Findings of the Service Leadership Index® 2023 Annual IT Solution Provider Compensation Report™
Contrary to popular belief, you don’t have to offer the highest base salary to score top talent. These findings equip TSPs with the data to evaluate the current state of their pay structure and determine whether they are delivering appropriate compensation packages that meet their business objectives.
The Best-in-Class Companies:
- Pay the least for staff and managers
- Had the smallest increases in 2022 and are planning the same in 2023
- Have the highest % of that pay tied to incentives
Geographic influences on profitability
A common but mistaken assumption by TSP owners and executives is that specific marketplace conditions have a material impact on profit performance, meaning geography impacts profitability. Most commonly, TSP executives in large cities dream of the “lower wages” supposedly available in smaller markets. In contrast, their peers in the smaller markets envy the supposed “higher rates” being charged in the larger markets. Each falsely assumes these wage and price differences give the other an enviable profit advantage.
In any given marketplace and Predominant Business Model™ (PBM™), you will find executives operating their company at Best-In-Class (BIC) profitability (globally speaking). You will also find companies in the same PBM operating at Median and Bottom ¼ profitability. Therefore, while different geographies have different compensation, some higher on average and some lower, geography makes no material difference to profitability. Management skill makes the difference—the creation or acquisition and diligent application of best practices suited to that PBM.
State of Compensation Globally
Contrary to popular belief, more profitable TSPs pay their employees less (lower total annual earnings or TAE). Across all departments, the BIC pay is about 9% less than the industry median and 13% less than the bottom ¼. This discrepancy is evident in both staff and non-owner manager positions.
Of all the positions, owners have experienced the highest rise in 2022, with 48% planning a TAE increase of more than 6%. 2023 around 43% of owners are projected to have similar increases. Managed services employees had the second-highest increase in 2022, with 36% receiving a TAE increase of over 6% and another 45% getting an increase between 4% and 6%. However, smaller increases are planned for these employees in 2023, with only 20% planning more than 6% and 61% opting for increases between 4% and 6%. Overall, most TSP employees (54%) anticipate TAE increases between 4% and 6% in 2023, indicating a decline from the previous year of more than 6%.
Variable incentive compensation plays a crucial role in the profitability of TSPs. BIC profit companies, on average, earn about 2.6 times higher adjusted EBITDA % than median profit companies. Incentive compensation helps control payroll costs for underperforming employees while providing higher rewards for top performers. In the United States, the proportion of variable compensation is highest, with staff and managers receiving 7.7% and 12.6%, respectively. Canada follows closely behind, with 6.5% for staff and 12.5% for managers. EMEA figures are lower at 5.6% for staff and 8.7% for managers. In comparison, APAC has the lowest variable pay for staff at 4.4% but a slightly higher percentage for manager variable pay at 9.1%. Despite being lower in these regions, the BIC still utilizes incentive compensation more than the bottom ¼.
Global
EMEA
ANZ
Deep dive into compensation trends
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Note: The definition of the term “compensation” has a different meaning outside of the US and Canada. In many parts of the world, “remuneration” is used instead of “compensation”, and TSPs should interchangeably use the appropriate term for their region.
0
2%
4%
6%
8%
APAC
US
EMEA
Canada
All
Percentage of TAE that is variable (Incentive, at risk)
Staff & Managers:
Average Variable Pay by Geo
10%
12%
14%
Staff
Manager
4.4%
9.1%
5.6%
8.7%
6.5%
12.5%
7.7%
12.6%
7.4%
12.1%
State of TSP Compensation - ANZ
1.9% of survey sample in 2016 up to 9.9% in 2022
In the ANZ region, more profitable TSPs pay less (lower Total Annual Earnings or TAE) for staff and non-owner manager positions. In fact, across all departments, the BIC pay about 9% less than the median and 13% less than the bottom ¼.
In our analysis of ANZ TSPs, over half of employees received TAE increases of more than 6%, and another 40% received TAE increases of 4% to 6% in 2022. For 2023, this trend continues as about half of employers are planning to provide TAE increases of 4% to 6%. However, only one-third are planning for TAE increases of more than 6%, versus one-half in 2022. This indicates that TSPs will more selectively pay top increases by prioritising employees that are more critical to their operations.
ANZ has the lowest variable pay of all regions for staff at 4.4% but does slightly better for manager variable pay at 9.1% when compared to the other geographic regions. In both cases, ANZ TSPs overall have room for improvement, but while the average variable pay is lower in most regions, the BIC still used incentive compensation to a higher degree than the bottom ¼.
This is due to the use of variable compensation, adhering to one target customer profile, and implementing technology standards to leverage more L1 talent.
Variable incentive compensation
State of TSP Remuneration - EMEA
2.9% of survey sample in 2016 up to 5.0% in 2022
More profitable TSPs in the EMEA region pay less (lower Total Annual Earnings or TAE) for staff and non-owner manager positions. In fact, across all departments, the BIC pay about 9% less than the median.
In our analysis of European TSPs, over half of employees received TAE increases of 3% or less in 2022.
In 2023, TSPs anticipate that about half of employees are planned to receive TAE increases of more than 6%, with another 40% planning for TAE increases of 4% to 6%. This is an indicator of potential wage pressures expected to be realised in 2023 for the European TSPs. This is opposite of what is happening in the other regions.
European TSPs have the second lowest variable pay of all regions at 5.6% but the lowest when it comes to manager variable pay at 8.7%.
In both cases, European TSPs overall have room for improvement and profitability opportunities. It’s worth noting that while the average variable pay is lower in most regions, the BIC still used incentive remuneration to a higher degree than the bottom ¼. For staff employees, the variable remuneration for the BIC was 8.5%. This is almost two times higher than the bottom ¼ at 4.9%.
For managers, this was even greater. The variable remuneration for the BIC was 16.5% versus the Bottom ¼ at 6.9%. This difference is due to using variable remuneration, adhering to one target customer profile, and implementing technology standards to leverage more L1 talent.
Variable incentive remuneration
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