It’s been another interesting year in the world of construction compensation. According to PAS, Inc.’s 2021 Benefit Survey for Contractors, between July 2020 and July 2021, there was a 17.9% turnover rate for professionals and middle managers — the highest in 15 years.
Overall, 58% of companies reported turnover in the superintendent ranks and 48% in project management positions. To expand on the turnover issue, of those contractors with over $500 million in revenue, 88% reported that they are experiencing turnover in superintendent positions and 64% reported turnover in project manager (PM) positions.
Why does compensation seem to be a more serious issue in construction than other industries? In a word, speed. Construction owners tend to be more involved in short-term decision-making, reacting quickly to changes in market and compensation pressures, than in other industries that usually have more formal, multi-level structures slowing down the process. Consider when a construction project shuts down or is delayed — sometimes the layoff happens overnight; or how about when a project needs to mobilize within a month after the award — the workforce is in place almost immediately.
It’s not much of a stretch to think that all mid-sized contractors may be fair game in the recruiting efforts of larger contractors, and in turn, smaller contractors becoming a workforce source for those mid-sized organizations. All of this activity sets the stage for 2022 and suggests that a compensation rebound is happening.
This article addresses the challenges of compression as well as awareness of its causes and concerns, the current pay status of key positions (some operational/estimating and some accounting/finance), a history of inflation and pay increases, and a look at 2022 pay projections.
Compensation is usually not the end-all in attracting and retaining the best workforce, but it does play a big part. There are several situations that regularly creep into compensation practices, and it seems like once you fix them, they pop up again. This is especially true when the industry is experiencing workforce attraction problems.
Entry Level, Inexperienced Workforce
Construction is not exempt from raising wages to compete with other industries for entry-level workers. Consider the impact of the $15 per hour wage on federal contracts1 as well as the impact from other industries raising their minimum wages (e.g., Amazon, Walgreens, CVS, Bank of America). It may not seem like a big deal, but once you raise wages for entry-level craft, administrative, etc., you will have to make comparable wage increases for those who supervise them (as well as their supervisors and so on). Although pay differentials realign over time, this kind of pay compression is very real right now.
The Early Years
If your employees with 3-5 years of experience have just been getting a minimum increase, then your differential could be out-of-whack. For example, if you hired entry-level accountants in 2018, you most likely paid $45,655 to attract them to your company. Let’s say you gave these accountants a 3.5% increase each year for three years and now they are averaging $50,619. But in order to hire an entry-level accountant in 2021, you had to pay $50,632.
This scenario hits on early experienced professionals and middle managers. If you haven’t made some form of additional adjustment, you are now paying an employee with three years of experience the same as an employee with limited or no experience.
Highly Experienced New Hires
Having to recruit at higher pay rates than your current employees will create chaos with your internal equity as well. For instance, imagine you’re a mid-sized contractor with three senior estimators averaging $109,000 per year in base salary. You’ve moved into new markets and/or your future business prospects are looking very good, but your current staff can’t handle any more as they are assigned to new bid assignments. You’ll need to hire a senior estimator and find the perfect match, but they won’t leave their current position for anything less than $118,900 in base salary. Once hired, you’ve now established new parity issues and, similar to the previous “early years” scenario, you will need to address the inequities.
Add to these three scenarios the impact of practices like signing and retention bonuses as well as counteroffers to attract and retain employees. All of these activities raise additional concerns for current employees who are not recipients of these actions.
Highlights from the 2022 Executive Compensation Survey for Contractors
The following provides a look at 11 positions from PAS, Inc.’s 2022 Executive Compensation Survey for Contractors and their 2021 Construction/Construction Management Staff Salary Survey. Each position summarizes market data for all survey participants and provides a further look by revenue size. Typical bonus/incentive payments, expressed as a percent of base pay, are also shown to address the cost of variable pay add-ons.
Project Superintendents oversee total construction efforts to ensure the project is constructed in accordance with design, budget, and schedule. On smaller projects, they may be the “first in command.” The typical overall range of base pay for this position is between $105,000 and $132,000, with an average salary of $120,000 and an average bonus of $16,000 (Exhibit 1).
Senior Project Managers
Senior PMs are responsible for the overall direction of the largest revenue-producing projects of the company. They establish project objectives and policies, maintain the connection with prime client contracts, and monitor construction and financial activities. The typical overall range of base pay for this position is between $118,000 and $148,000, with an average salary of $135,000 and an average bonus of $27,000 (Exhibit 2).
General Superintendents are the senior superintendents in the organization who provide overall direction and guidance to field superintendents and construction managers. The typical overall range of base pay for this position is between $134,000 and $171,000, with an average salary of $152,000 and an average bonus of $38,000 (Exhibit 3).
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 for this position is between $155,000 and $210,000, with an average salary of $189,000 and an average bonus of $88,000 (Exhibit 4).