How MSPs Can Better Retain Workers During The Great Resignation

‘You can address compensation issues. You can address employees not feeling valued, or the lack of career opportunities. I always tell my clients, I don’t want to push you to grow the company. I’m going to push you to build a company like you’re going to sell it. I don’t care if you’re gonna sell it, we’re going to structure a really good company,’ says Brett Jaffe, strategic coach at ConnectStrat.

Retaining employees involves much more than how well they are compensated, particularly in an environment where employees can easily find good jobs elsewhere during a period known as the Great Resignation.

That’s the message from Brett Jaffe, a strategic coach with ConnectStrat, a Las Vegas-based consulting firm that helps MSPs and other types of channel partners run their businesses.

Jaffe, speaking to an audience of MSPs and other solution providers at this week’s XChange conference in Denver, said 33 million people quit their jobs just this last year, there were 11.3 million job openings as of May, and the voluntary quit rate is still 25 percent higher than it was pre-pandemic.

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“We’re not creating jobs,” he said at the conference, which is produced by CRN’s parent company, The Channel Company. “There’s a reshuffling going on here. [People are] leaving one career and going through another, leaving one MSP and going to another. We’re just shuffling people around.”

It is hard to say where everyone is going, Jaffe said. Some people over 55 years old are retiring, some people are leaving the workforce entirely, and everywhere it is hard to find people.

Jaffe, citing a survey that career website Zety conducted last year, said employees were leaving their companies for multiple reasons, with 67 percent citing uncompetitive salaries, 66 percent citing limited career opportunities, 65 percent citing not being valued for their work, and 64 percent citing poor employee benefits.

Even so, this is not an unsolvable issue, Jaffe said.

“The interesting thing about statistics is that you can actually solve most of these, being a business owner,” he said. “You can address a lot of these, unless someone wants to change careers entirely. You can address compensation issues. You can address employees not feeling valued, or the lack of career opportunities. I always tell my clients, I don‘t want to push you to grow the company. I’m going to push you to build a company like you’re going to sell it. I don’t care if you‘re gonna sell it, we’re going to structure a really good company.”

A company should not grow for growth’s sake, Jaffe said.

“Your staff needs to be able to grow somewhere,” he said. “If you’re not growing an organization that people are enjoying, these get stagnant. And there’s only so much you can pay someone to stay where there’s nowhere else to go.”

Jaffe, again citing the Zety research, said that 47 percent of employees aged 18 to 24 are likely to quit their jobs in the next six months. This, he said, should worry a business given that it typically costs nine months to 12 months of salary to train and on-board an employee.

Businesses can significantly reduce those costs by simply retaining existing employees, Jaffe said.

This can be done by addressing issues related to morale, employee productivity, and company culture, Jaffe said. Some businesspeople should be careful when talking about running their company like a family. “Most families are dysfunctional,” he said.

There are four main strategies a business can use to retain employees, Jaffe said. Three of the four—communication, staff development, and building a work-life balance — are done over a longer time period, and so he decided to not discuss them. The primary strategy, however—compensation—has a more immediate impact on employee retention.

Compensation comes in four types, each of which has its own advantages and disadvantages, Jaffe said.

The first type, direct compensation, includes salaries and well-run bonus programs, he said. Changing salaries is easy to do, provides an immediate impact, is very flexible, and is not wrapped in legal issues, he said. However, he said, rising salaries becomes addictive, and comes with expectations of further increases.

“One of the hardest parts about compensation is it directly connects a company and profits,” he said. “So let’s say you have a contract with a client for three years. Unless you have some kind of an escalator built in, well, three years later, it’s probably a less profitable contract that when it was constructed. A less profitable agreement, if you’re giving increased compensation, even if it’s just a simple cost of living increases. … And a raise is very hard to take back.”

The second type of compensation is to provide employees with stock or equity in the company, a type of compensation which gives employees benefits as the company succeeds, Jaffe said.

