You probably have a sense that pay increases in construction have remained consistent across the industry over the past five years. Given the shortage of skilled managers, professionals, and craftsmen, a compensation bidding war for talent should be taking place, right?
While there have been successes, letdowns, and business-as-usual activity depending on job family and employee specialty, there have been both subtle and glaring clues as to how pay is responding. To ensure continued success, contractors should focus on attracting, retaining, and motivating employees. Base pay is needed to attract and retain, while variable pay significantly impacts employee retention and motivation.
This article will focus on current base and variable pay activity, offer more detail on select operational and financial positions, and seek to answer what the future holds for our industry in 2019.
As we headed into 2018, pay increase forecasts remained moderate. Often, projected pay increases tend to be .5% below the year-end actuals. When the 2018 forecasts showed executives at 3.6%, professional/middle managers at 3.5%, and open shop craft at 3.2%,1 it was wise to project the final 2018 numbers higher. Then, in June 2018, some unusual activity ultimately affected overall 2018 pay projections and gave us a glimpse of what 2019 might hold in store for the industry.
It is often typical for market values to move less than the average annual employee pay increase. Over time, market values will move at the same pace as the construction section of the Employment Cost Index (ECI).2 While there are many factors, one simple explanation is inexperienced workers join the industry at lower rates of pay, and seasoned workers leave the workforce at higher rates of pay. However, this unusual activity occurred between 2017 and 2018 in the open shop marketplace; theoretically, the average market value should have changed about 3%.
The all-craft summary (which combined 30 craft positions) reported in PAS, Inc.’s 2018 Merit Shop Wage & Benefit Survey reflected a 4.11% market value increase, which is well above the ECI.3,4 The civil trades, laborers, operators, and mechanical welders helped the overall market value grow, with carpenters escalating 4.77%, finishers 4.97%, and operators 3.90%.5
When considering all construction-specific classifications (executives, professionals, technical, managerial, administrative, etc.), the numbers begin to align with the ECI. Yet, this increase in craft wages is significant. Since the crafts moved up 4.11%, it stands to reason that their supervisors may also experience similar increases.
Chief Financial Officers (CFOs) saw a measurable increase of 5.3% from 2017 to 2018 (from 45.6% to 50.9% of base pay). Meanwhile, all other financial positions remained relatively static. Operations positions saw the greatest change in variable pay, with the Senior Vice President’s bonus increasing 10.3% (from 55.0% to 65.3% of base), Vice President of Operations increasing 7.7%, Operations Manager increasing 4.7%, and the Senior Project Manager (PM) seeing a slight increase of 1.5%. And though the average bonus percentage only increased slightly for the Senior PM, the variable pay dollar amount grows in correlation with base pay. Accordingly, that 1.5% equated to an additional average dollar amount of $2,508 in their bonus check.6
Though 2018 was not a banner year for financial employees, it is not unusual for financial positions to experience the same level of variable pay increases a year or two later than operations.