Despite ongoing demand for talent in many construction sectors, the weak residential market and softening economy are contributing to some pullback in salary increases. For the first time since 2003, contractor management and staff salary hikes took a dip, dropping from 4.44% in 2006 to 4.33% in 2007, according to a survey by PAS, a Saline, Mich.-based construction compensation consulting firm. Contractors anticipate increases will drop to 4.08% this year, reports the survey.

Jeffrey Robinson, president of PAS, sees a mixed outlook as some sectors remain hot, yet employers are being conservative. “Many firms are starting to pull back a little based on what their future work looks like,” he says. “You can see that especially in areas such as the Great Lakes and the Southeast where construction has been down.” Last year, six Midwest states reported a 3.8% collective increase, the lowest U.S. rate, says PAS. The Southeast was among the strongest regions in 2007 with hikes averaging 4.46%, but rates are set to drop in 2008 to 4.07%, says Robinson.

“ When the economy gets tough, we see people very unlikely to switch jobs.” — Jeffrey Robinson, president, Compensation Consulting Firm PAS

Given the level of uncertainty, many job candidates are playing it safe. Robinson says he expects voluntary job turnover to drop in 2008 as fewer workers take chances with new employers even for more money. “When the economy gets tough, we see people very unlikely to switch jobs,” he says.

But this also comes as many sectors continue to see strong demand for staff. Recruiters report limited demand in residential and retail sectors, but areas such as institutional and industrial construction are desperate for talent. Frank Bruckner, executive vice president at Kimmel & Associates, Asheville, N.C., has seen the market flip in the last 12 months, with more openings in industrial, petrochemical and power work. He says employers are gearing up for future work. “If they are in industrial or energy fields, people don’t even call with salary ranges these days,” Bruckner says. Paul Marchionna, senior managing director at Specialty Consultants Inc., Pittsburgh, agrees. “If you compare a project manager from an industrial firm with one from a building firm, the base salary for the industrial guy might be 20% higher now,” he says.

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A major factor driving many hiring decisions is size of projects. The institutional and industrial pipeline of work is filling with large projects, which can limit the candidate pool. Mike Ketner, president of recruiting firm Michael L. Ketner & Associates, Pittsburgh, says the rise in health-care megaprojects, such as $200-million-plus hospitals, calls for nationwide searches to find candidates. But some prospects are reluctant to join firms that have won record-size projects, worrying whether other jobs will follow.

Relocation issues also are a sticking point. With housing prices dropping in many U.S. markets, companies find candidates reluctant to commit to new locations. Ketner says companies are offering more creative incentives to cover home and mortgage costs but mostly for high-salary personnel above $150,000 in salary.

Recruiters find that in many cases steady demand for more reluctant candidates can lead to significant compensation. “People are more cautious now than a year ago and contractors are adjusting, trying to move within markets very quickly,” Bruckner says. “Our [search] business is going to be up 20% this year.”