E-Business Explosion Drives Compensation

Solution providers, are you looking to increase the percentage of your company's revenue coming from e-business? If so, get ready to pay significantly higher compensation costs for your personnel. The 2000 CRN Salary Survey revealed a marked, upward trend in total compensation (defined as the sum of salary, bonus and commission) as the percentage of e-business sales revenue increases.

This trend is evident not only for all 1,014 survey respondents as a group, but for all three of the major job categories surveyed,managers, salespeople and technical staff. Even within the 13 separate job classifications (or combinations of certifications, in the case of technical personnel), many exhibit the same type of relationship between compensation and e-business revenue.

"Across the board, there is a significant increase [in compensation] on the e-business side as the opportunities continue to grow," said Dani Severen, director of technical services at Foreshock Inc., an Irvine, Calif.-based Web integrator.

CRN broke out the survey data based on the percentage of solution providers' total revenue coming from e-business solutions. Four different ranges were specified. The first is where e-business makes up less than 10 percent of total revenue. The second is where e-business makes up between 10 percent and 19 percent of total revenue. The third is for between 20 percent and 29 percent of total revenue, and the fourth is for 30 percent or more of total revenue.

Compensation costs were compared for each of these four ranges for all 1,014 respondents, for the three major job classifications and for the 13 separate job classifications.

The data show for all respondents taken together, those who worked for solution providers where e-business revenue makes up less than 10 percent of total revenue had a median compensation level of $58,000 last year. For those working for solution providers where e-business revenue makes up between 10 percent and 19 percent of total revenue, the figure jumps to $65,000, an increase of 12 percent.

Only a slight increase is recorded for those personnel at the next level, businesses with between 20 percent and 29 percent of their revenue coming from e-commerce solutions. Here, the median level of compensation is $66,000, an increase of about 2 percent, compared with those respondents at the previous level.

But compensation takes another double-digit jump among personnel working for solution providers with 30 percent or more of their revenue coming from e-business. The median compensation level of $75,000 is about 14 percent higher than the figure for those working at companies with between 20 percent and 29 percent of revenue from e-commerce.

For integrator Maxon Services, salaries started increasing dramatically when the company began to focus on e-business solutions, said Eric Tremblay, partner at the Brossard, Quebec-based company. "We've gone from nuts and bolts to using gray matter, and salaries have gone up accordingly," he said.

The results mirror what is going on in the industry, said Pete Melomo, senior vice president of research and development at TIS Inc., a New York-based Web integrator. Integrators and solution providers are paying top salaries because top-flight talent is necessary to complete complex projects on time, executives said.

"People with these kinds of skill sets are at the top of everyone's list," Melomo said. "It is becoming increasingly more difficult to find people. It is not getting out of control; it is out of control. Part of our day-to-day challenge is keeping our turnover rate down," he said.

The percentage of e-business revenue trends upward along with company size, in terms of the dollar value of total revenue, according to the survey data. The larger the company, the greater the demand for personnel and the higher the level of compensation.

More rigorous analysis of the survey data, however, shows that this accounts for only part of the overall relationship between compensation and the percentage of e-business revenue.

The positive correlation between e-business and total compensation also holds true among the three major personnel groups CRN surveyed. This relationship is particularly strong among salespeople and technical staff.

Salespeople working at companies with less than 10 percent of revenue coming from e-business had a median compensation level of $50,000 last year. However, the figure shot up 25 percent, to $62,500, for those individuals at companies with between 10 percent and 19 percent of revenue from e-business.

The level of compensation increases just slightly for salespeople at solution providers with between 20 percent and 29 percent of e-commerce revenue. But compensation soared another 21 percent to $76,000 for those sales personnel working at solution providers whose e-business revenue amounts to 30 percent or more of total revenue.

Among technical staff, the trend is somewhat different, with the biggest gains in compensation coming after the percentage of e-business reaches a certain level. Forthe reasons cited above, this is not a surprising result. As the percentage of e-business revenue grows, more and better skilled personnel are required, meaning solution providers need to open their wallets wide.

For example, technical personnel working at solution providers with between 10 percent and 19 percent of their revenue coming from e-business were paid a median level of compensation of $57,700 last year. This was only slightly above the $57,500 figure for those personnel working at companies where the percentage of e-business revenue was less than 10 percent.

