The past few years have seen a roller coaster of changes in the compensation world. And any time that the historical practices are disturbed, it’s noticed.
It was recently noted that, for heavy, highway, and municipal pay practices, that: “One percent in construction and the compensation world is a big deal. Whether it’s a change in margins, annual increases, or a change in the turnover rate, it is something to pay attention to.”1
The relationship among turnover, unemployment, and pay are just some of the elements that give insight into how compensation will respond
in 2024. Sometimes the timing and availability of the data can push contractors to be more reactive than proactive, but there are a few tricks to get a leg up on the trends.
This article focuses on staff turnover, unemployment, and pay increases that are monitored to develop pay forecasts and provides a pay update on key positions in the construction industry.
Staff Turnover
As shown in Exhibit 1, staff turnover rates jumped to almost 18% in 2021 and 2022. And while 2023 saw a drop to 14.8%, it’s still above the historical rates of 13.5% to 13.8%. That 1% difference is significant and, as always, there is more to the story.2
Contractors with $500 million in revenue or more experienced a 17.5% turnover rate, companies with revenues between $250 to $500 million experienced a 16.7% turnover rate, and companies in the $100 to $250 million category experienced a 15.2% turnover rate. The under $100 million categories had limited turnover, ranging from 14.1% in the $25 to $100 million category all the way down to 4.5% for contractors with less than $5 million in revenue.3
About one-third of the contractors with revenue over $100 million reported some turnover in estimators. Similarly, more than half of construction management and design-build companies reported turnover in PMs, and 51% of all survey participants reported turnover in superintendents.4
The Great Lakes states experienced the lowest regional turnover rate at 12.6%, and the Rocky Mountain states experienced the highest rate at 18.3%.5
Consider the changes in turnover with the staff pay increases for 2021-2023 (Exhibit 2). As turnover rises, pay increases usually jump the next year. Similarly, as turnover slows down, actual pay growth diminishes over the next 12 months.6
Unemployment
When unemployment rates go down, pay increases go up; when unemployment rates go up, pay increases go down. Can it be this simple? Yes, it can.
The 2022 year-end unemployment rate was 4.4% with corresponding pay increases of 5.1%.7 Similarly, the 2023 rate was also 4.4% with yearly pay increases of 5.0%.8 In February 2023, unemployment rose to 7.0%,9 but this reflects a seasonal influence of colder climates.
As with turnover, the total impact of the unemployment rate on pay isn’t typically seen until later, thus pushing contractors to be more reactive than proactive. However, by monitoring the rates and listening to industry economists, you can get a good picture of up and down swings (Exhibit 3). For historical and current information, follow indexes like the U.S. Bureau of Labor Statistics.10
Pay Increases
Historically, by year-end, projected pay increases tend to be 0.3% to 0.5% higher than originally projected. Exhibit 4 shows that trend in 2017-2019. The rules were thrown out because of COVID-19 in 2020, but 2021 saw year-end actuals come in at 1% or more than the original forecast. Additionally, 2022 saw 0.9% higher pay increases for staff and 1.2% higher for executives before this differential trend relaxed slightly in 2023.11
Staff
Most contractors are cautious when forecasting annual pay increases. It’s tough to remain competitive enough to recruit and retain the best employees while also not digging into the bottom line.
Aside from 2020, there has always been an escalation by year-end. The question is, “Just how much of an increase will it be?”
For professional and middle management employees, the 2023 year-end actual increase was expected to be 5.3%, with varying ranges among different construction sectors. Almost all sectors came in at 5.0%, apart from 5.3% for municipal construction (Exhibit 2).12
Though only published on a quarterly basis, monitoring Construction Employment Cost Index (ECI) activity can indicate how pay is behaving. The ECI is influenced by craft, but if craft pay increases, then so does the pay for those who supervise and support the craft.
The ECI for construction reported a 4.5% change in base wage as of the fourth quarter of 2023,13 and historically, those pay increases run higher than the ECI.
Executive
Executive increases also experienced some unusual patterns from past practices.
Traditionally, executive increases ran 0.3% to 0.4% higher than professional and middle management pay increases (Exhibits 4 and 5). That pattern was a little off in 2021 with the differential between executives and staff pay increases at only 0.1%. In 2023, executive actual pay increases were 0.6% higher than staff.14
While it doesn’t seem earth-shattering, it does throw off forecasting activities.
Compensation Updates
The following provides a look at operational and core services positions from the 2024 Executive Compensation Survey for Contractors. Each position summarizes market data for all survey participants and a detailed look by revenue size.
General Superintendents
General Superintendents are the senior superintendents in the organization providing overall direction and guidance to field superintendents and construction managers. The typical overall range of base pay is $140,000-$182,000 for this position, with an average salary of $160,811 and an average bonus of $40,471.
Operations Managers
Operations Managers are responsible for the day-to-day administration of a major organizational segment of work, providing direction and guidance to subordinate managers. The typical overall range of base pay is $140,000-$182,000 for this position, with an average salary of $159,559 and an average bonus of $53,560.
Vice Presidents of Operations
Vice Presidents of Operations are responsible for the day-to-day administration of a major operational work segment, providing direction and guidance to subordinate executives and officers. The typical overall range of base pay is $169,000-$230,000 for this position, with an average salary of $200,096
and an average bonus of $84,630.
IT/MIS Directors
IT/MIS Directors are responsible for the planning and direction of all corporate data processing including systems, programming, and all management information system operation functions. The typical overall range of base pay is $117,000-$172,000 for this position, with an average salary of $145,141
and an average bonus of $28,740.
Vice Presidents of Human Resources
Vice Presidents of Human Resources are responsible for providing the overall direction to one or more human resource functions, covering exempt, non-exempt, and labor areas. The typical overall range of base pay is $133,000-$201,000 for this position, with an average salary of $171,066
and an average bonus of $58,980.
Vice Presidents of Business Development
Vice Presidents of Business Development are accountable for the entire range of market planning and business development activities of the company. The typical overall range of base pay is $152,000-$213,000 for this position, with an average salary of $185,538 and an average bonus of $69,212.
Controllers
Controllers provide direction for the entire range of financial activity for a smaller company or a major segment of the financial and accounting functions of a medium to large company. The typical overall range of base pay is $115,000-$154,000 for this position, with an average salary of $136,653 and an average bonus of $29,699.
Division Vice Presidents
Division Vice Presidents are officers responsible for the day-to-day administration of a corporate division or major organizational segment of work. They are accountable for both operations and administration functions and may also be responsible for a branch office. The typical overall range of base pay is $174,000-$234,000 for this position, with an average salary of $203,750 and an average bonus of $82,110.