Contractors have more work than they have people to do the work. This has led to a desperate struggle by contractors to find and retain qualified managers, ratcheting up the pressure on salaries to unprecedented levels.

Contractors anticipate giving average  salary increases of 3.97% in 2006, according to a survey by PAS Inc., a Saline, Mich.-based construction compensation consulting firm. “But we generally see actual increases go up at least a half percent by the end of the year,” says Jeffrey M. Robinson, president of PAS.

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  • Robinson cautions, however, that there are particularly active areas like Las Vegas where average increases are as high as 7%. “And over the past three years, we’ve seen salary increases for project managers, superintendents and estimators rise at nearly double the rate of the rest of payroll costs,” he says.

    Senior project managers, superintendents and estimators are most in demand right now as the pressure of heavy workloads, volatile prices and accelerating project schedules are placing a premium on management skills. “Contractors used to be able to get by with their second-tier people, but they can’t afford that in today’s market,” says Mike Ketner, president of Michael L. Ketner & Associates, a Pittsburgh-based executive search firm.

    Top-flight people now are demanding and getting premium salaries. “Good senior project managers are getting $120,000 to $160,000 a year now,”says Frank Bruckner, executive vice president of Kimmel & Associates Inc., an Asheville, N.C.-based executive search firm. “I’ve seen PMs in their early 30s getting $145,000 to $165,000 with the right experience,” he says.

    Bonuses, on the other hand, have flattened out. “Contractors are providing about the same dollar amount, but the percentage is down because base salaries are rising,” says Robinson. But he says he has seen an increase in signing bonuses.

    Contractors continue to resist using ownership opportunities to attract or retain people. “Some firms are smartening up and providing equity or pieces of the bottom line for top people,” Bruckner says. Robinson points out that “this is a family-owned industry and families hate to give up a piece of their business.” But he says that equity has occasionally been used to lock in critical employees, like ones with long relationships with key clients.

    There also is a growing resistance among candidates to relocate, especially to where the cost of living is high. This has made it particularly difficult to lure top candidates to high-cost-of-living regions like the Northeast and California, says Ketner. “There’s no soft regional recruit from,” he says.

    But hiring managers’ premium rates has led to resentment and turnover problems among current employees. “You should adjust your salary structure for everyone to reflect the market before you start hiring people at higher rates, or you’ll get morale problems,” says Robinson. He expects contractor turnover rates to approach 16% this year.

    “Most people don’t leave just for money,” Bruckner says. He says money is always part of the equation, but there are usually other professional or personal factors. By being flexible and providing benefits tailored to each employee’s individual needs or interests, contractors can make employees feel appreciated without busting the payroll, he says.