If the last few years felt like a salary arms race, 2026 is shaping up to be something very different.
The latest data from ConnectWise’s 2026 Annual IT Solution Provider Compensation Report shows a clear shift in how IT solution providers—and MSPs in particular—are thinking about pay. Wage inflation is cooling. Incentives are under scrutiny. And perhaps most importantly, the link between how much you pay and how well you perform is being fundamentally challenged.
For Managed Service Providers, this isn’t just a data point. It’s a strategic turning point.
Here’s what’s really happening—and what to do about it.
Wage inflation is cooling, but not disappearing
Across the global dataset, one trend stands out immediately: the era of aggressive remuneration increases is ending.
After peaking in 2022, wage inflation declined through 2023 and stabilized in 2024. By 2025, the report shows a continued downward trend in top-level salary increases (above 6%). And for 2026, that trend continues—with roughly 50% fewer roles expected to receive top-tier increases compared to 2025.
Europe reflects this shift—but with its own twist.
In 2025, 25.6% of European employees received increases above 6%: the highest of any region. But heading into 2026, nearly half of employers (49.8%) are planning modest increases of just 0.1%–3.0%, with only about a quarter still offering top-tier raises.
This signals a rebalancing. MSPs are no longer chasing talent with ever-higher salaries. They’re regaining cost control—and refocusing on sustainable growth.
Higher pay doesn’t equal higher performance
Here’s the uncomfortable truth for many MSP leaders: the best-performing companies are not the highest-paying ones. According to the report, best-in-class (top 25% by profitability) IT solution providers actually pay:
~8% less than the median
~13% less than the bottom quartile
That’s not a rounding error. That’s a structural advantage. So what’s going on?
The report’s authors claim that top performers aren’t winning by outspending competitors on salaries. They’re winning by designing smarter businesses.
They narrow their service stack. They standardize delivery. They hire and develop junior talent. And they build operational maturity that reduces reliance on expensive, highly specialized staff.
For MSPs—many of whom operate in fragmented, multi-market environments—this is a critical insight. The question isn’t “Are we paying enough?” It’s “Are we structured to need to pay this much?”
Variable pay is still underused—and that’s a problem
If there’s one area where MSPs consistently leave performance on the table, it’s incentive design.
The report highlights a strong correlation between profitability and variable compensation. Best-in-class firms pay almost double the proportion of variable pay compared to bottom-quartile peers.
And yet… even they’re not doing enough.
Typical variable pay levels today:
- Staff: 6.8%
- Managers: 11.1%
These are well behind what the report states is recommended best practice:
- Junior staff: ~10%
- Senior staff: ~20%
- Managers: 20%–40%
That gap matters, says the report’s authors. Because variable pay isn’t just about compensation—it’s about alignment.
The best MSPs use incentives to drive utilisation, efficiency, customer outcomes, and profitability. Everyone wins when the business wins.
The suggestion is that if your compensation model is still heavily fixed, you’re not just overpaying—you’re underperforming.
The talent pyramid is broken
One of the most striking data points in the report is the cost difference between experience levels.
A Service Desk Level 3 engineer costs 61.2% more than a Level 1 in Europe. That’s a huge gap. And yet many MSPs continue to build teams top-heavy with senior engineers—often as a workaround for inconsistent processes or overly complex tech stacks.
Best-in-class firms take the opposite approach.
They:
- Build teams with more Level 1 and Level 2 staff
- Invest in training and progression
- Use automation and AI to augment frontline support
The result? Lower costs, higher scalability and better margins.
For MSPs dealing with talent shortages and rising employment costs, this is one of the most actionable levers available.
Profitability is not regional—it’s operational
It’s tempting to assume that geography determines success: higher salaries in one region, lower margins in another. Different labour laws and different expectations.
But the report is clear: geography makes no material difference to profitability. Management does.
The same best practices drive performance everywhere:
- Focused service offerings
- Defined target customer profiles
- Standardised tools and processes
- Effective incentive structures
For MSPs, this is both a challenge and an opportunity. Yes, you operate across diverse markets, but the fundamentals of high performance are universal.
And the MSPs that embrace that will outpace those that rely on local norms as an excuse.
What MSPs should do next
So where does this leave you? The data points to a clear set of priorities:
Rebalance fixed vs variable pay
Shift more compensation into performance-linked incentives.
Rethink your talent model
Invest in junior talent and reduce over-reliance on senior hires.
Standardise your stack
Complexity drives cost. Simplicity drives margin.
Control wage growth strategically
Don’t follow the market blindly—design your own compensation philosophy.
Invest in management capability
Because ultimately, performance is driven by leadership—not location.
This isn’t about cutting costs. It’s about building a smarter, more scalable MSP.
Gain a competitive advantage
The remuneration story in 2026 isn’t about paying more or less. It’s about paying differently. In a cooling market, discipline becomes a competitive advantage. And right now, the gap between the best and the rest is widening.
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Because the future of your business might not depend on how much you pay your people, but on how well you structure the business in which they work.
