Service Leadership’s 2023 IT Solution Provider Compensation Report Reveals More Profitable Firms Pay Less for Staff and Management Positions.

Service Leadership has released its 2023 IT solution Provider compensation report.  

The report revealed that more profitable providers tend to pay less for staff and non-owner manager positions than less profitable ones:

Staff positions: The Best-in-Class paid approximately 9% less than the Median and 13% less than the Bottom ¼ (the least profitable).

Managers: Best in class paid approximately 9% less than the Median and 17% less than the Bottom ¼.

“There is widespread belief that because a [provider] is more profitable and financially successful, they pay their employees more, but the data proves the exact opposite is true,” said Peter Kujawa. “The least profitable firms pay more for both staff and management positions, tie less of that pay to incentives, gave the largest increases in 2022 and are planning to do the same in 2023. The data is compelling as to why some companies are doing well and others struggle.”

The report also showed a close correlation between provider profitability and the percentage of variable compensation paid to staff and management. The best in class paid a materially higher amount of variable compensation for staff and managers:

Staff positions: Best in class tied 9.6% of Total Annual Earnings to variable compensation, while the Bottom quarter paid 5.8%.

Managers: Best in class tied 16.9% of manager Total Annual Earnings to variable compensation while the Bottom quarter tied only 8.2%.

In the survey population, the average MSP had 25.5 employees distributed between departments or functions. That’s up 23% from the 2016 edition of this report. The average MSP had around 74% of employees dedicated to service delivery functions in their organization.

For non-service delivery roles, 11% of employees make up sales and marketing. This is followed by 11% for general and administration; the remaining 4% are owners.

Before we leap to conclusions, note that the survey population is bigger than what most consider the average provider.   Just remember that as you consider the data.    I think the headline is distracting – this isn’t that they pay less; they do a better job of linking compensation to outcomes and can manage costs.

Don’t immediately assume you pay your people too much.  Two thoughts.  First, focus on that link to outcomes.  Second, remember that trying to pay above average quickly leads to unsustainable costs.   If wages grow 23%, that means every three and a half years, the salary doubles.   That math will get you every time.