Construction executives continue to make strong annual gains in compensation, particularly those willing to sign on with new employers. On average, executive base salaries rose by 4.2% in 2019, says data from compensation specialist Personnel Administration Services Inc. Although that level is relatively high compared to historical PAS data, the rate of increase has remained steady in recent years. Last year’s hike marked the third year in a row of base salary escalation above 4%. Since 2013, annual base salary hikes have not tallied below 3.8%.
“Historically speaking, that’s a long period to see those types of increases,” says Jeff Robinson, PAS president. “But at some point, you reach a level where there’s not much room to go higher. Personally, I’m surprised it hasn’t gone higher, but it could just be that contractors are being conservative.”
On the Rise
Heavy civil contractors awarded the biggest raises at 4.6%, followed by mechanical contractors at 4.4% and highway contractors at 4.3%. Robinson says he does expect base salary increases for executives to jump up in 2020. Historically, PAS data has shown that the hikes typically rise between a half percentage point and a full percent above the Employment Cost Index. According to Robinson, the index was 3.8% at the end of 2019, with firms likely to award average base salary bumps of 4.5% or above in 2020.
At the same time, bonuses seem to have plateaued in 2019, remaining flat or increasing only slightly between 2018 and 2019. That marks a notable change from 2018, when construction execs reported an average bonus jump of between 10% and 15% from the previous year.
Recruiter Michael Ketner of Michael L. Ketner & Associates says he has seen most executives who stay in the same position receive annual base pay raises of between 3.1% to 3.5%. Ketner says that about one-third saw additional performance-based compensation, in the form of bonuses last year, while 25% were promoted or given added responsibilities. For promotions, Ketner says executives are receiving average increases of 11%.
Ketner says he sees executives taking a very guarded approach to bonus offers. Although many contractors are running at capacity, some could be reaching the level of “profit erosion” due to a shortage of executive talent.
“You have vice presidents who maybe were overseeing eight projects and now they have to almost double that,” Ketner says. “Even if the margins are there, the problem is that if you don’t staff the project properly and you can’t keep a close eye on work from an executive level, profit erosion can occur. An executive might anticipate $12 million [in profits] but only get $8 million because there are only so many hours in the day and executives can’t manage the jobs like they used to.”
Jeff Wittenberg, managing director of construction at executive search firm Kaye/Bassman, agrees that high-level job candidates know they can’t rely on projected bonuses. “Too many people have been burned by that,” he adds. With a higher expectation on guaranteed income, Wittenberg says executives expect a minimum 10% increase in base salary to move to a new company.
When trying to recruit a candidate who will require a move, he says the expectations are even greater. “If you’re relocating from Houston to San Francisco, that’s a big jump in compensation, but you also have to factor in the cost of living,” Wittenberg says. “The difference in compensation is so significant that companies can’t do it. Plus, some people just don’t want to move. The industry has been so robust in every market. If someone wants a great opportunity, he or she doesn’t need to move to find one.”
Wittenberg says he also sees the industry continue to struggle with succession planning. Many companies are looking for younger candidates who they hope to groom as long-term leaders. When a company needs to go outside its organization for those candidates, it can be an extremely difficult task in the current market. “Companies want that 40-year-old high-potential executive, but there’s a 90% or better chance that person’s current company has its tentacles in,” he says. “It’s not that you can’t find them, it’s that you can’t get them.”