Industry Compensation Challenges Grow as Contractors Boost Salaries in a ‘War for Talent’
Officially, Dan Ryan’s job is to find quality executive talent for clients in construction and other industries. Unofficially, the Franklin, Tenn.-based consultant calls himself a “unicorn hunter”—constantly on the lookout for individuals who have the “whole package” of technical, business and leadership skills.
While long prized in the construction industry, such unicorns are enjoying the benefits of their relative scarcity as never before, thanks to the sustained strength of the nation’s overall construction market. “Not only are people knocking on your door,” Ryan says, “your current employer wants to lock you in.”
Executive-suite occupants aren’t the only ones commanding premium pay from talent-hungry contractors these days. Their colleagues in jobsite trailers—from project managers to forepersons—have become highly sought after as well.
“Ask anyone, and they’ll say they can use a good estimator,” says Brett Walsh, executive vice president for human resources and shared services, at Graycor, Oakbrook Terrace, Ill. He adds that while some geographic areas are more active than others, anecdotal evidence suggests that even in softer markets, “it’s a matter of supply and demand.”
How much are contractors willing to pay for these coveted skills? A new FMI compensation analysis shows that while the average base salary has increased by 21% across the nation’s top 10 metro areas over the past two years, some markets have seen compensation for critical operations skills such as project manager and superintendent skyrocket by as much as 50%.
“In general, it’s a real war for talent,” observes Mike Rose, FMI’s data services manager. The widespread nature of these increases suggests that the causes are not solely the result of market-specific factors such as level of construction activity or cost of living. Several trends are in play, say industry observers, from the recession’s drain on existing and incoming talent to the accelerating departure of Baby Boomers from the workforce. “Every call I get is because someone is getting ready to retire,” Ryan says. “This is a great time to be an up-and-comer, or at mid-career.”
The proliferation of larger, more complex and expensive projects in many markets is also playing a role, given the need to accurately estimate and schedule such efforts. As such, Rose says, “These core job families become critical to the success of a business.”
Compensation for design and engineering professionals is no different. Juli Smith, a Jackson, Mich., search consultant who specializes in civil engineering and architecture, says that if a firm is trying to land a $2-million job, “paying a project manager an extra $30,000 is worth it, compared with [the person] walking away.”
How Much Is Too Much?
Value, like beauty, is in the eye of the beholder, and many contractors take pride in reputations for paying “above-market” salaries. But the FMI study cautions that as pay boosts of 25% to 30% or more above the going rate become more common, financial risks increase as well. Analyzing the pay of 27,000 construction professionals, FMI found that about 7,000 received a total of $112 million above the market averages. About 6,600 were paid a cumulative $62 million below market. And it’s a cycle that shows no sign of ending.
“Underpay your staff and you risk losing them,” says FMI chief data officer Peter Cregger. “To get someone new, you need to throw money at them, but that puts your profitability at risk.” Adopting such a “whatever it takes” approach to hiring or retention carries other potential dangers, such as spawning morale issues when current employees feel their loyalty isn’t being rewarded. Then there’s the matter of what happens to high-paid employees when the project ends or the market cools.
“We saw this in the early 2000s, when salaries were inflated by 25%,” Smith says. When the recession hit, “they were the first to be let go.”
Absent negotiated salary adjustments, Ryan says contractors would likely face the “day of reckoning where you have to have the ‘that was then, this is now’ conversation.”
Walsh says Graycor strives to balance external benchmarks with internal considerations. “If we already have someone who’s on a certain development track, we may feel that he or she may need more time in the role and not quite ready for promotion, but they be enticed by a competitor offering that promotion with a significant salary bump,” he explains, adding that employees considering a move are reminded about the risk of finding themselves in a last-in, first-out situation.
“We’re concerned about inflating the market but also concerned about their well-being,” Walsh says.
As for compensation offers for those outside the firm, Walsh says 40% of Graycor’s hires come via referrals. Someone who comes highly recommended with demonstrated skills “gives us more confidence” about what to offer, he says “If not, we’ll back off.”
Julie Kellman, director of compensation and benefits for Pepper Construction Group, Barrington, Ill., says the firm has so far managed to stay out of any talent-bidding wars. “I tell people that we’ve been in business for nearly a century, and that we should trust our strategies,” Kellman says. “What gets us through the booms will get us through the busts.” She admits that staying the course is not always easy when a manager has an urgent need for a particular skill. Nevertheless, she says, “we don’t want to blow up our whole pay structure. We have to stick with our approach.”
Compensation Coping Strategies
One common cause of overpaying employees, says FMI’s Cregger, is contractors’ reliance on word-of-mouth or their own sense of the market on deciding the monetary worth of a professional they’re pursuing.
“It’s too critical a decision to base on a feeling,” he explains. Instead, Cregger recommends a benchmarking approach—using data about job- and market-specific compensation to more accurately align salary and other compensation for a current or prospective employee, or specific job categories.
For example, a benchmarking tool developed by FMI can also be used to refine data across job families, geography, revenue band and other factors.
Cregger says benchmarking enables contractors to operate from a position of knowledge. “They get a better idea of what to pay, and who’s worth what,” he says. It also helps contractors be proactive. “They can see where problems might arise and head them off before salary demands come in,” he adds.
Contractors also should remember that it’s not always about money. Other incentives may help them land or retain staff without sacrificing margins in the name of higher salaries.
“This is where contractors should get creative,” Smith says. She suggests options that other industries incorporate into more holistic benefits packages. While common incentives such as flexible schedules and work-from-home days may not be feasible for superintendents and similar jobs, the firm culture and other benefits may prove just as attractive.
For example, Smith says, recent college graduates may well prefer contributions toward repaying their student loans in lieu of a retirement fund or supersized salary. “Companies will also have a better chance of retaining their best employees should business start to slow,” she adds.
The timing and severity of such a slowdown, be it on a local, sector or national scale, is anyone’s guess. Most forecasts predict no immediate end to the construction boom, which means demand for operations and executive skills isn’t about to diminish either. As such, says Walsh, the recruitment and compensation challenge “is going to be with us for a while.”