Entrepreneurial Spirit Lifts Top-End Salaries
While typically employees at the lower end of the pay scale tended to get the largest percentage pay bumps, that has not been the case recently at Net Solutions. Whiton said his network integration firm has been getting more projects—bigger projects—and has been staffing up its growing managed services business, including hiring a CTO. For the first time in his company's history, he turned to head hunters for help.
Michael Kogon, CEO of Definition 6, Atlanta, said global outsourcing and managed services were reducing the need for entry-level people and increasing the need for customer-facing talent.
"Managed services is a labor-reducing solution," he said. "You don't have the demand to find cheap labor to do lots of activities. You need higher-end people ... the high-end, domestic-based leaders. And you bring in your SWAT team to smother a customer for transformation."
Other solution providers pushing into managed services similarly reported difficulty finding high-level technical and managerial talent. "There's plenty of referrals, but for certain positions there's less availability," said Laurie Benson, CEO of Inacom Information Systems, Madison, Wis. "I think a lot of the people that were out looking for jobs have landed somewhere. We're talking about the higher-level people."
Salary levels last year also may have been buoyed by the strength of the economy, which rendered the prior-year's start-and-stop recovery in IT spending a somewhat distant memory. "I think confidence is coming back in the economy," Benson said. "I think it's more upbeat."
The rate of increases in solution provider compensation did cool somewhat from 2004, when salaries rebounded 9.1 percent after several years of relatively sluggish growth. But the average 8.6 percent bump last year to $93,230, as reported by 596 survey respondents nationwide, was only slightly below the prior year's pace.
"We've been paying more in compensation across the board because we're committed to hiring the right people," said Stephen Myers, president of InfiNetworks, Naples, Fla. "We're not just buying skill sets anymore. You can buy those by the pound. It's important you hire the right people who understand business processes."
The survey defined compensation as the sum of salary, bonus and commission. In a continuation of last year's trend, solution providers said they have been altering compensation packages to tie more of their employees' compensation to various forms of performance-based incentives. This is true not only for sales and management, but also for technicians.
"We've always compensated salespeople based on performance. We've taken that to everybody in the company now. Everybody shares in the performance of the company," said Joe Oster, president of Structured Technologies, Rochester, N.Y. "And our company did very well, so people are making more money."
The performance measures are no longer based on just margin, but factors such as customer satisfaction, utilization, overall company performance and various other metrics that align with company objectives. While solution providers said they having been moving in this direction in their project-based business anyway, the transformation toward managed services also is driving a need to find different ways to compensate people.
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The entrepreneurial
appears to be spreading across the solution provider channel, escalating the salaries of top executives, salespeople and technical managers who can lead the charge into managed services.
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In those three categories, compensation rose faster last year than the average 8.6 percent reported by all employees in the 2006 CRN Channel Compensation Survey.
"We're back in the entrepreneurial growth model," said Robert Whiton, president of Net Solutions, Tustin, Calif. "We're looking for leadership, technical leadership and extraordinary competence."
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"It's been quite a challenge for us to figure out how to compensate people. If managed services people are doing their job, they're not doing anything," Oster said. "Billable hours is a concept that goes away. We're actuaries in this business. The whole point is not to granularize it as we did."
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InfiNetwork likewise has pushed incentive-based pay down to everyone. Engineers can make as much as 20 percent over their base salary, Myers said. "We made the change when we made the conversion to managed services," he said. "We wanted to be able to reward the people that are working harder."
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Among all the job categories, salespeople once again received the largest raises, reporting an average 11.6 percent increase. This was the second straight double-digit increase, but down from the average 15 percent increase in 2004. Sales compensation, which would be expected to trend up or down with technology spending, continued to show a strong recovery from the bottom of the cycle in 2002 and 2003. In those two years, compensation for salespeople either declined or rose only minimally.
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"Good salespeople are hard to find—salespeople that can sell services rather than product," said Alan McDonald, president of All Connected, a solution provider in Simi Valley, Calif. "I generally do all my sales owner-to-owner, and finding a salesperson that can engage at the CEO level is relatively difficult."
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Next in line were executive managers, whose compensation rose an average 9.9 percent. Executive pay raises, though, moderated a
from the prior year when compensation climbed 11.1 percent.
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The reverse was true for technical managers, whose 9.1 percent increase was up significantly from a 5.4 percent raise in 2004. Over the past two years, technical managers' compensation has shown accelerating growth. In 2003, for example, technical managers received an average increase of less than 1 percent.
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Meanwhile, sales and marketing managers and technicians received below-average raises of 6.9 percent and 4.8 percent, respectively.
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The data also reveals that experience is a critical factor when it comes to pay levels. Solution provider personnel with at least five years of experience were paid an average of $98,650 in 2005, compared with $83,820 for those with less than five years of experience. This is an 18 percent gap, similar to the figure in last year's survey.
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Experience also makes a difference when it comes to the size of pay raises. This was a shift from last year's survey, where experience made little difference in the size of pay raises. Individuals with less than five years of experience received an average 13.7 percent increase in compensation in 2005, more than double the figure of 6 percent for personnel with five or more years of experience.
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Finally,
CRN
also broke out compensation data on the basis of the size of the solution provider in terms of annual revenue. Here, too, the results were telling. The average level of compensation in 2005 for people working at solution providers with more than $10 million in annual revenue was $110,280, compared with $79,760 for individuals working for solution providers with less than $10 million in annual revenue.
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This represents a 38 percent difference in pay levels, considerably larger than the 21 percent figure in last year's survey, showing that the size of the solution provider is an increasingly important factor in determining pay levels.
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When it comes to pay raises, the differences between larger and smaller VARs was once again evident. In 2005, individuals working at solution providers with at least $10 million in annual revenue received an average 11.2 percent pay raise in 2005, nearly twice as large as the figure for solution providers with less than $10 million in revenue.