When employees get some kind of a stock award, stock option, or a benefit based on a certain price, they benefit from company success, he said. But there are pitfalls, he said.

“One of the biggest challenges I‘ve seen, especially across the MSP space is when you have this dichotomy between sales and service, and you have the salespeople that make a big sale and ring the bell, and service guys are, like, ‘[Expletive], I gotta work the entire weekend to get the onboarding done,” he said. “They don’t get excited when the company is growing.”

Providing equity in the company has the benefit of every employee benefiting when the company is growing, even if it‘s outside of their department, Jaffe said. “So it can be cost effective to the employer because you’re rewarding future performance of the company.”

However, for private companies, which includes most MSPs, stock and equity programs face complicated legal issues to set up, and related taxes are also complicated, Jaffe said. Also, he said, things also can be difficult when an employee with equity leaves.

“There are tax implications that can get pretty complicated,” he said. “It can get costly over time. So unless you start diluting shareholders, employees have to rely on the collective output of the company. When they see people slacking off in a company, it can cause morale issues, because they‘re really looking for the company to grow.”

The third type of compensation is the employee stock ownership plan, or ESOP, Jaffe said. It works similar to selling the company to a trust which then gets a loan, with the employees becoming shareholders in the trust, giving employees a share their company.

“It does improve morale,” he said. “There‘s a lot of studies that have been done around ESOPs that ESOP companies actually outperform similar organizations with the same size, because people have this vested interest.”

ESOPs have several challenges. One is determining the fair market value of the company, which Jaffe said is difficult now during a time when channel company valuations are rising.

“There‘s no immediate cash benefit,” he said. “It’s a long term means, and if someone‘s unhappy with that salary today, that doesn’t necessarily solve that. Because you‘re giving them a promise of the future.”

The fourth form of compensation, and the most flexible is phantom stock, Jaffe said. Phantom stocks, which provides employees the benefits of owning stocks without actually issuing company share,

“The idea behind phantom stock is, you‘re given equity in the company without actually splitting up the company,” he said. “You’re getting a share that generally get exercised in some kind of event, whether it‘s an acquisition or some event. It removes the concerns about ownership of the stock.”

As a result, phantom stock is very customizable, and doesn’t follow an employee who then leaves the company, Jaffe said. It can also be vested, and can be done as simply as setting up a profit-sharing plan, he said.

There are also some disadvantages to phantom stock, Jaffe said. It can trigger certain compliance or regulatory concerns depending on what percentage of the company is offered, he said. Phantom stock can impact the valuation of the company if it is sold, and the tax implications of phantom stocks can be challenging, he said.

Vin DiPippo, chief technology officer at Brave River Solutions, a Warwick, R.I.-based MSP, told CRN that Jaffe hit on some of the key points to know about retaining employees, particularly his comments that it involves more than just money.

“I think it’s great to look at ways to basically come up with strategies to make your place someplace people like to come to and work,” DiPippo said. “It is sometimes difficult to compete against a counteroffer where someone could be making like 30 percent more. But believe it or not, some things are worth more than that. … It’s not always all about money.”

DiPippo said one issue with retaining employees that Jaffe didn’t cover is the social issues around hiring, particularly with younger employees.

“If you look at the articles that a lot of the 20, 30, even some 40-year-olds are reading, the focus is on not getting stagnated. You know, 20 years at a companies is a dead end. I can’t enumerate all the headlines, but if you look at Forbes, if you look at other magazines, that’s what they’re reading.”

One-on-one communication with employees is the most important way to help with retention, followed by having a good on-boarding process to help employees feel like they‘re part of something from day one, DiPippo said.

However, he said, MSPs have to be ready to do what it takes to retain their employees.

“If you’re not ready to give your people raises, come up with alternative compensation, do an ESOP or a stock program or a phantom stock, if you’re not ready to do any of it, if you’re not ready to take actions, it will be difficult.”