The upward trend begins to accelerate, however, for technical personnel at solution providers with between 20 percent and 29 percent e-business revenue. There, the median level of compensation last year was $60,000, more than 5 percent above the figure for personnel at companies with between 10 percent and 19 percent of revenue from e-business.

And for those technical staff employed at solution providers with 30 percent or more of revenue coming from e-business, the median level of compensation jumped to $75,000, nearly 21 percent above the figure for those working at solution providers with between 20 percent and 29 percent of revenue from e-commerce.

For managers, in sharp contrast, the biggest rewards come early in the process, when solution providers are making their first efforts at increasing their e-business revenue. This result is not surprising; having experienced managerial talent in place to guide the move up the e-business ladder is an absolute necessity when competition for e-business dollars from the enterprise, as well as small and midsize companies, is so fierce.

Managers at solution providers where e-business amounts to less than 10 percent of total revenue received a median level of compensation of $67,800 last year. This figure rose 11 percent to $75,000 for managers at solution providers with between 10 percent and 19 percent e-business revenue. For those managers at companies with between 20 percent and 29 percent of revenue from e-business, compensation jumped another 19 percent, reaching $89,000.

Interestingly, the median level of compensation actually declined, to $77,500, for managers at companies with more than 30 percent e-business revenue, in contrast to salespeople and technical staff where compensation increased significantly at the more than 30 percent level, compared with the 20 percent to 29 percent level.

These results,along with those for individual job classifications cited below,strongly suggest that after revenue from e-business (in percentage terms) reaches a "critical mass," managerial talent becomes relatively less important,though not unimportant, of course,compared with sales and technical staff. The opposite is true before this point is reached, with managerial talent being relatively more important.

The survey results also suggest the correlation between the percentage of revenue from e-business and total compensation holds, even within individual job classifications.

The data was not sufficient to make comparisons for all 13 job classifications, but where sufficient data did exist, the same upward trend in total compensation along with revenue from e-business was evident.

Among senior salespeople, for example, those working at solution providers with e-business accounting for 30 percent or more of total revenue had a median compensation level of $79,500 last year. This was a strong 22 percent higher than the figure for senior salespeople at solution providers with less than 10 percent of revenue coming from e-business.

For technical staff people with both Certified Novell Engineer (CNE) and Microsoft Certified Systems Engineer (MCSE) certifications, the gap is much wider. Those at solution providers with more than 30 percent of revenue from e-business received a median level of compensation that was 37 percent above those working at solution providers with less than 10 percent of revenue from e-business.

The median level of compensation was $61,000 for individuals with both the MCSE and Cisco Certified Network Associate (CCNA) certifications working at solution providers where less than 10 percent of revenue comes from e-business. But this figure leaps to $73,350 for those at solution providers where between 10 percent and 19 percent of revenue is from e-business.

This trend also occurs for technicians with only one certification. For example, those with the CompTIA PC Technician certification (A ) that work at solution providers with less than 10 percent of revenue coming from e-business realized a median compensation of $46,000 in 1999. But for those working at solution providers with between 20 percent and 29 percent of revenue from e-business, the figure surges to $63,000.

These results are particularly significant because salary and other compensation costs routinely make up more than half of total operating expenses for solution providers and take up a third of total revenue, according to data from CRN's Reseller Financial Operating Performance Survey.

The data also show that over the past few years, even before e-business burst onto the scene, salary expenses have been rising sharply, partly as a result of shortages of experienced, qualified IT personnel. In 1998, for example, salary expenses reached an average of 27 percent of total sales revenue, up from 21 percent just three years earlier.

In turn, the growth of these costs put increasing pressure on the bottom line; only a shift toward profit-rich services and away from narrow-margin products has allowed solution providers to overcome the upward trend in compensation costs and continue increasing net income (measured as a percentage of total sales revenue).

Results from the 2000 CRN Salary Survey make it clear that solution providers can expect no relief from this trend as they further shift their business models to take advantage of the burgeoning growth of e-commerce. The double-digit percentage increases in compensation costs that occur as a solution provider moves up the e-business ladder can wreak havoc on profitability.

Under these circumstances, those solution providers with a clear, well-defined e-commerce business plan in place and those that take rigorous action to keep their operating expenses under control will be the ones to reap the greatest rewards. In this sense, e-commerce is no different than any other new market opportunity.CRN

MIKE CRUZ contributed to this story.