Top construction executives continue to benefit from strong employer revenue and improved margins, earning significant bonuses for their efforts in a competitive market. After big jumps last year, many executives saw a double-digit increase in variable pay again this year, according to data from compensation specialist PAS Inc.
Firm president Jeff Robinson says most executives surveyed received bonus increases between 10% and 15% last year. “That’s a significant change,” he notes. “It says something about companies being more profitable. They have better margins and don’t need to chase work like they used to. They are fat and happy right now.”
Vice presidents of operations, who saw a 21% average increase in bonuses in 2017, received a 17% bonus bump in 2018, according to PAS. Executive vice presidents also earned a big boost in bonuses last year with an average increase of 27%. Company presidents, who were the first to see big bonuses after the construction market rebounded, garnered comparatively modest increases of 9.5% in 2017 and 8% in 2018. The firm surveys 3,000 individuals in 18 executive roles.
Robinson says that bonuses have been particularly aggressive on the operations side of construction companies, reflecting an overall demand for talent in that key area. Operations managers, for example, saw bonuses jump 38% last year. He also notes strong compensation improvements for project managers due to high demand. “Overall, we’re seeing good rewards on the operations side,” he says. “When you start increasing compensation for one [group], the others start to rise as well.”
Dan Pauletich, senior managing director of industry executive search firm Specialty Consultants, says he has seen bonuses jump by more than 20% with some outliers achieving 50%. “The volume of work is off the charts and the margins are good, so owners and top executives are sharing in that windfall,” he says.
Pauletich says many companies have transitioned to offering a bigger bonus structure and they are now paying out on those promises. “There are folks in cities like Boston, D.C. and N.Y., where the bonus incentive is equal to base salaries,” he says. “You didn’t see that in the 1990s.”
By comparison, base salaries for executives has remained relatively stable. In 2018, companies reported average executive salary increases of 4.1%—the same rate of increase as 2017. Since 2013, companies have reported average executive base salary hikes between 3.8% and 4.1%.
Although companies are reporting average base salary increases of around 4%, Robinson says many companies have made market-based adjustments to base salaries that aren’t reflected in PAS data. As a result, some executives saw increases in the 7% to 8% range. “A company might give an annual increase of 4.1%, but they see that they are below the competition, so they make an adjustment and give another increase to bring things in line,” he says. “It’s not counted as an annual increase. It’s an adjustment outside of that to stay competitive.”
Recruiter Michael Ketner of Michael L. Ketner & Associates says he’s seen several firms give a 3% to 4% increase at the start of the year, followed by another similar increase at midyear. “Two increases in one year—I’d never seen anything like that personally in 40 years of business,” he says.
Ketner notes that strong compensation offers to help lure talent from other companies are driving up those averages. “Someone may get 7% or 8% staying where they are, but they could get a 15% increase if they change jobs,” he says.
Despite the attraction of higher base pay, many executives choose to stay at their current companies and reap the recent bonus increases, says Pauletich. In addition, fewer companies see the need to bring on new executives, unless someone retires.
“Overall, we’re seeing less movement on the executive side,” he says. “The compensation that the top tier executives make with the amount that margins are expanding has slowed down volatility.
After the recession, more people were receptive to making a move, when companies were looking for new growth opportunities like opening new territories and expanding main offices. They are now in a position where the senior slots are more stable. They are focused on quality and profits.”