Executive compensation has been rising steadily since the pandemic, reaching a high-water mark in 2023. However, a cooldown in several market sectors could result in comp increases receding in the coming years. Average executive salary increases among construction firms hit 5.6% in 2023—the highest level of increase since 2000, according to data from industry compensation research firm PAS.

This year, however, construction firms signaled to PAS that they are likely to pull back on the levels of pay increases. PAS’ 2024 Executive Compensation Survey for Contractors showed that firms anticipate giving executives a 4.7% increase in 2024. However, firms tend to underestimate salary forecasts by around 0.5%, so average increases are likely to be around 5% this year, according to Jeff Robinson, president of PAS.

“Caution is what we’re seeing in the market,” he says. “Most of the people who wanted to leave their companies have left. Turnover rates went down from 18% to 15% between 2022 and 2023. That feeling that employers need to be way out there [on compensation] to protect their people is going away.”

Averages vary between different sectors, with heavy civil firms offering the highest average increase last year—5.7%—up from 4.9% in 2022. Mechanical contractors gave the lowest increase at 4.4%, while general contractors averaged 5.8%.

Regionally, firms in the central states—including Iowa, Kansas, Missouri and Nebraska—as well as the southeast—including Alabama, Florida, Georgia, Kentucky, Mississippi, North Carolina, South Carolina and Tennessee—offered the highest base pay increases in the U.S. at 5.8%. The lowest increases—averaging 4.4%—were among firms in New York and New Jersey. Notably, those two states also offered the lowest increases in 2022 at 5%.

Recruiters are also seeing compensation cooling. Jeff Wittenberg, managing director for construction at executive search firm Kaye/Bassman, says that continued high interest rates are softening many markets. “There’s been a ton of wage inflation over the last several years, simply because of supply and demand,” he says. “The market is cooling, but the construction community is on the tail end of that. A lot of general contractors may simply be busy as a result of burning off their backlog. At some point, the market will catch up.”

Still, Wittenberg says many contractors are already pushing back on the salaries that candidates are demanding. “That was not the case 24 months ago,” he adds.

A cooling construction market could also mean a shake-up in the top ranks at some companies, says Alan MacNair, president of MacNair Retained Search. He says that when times get tough, the true talents—or shortcomings—of executives become more apparent. “I saw this during the Great Recession of 2008 and 2009,” he says. “Up until then, the status quo was fine. But if there is complacency in the C-suite because times have been so good, that’s a danger sign. Those people will be displaced by people who can build the business.”

A down market may also be affecting bonuses. PAS data shows that bonuses were flat between 2022 and 2023. “Where I think companies will be throttling back is on the incentive side,” Wittenberg says. “Bonuses won’t be what they have been [recently].”

Succession planning—or a lack of it—will likely continue to be a driver of executive compensation in the coming years, as a significant number of older execs eye retirement.

Wittenberg notes that most construction firms lack adequate succession plans, leaving many scrambling for new talent in their C-suites. “There are senior-level positions that need to be filled and a lot of companies don’t have an answer for those internally, so they’ll have to go outside [the company],” he says. “You can’t just say, ‘We won’t fill our CFO role.’ If there’s a hole, it cannot go unfilled for too long.”

Succession needs may also be driving up compensation for future leaders. PAS data shows that executive vice presidents and senior vice presidents saw the highest salary increases of all executive positions. Wittenberg suggests that trend could be driven by companies trying to hang on to the next generation of company leaders. Meanwhile, he says that the pool of candidates for those positions remains limited. “When a company goes on a search for a senior vice president, they say they are willing to pay to relocate a good candidate,” he says. “The problem is that these are often people in their 40s, who are established in their communities. They may have kids in school and a spouse with a career. So they won’t move.”

That also speaks to the continued trend among younger employees, who put a greater emphasis on work-life balance over compensation. “For today’s mid-level managers, work-life balance is very real for them,” Wittenberg says. “That’s a future generation of [C-suite] leaders, and work-life balance will factor into their decisions. What will that look like at the executive level?”