Solution Providers Rein In Raises

If you work for a solution provider and feel lighter in the wallet, you are not alone. The 2003 CRN Salary Survey shows that the downturn in technology and the economy in general caught up with salaries and other compensation paid to solution provider personnel last year.

Among all 1,142 survey respondents, compensation,the sum of salary, bonus and commission,increased just 2.1 percent in 2002, less than half the increase seen in 2001.

Solution providers significantly scaled back pay increases in seven of the 15 managerial, sales and technical job classifications surveyed, and average compensation actually declined for sales managers, senior salespeople and junior salespeople. This is the first time in the Salary Survey's five-year history that a year-over-year drop in pay has been observed in any job category.

"We had a decrease [in salaries] across the board last year," said John DeRocker, senior vice president of sales and marketing at Nexus Information Systems, a solution provider in Plymouth, Minn. He said the decrease in salaries was due to margin pressure. "We didn't have a bad year; sales were up 18 percent. But we need to stay profitable," he said.

The 2.1 percent average increase in compensation fell short of the 2.4 percent rate of inflation in 2002, which was also the first time in the past five years that compensation failed to grow,and grow significantly,on an inflation-adjusted basis. Only about half of the survey respondents said they received an increase in salary last year, and 54 percent said their bonus was the same or smaller.

Sales personnel were hit particularly hard. Senior salespeople, defined as those with at least five years of experience, saw average compensation drop 1.9 percent in 2002 to $96,000 from $97,800, with the decline extending to salary, bonus and commission. Junior salespeople saw lower bonus and commission levels, leaving their average compensation down 0.8 percent to $58,700. Sales managers did not escape the downdraft, with average compensation declining nearly 2 percent last year to $104,200.

Don Richie, president of Sequel Data Systems, Austin, Texas, said salaries were flat and commissions were down at his company. Richie said the Hewlett-Packard-Compaq merger last year hurt Sequel Data, which is primarily an HP solution provider. "There was a lot of uncertainty in the market around HP last year because of the merger," he said.

But the tough economy has a silver lining. Richie said he recently hired four experienced salespeople who had been laid off at other companies. "One benefit of the economy is that we've been able to take advantage of the talent that's available," he said. "It [had been] been difficult for us to attract talent of this level before."

The worst may be over for sales personnel. As part of the survey, CRN asked solution providers to specify which job classifications they think will be in the greatest demand over the next 12 months, and salespeople topped the list. (See JOBS IN DEMAND chart on this page)

Sales managers were also in the top 10, as solution providers look ahead to stronger sales growth later this year. Software developers and engineers will also be in high demand, respondents said. Customer-service personnel and technical-support people will be prominent, as will individuals with marketing skills, reflecting a growing trend among solution providers to market themselves, and their solutions, as the brand.

The sharp reduction in compensation growth last year reflects aggressive moves by solution providers to limit costs in the face of continued slow,or negative,revenue growth. Compensation costs are a prime target for cutbacks, accounting for an average of 46 percent of operating expenses for the solution providers surveyed.

While hard on employees, limiting the growth of compensation has paid off for the majority of solution providers responding to the survey. Only 35 percent said that changes in compensation costs have had a negative impact on their company's profitability, while nearly as many (30 percent) said these changes improved the bottom line. The remaining 35 percent said the impact on profits was negligible.

In contrast to the gloomy picture for sales personnel, executive managers (such as CEOs, CFOs and presidents) and technical managers continued to prosper last year. Both of these job classifications saw significant compensation gains in 2002, averaging 5.3 percent and 5.6 percent, respectively.

In addition, technicians with certifications in key growth areas such as security and storage realized some of the highest percentage increases among all solution provider personnel. For example, individuals holding IBM storage certifications saw compensation increase 7 percent on average to $84,100.

In contrast, technicians with no certifications saw their average compensation decline slightly last year.

The data also reveals that among all technicians, those holding multiple vendor certifications were paid significantly more in 2002 and received significantly higher pay increases, compared with those holding a single certification. (See story on page 64.)

Survey data also shows that location made a big difference in the size of pay raises last year. For the first time, CRN broke out detailed compensation data for seven regions of the country, excluding Alaska and Hawaii. The results show average compensation declining, or rising only minimally, in areas of the country with a strong technology presence.

In New England, for example, the average level of compensation dropped 1 percent last year, with a similar decline in the Far West. The results were not much better in California and the Central region, where compensation gains averaged less than 2 percent. In contrast, pay increases were significantly larger in the Upper Midwest, the Southeast and the Mid-Atlantic states. (See story on page 68.)

With pay increases shrinking significantly for most solution provider personnel, it is not surprising that only half of the 1,142 survey respondents said they were satisfied with their overall compensation in 2002, while one in five expressed dissatisfaction.

Survey data reveals a close correlation between the average size of compensation increases and the level of satisfaction with compensation. For example, executive managers and technical managers,whose pay raises averaged 5 percent to 6 percent last year,expressed a significantly higher level of satisfaction with compensation than did sales managers, who saw their compensation drop nearly 1 percent. Interestingly, pay raises play a much more important role in satisfaction than the actual level of compensation, the survey shows.

With smaller pay increases the rule, non-compensation-based factors are taking on added importance to solution provider personnel. Eighty-five percent of survey respondents said non-compensation factors such as work environment and company culture were important to their overall satisfaction in working for their company, with nearly half rating these factors as very important.

But solution provider cutbacks in this area may also be taking a toll, as only 58 percent of survey respondents expressed satisfaction with non-compensation factors last year. This is not much higher than the 50 percent who expressed satisfaction with monetary compensation.