were proud of the lower prices they
managed to obtain (about 15% less than market). But today, after
several years in which salaries have not been revised, they are starting
to suffer employee departure, and they are experiencing heavy pressure
to raise tariffs. Manpower companies are prepared to continue to work
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at low prices in this sector, because in that way, that can secure new
projects. Another problem of issuing an invitation to tender for
manpower is the protracted recruitment terms of two months per new
employee due to the bureaucratic process. To recruit an employee for
more than six months, it is obligatory to work via tender.

Remuneration is payable in shekels and linked to the Consumer Price

Index. Contractor employees constitute 9% of total IT employees.
Manpower agreements are shekel denominated.

• Yet another organization described a situation in which three fourths of

the organization’s employees are contractor employees. Some are
outside employees (heads) and some are outsourced employees. Here,
too, there is a difficult problem of allocated positions. And ultimately, a
non-profit organization pays 15% more to outside workers than to
tenured employees. This organization, too, put in a bid for a software
firms tender in which 52 companies were awarded contracts, all of
them competing for jobs at a monthly tariff (and at least 9 hours per
weekday and five hours on the intervening days of Jewish holidays).
There is a minimal tariff of 70% that the supplier must pay the
employee.

Determining remuneration, tariffs, and other conditions relating to outside

employees

• A coefficient of 1.7 must be added to the pay of an outside worker who

is not assigned a company car. In other words, the company pays NIS
17,000 for any employee receiving a salary of NIS 10,000. Another
method of computation: a coefficient of 1.45 (a 45% increment to
fringe benefits such as: senior employees’ insurance, advanced training
fund, health and severance pay, an increment of 35% exclusive of
severance pay to short term [less than one year] employees) to an
employee not assigned a company car; 1.6 to an employee with a
company car, and then a 20% profit must be added. As regards the
additional conditions such as meals, excursions, parking and so forth,
different companies have different behaviour patterns. There are
organizations in which outside employees can obtain meals in the
refectory with the aid of an employee card, in which case software
firms are allowed to decide whether they want to participate in the
payment

• As part of the agreement, a demand may be made for up to NIS 750

per annum (about half a work day) for social activities and one team-
building day per annum (organizations do not always utilize the entire
amount.). As regards excursions, an effort is made to treat contractors’
employees the same as the company’s employees and if, for a company
employee, an excursion is considered a work day, then the same will
apply to an outside employee. It is important to note that this rule does
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not apply in respect of all companies and there are some that debit the
outside employee for a vacation day in respect of an excursion.

• Examples of shielding the customer against price fluctuations: the

dollar exchange rate range is set at 4.2 to 4.4 or 85% of the Consumer
Price Index, which is revised twice a year.

• Organizations view annual pay reviews as a good basis for internal

salary revisions. An example of average price range: $ 27 to $ 35 per
hour. There are no pay revisions during a work year. But at the end of
the year, the organization checks the satisfaction rate of professional
managers and may raise salaries by 5% to 10%. Raises are not made
once a year and do not pertain to particular professions, but rather, in
each case, the contractor employee is carefully scrutinized on a
personal basis. Generally speaking, organizations wait for a request
from the suppliers or the employees themselves as regards salary
revisions.

• Organizations prefer to work in accordance with a fixed price and not

to deal with overtime hours, sick pay and military reserve duty pay.

• Organizations aspire to reach a state of transparency with the suppliers

so as to prevent a problematic situation in which an outside employee
may earn more than his professional manager in the company.

• Most organizations complained of a paradoxical situation in which

they sometimes simultaneously receive the curriculum vitae of a
certain employee from fifteen different companies. Organizations try to
prevent this state of affairs and enable candidates to apply for a
specific job through one supplier company only, but this does not
always work.

• Personnel companies such as Manpower do not have the advantage of

personnel companies specialising in IT, which are more successful in
tracing suitable candidates. Antler advantage of IT manpower suppliers
is the maintenance of the employees. Employees are given training,
professional support, excursions and so forth. If the customer’s
company feels that an employee should undergo professional training,
the training will be given at the expense of the supplier (up to 10 days)
A supplier will pay for the time and sometimes also the in-house
course that an outside employee undergoes in the company. Another
advantage is that a supplier may increase pay to a good employee in
order to keep him even when the customer’s company cannot raise
tariffs.

• Numerous advantages attach to employees working for a manpower

supplier. High mobility (easy to switch to working near home if one
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changes one’s residential address, to switch to another job after

maternity leave and so on), advanced training courses, and at the same
time, one sees quite often that outside employees wish to belong to the
customer organization in which they are currently working.

• Professional niche companies specialising in highly sought after

domains such as BO, BI, SQL, as well as Oracle Applications and
information security, which supply customers with professional
manpower that cannot easily be recruited. Recommended suppliers are:
Opisoft, Bynet, Consist and Gilon.

• The most significant price hikes in the past year have been in the fields
of BI, Net, Oracle Applications, Basis SAP ($ 75) and Unix ($ 60).
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Appendix: information obtained from suppliers and consultants on trends in the

Web 2.0 domain:

Gilon
______________________________________________________

The profitability of software firms/ manpower companies has been eroded in recent
years, between payroll costs and customer requirements. Accordingly, companies
have become more aggressive in tariff discussions in the past year, as also in payroll
discussions, while assuming the “risk” of loss of a job or an employee. Therefore,
most stable, specializing companies (as distinct from new ones) are switching from
the market share policy that characterized previous years to a profit oriented policy .

At the same time, some organizations succeed in constructing, jointly with a specialist
software house, a mechanism for a project to be managed jointly, and which
incorporates a commitment on the part of the software house for knowledge
enrichment, experts, creation of a roadmap, and reduced dependency on employees.
These organizations get to enjoy the best of both worlds: on the one hand, flexibility
and familiarity with the technological front by reason of the involvement of the
software firms, and on the other hand, conservation of expenses and the
supplier/employee commitment.

Gilon has numerous projects managed by the fixed annual budget method, including a
definition of key development tasks along with maintenance and assimilation. In this
context, a regular team operates along with additional support experts as well as
managers and consultants who provide added value. This method is worthwhile for all
parties since it enables them to create a balance between more profitable and less
profitable employees, between short term and long term profitability, continuity,
creation of added value, flexibility and so forth.