Though economists may disagree on the exact status of recession or recovery, most of us agree that current economic conditions are still bleak. The housing market has plummeted; U.S. unemployment hit 10% in November of 2009, which was the highest in a decade. According to the Federal Reserve Board’s latest Beige Book summary, “Labor market conditions remained weak since the last report, with further layoffs, sluggish hiring and high levels of unemployment in most Districts.”¹ The construction industry, though used to cyclical changes, has been hit particularly hard by the downturn in the economy. Since December 2007, employment in construction has fallen by 1.6 million.² What does all this gloomy news mean for construction industry wages? Is it completely unrealistic for employees to expect a pay increase or bonus? Are construction companies rewarding their highest performers? What will 2010 look like? 

The situation seems less dire than some recent news reports have indicated, after reviewing the data from Analytical/FMI’s latest compensation and salary increase surveys. For this article, the analysis was limited to a constant group of 36 companies that participated in our Executive Compensation and Construction Professional Compensation surveys from 2007-2009. The 36 participants are predominately large commercial construction firms. Nineteen of the 36 companies reported commercial construction as their largest industry segment, with a most recent median revenue of $2.6 billion. These larger companies may have had more backlogs to insulate them from short-term dips in the economy, and therefore did not resort to the pay freezes that occurred in many other organizations. While pay increases within these large organizations were less than the 2007-2008 period (the payroll date of the surveys is May 1 of each year), every position or job family (a group of related jobs differentiated by skill and years of experience) except one experienced at least a small increase in both base salary and total cash from 2008-2009. 

The data in Exhibit 1 reflects results of this constant group of companies from FMI’s 2007-2009 Construction Professional Compensation Surveys covering 25 positions in seven different job families: project management, project superintendent, estimating/engineering, project/field engineering, project accounting/office management, safety and business development.  

Exhibit 1

For Survey Methodology, see Appendix A.

Source: FMI’s Construction Professional Compensation Survey (2007-2009).

Overall, the total number of incumbents declined, but all seven job families saw increases in base salary and total cash. What is more surprising is the number of incumbents receiving bonuses. Though the dollar amount of individual bonus payouts were considerably less than in 2008, the number of incumbents receiving bonus pay increased by 8.5%. While not all job families experienced increases, some saw dramatic increases. For example, the number of safety engineers receiving a bonus increased by 34%. 

Executives of construction companies fared even better in 2009 as seen in Exhibit 2. In order to eliminate variations due to turnover, only those executives who remained in the same position year-over-year were included in this study, resulting in a population of 393 incumbents in 24 corporate positions. Although a number of executives’ base pay remained stagnant, almost 96% received a bonus, up from 88% in 2008. Long-term incentive pay increased as well: 21.6% of incumbents received some kind of long-term payout in 2009 versus 16.8% in 2008. 

Exhibit 2

Could it be that these companies are cutting back on benefits or making cuts in other areas in order to fund pay increases and retain valuable employees? Possibly, but in analyzing data from this same constant group of companies who also participated in our annual Benefits and Pay Practices Survey, most benefits remain consistent from one year to the next. Out of the aforementioned 36 companies, 21 of them participated in our 2008 and 2009 Benefits and Pay Practices Surveys and there is little variance in reported benefits. 401(k) matches are almost identical: the average match for both years is 75% of the first 4.4% with the total possible match increasing slightly from 3.36% to 3.54% in 2009. The average monthly auto allowance experienced a slight increase – from $659 in 2008 to $693 in 2009. The majority of companies reported increases in medical and dental premiums and passed some of those costs on to employees in the form of increased contributions, higher deductibles and higher co-pays. However, those increases typically occur every year and are more attributable to rising health care costs than anything else. Non-directed company turnover figures did increase, particularly non-project layoffs, but overall, January and December headcounts from both years were comparable. 

Can we still expect to see increases in 2010? Predicting economic conditions is more of an art than a science, but it would seem so, according to our latest Salary Increase Survey. We collected data in November 2009 from 34 engineering, construction and E&C companies on merit increases, general increases, promotion budgets, equity adjustments and structure adjustments for 2009 and the projected numbers for 2010. As with the other surveys cited previously, this group consists of large firms and is not reflective of the industry as a whole. Participating companies anticipate an overall salary increase of 3.6% in 2010. In addition, the 14 companies that identified themselves as “primarily construction” expect a 4.4% total increase in 2010. Despite a struggling economy, most organizations are committed to aligning pay increases to performance – 25 of the 34 companies report merit pay increases for 2010 while only four report general increases. When compared with WorldatWork’s latest salary increase survey, which collects data on over 16,000,000 U.S. employees from all industries and which predicts an average 2.8% salary increase budget for 2010,it looks like there is reason to be hopeful.³

Projected numbers are obviously not a guarantee and much depends on the general state of the economy in the coming year. Weak construction backlogs are a legitimate cause for concern. Backlogs are the amount of work, measured in dollars, that companies are contracted to complete in the future. According to the Associated Builders and Contractors’ (ABC) latest report, overall backlogs are small, particularly in the heavy industrial sector.⁴  The infrastructure sector enjoys the lengthiest backlog due to the recent stimulus package. Large companies have the greatest cause for concern. Backlogs of companies with revenues of over $100 million have been steadily declining since November 2008. Companies with revenues in the $50-75 million range enjoy the longest backlog at nine months. In addition to shorter backlogs, costs of construction materials are up slightly and project delays and cancellations remain high so pay increases may not be a reality for many construction firms. 

The recession has affected most companies to some degree, so what can companies that are not in a position to grant pay increases do to keep their workforce engaged and motivated? After all, pay freezes and turnover can have a demoralizing effect on employees.

• Conduct employee surveys. Obtain feedback on what employees are thinking and request suggestions for non-monetary improvements.
• Maintain clear communication. Keep employees in the loop and involve staff whenever possible about decisions that affect their jobs.
• Offer flextime. Allow employees to balance their work and personal life.
• Provide small awards. Reward hard work with small short-term awards to keep employees motivated.

Certainly, some hard times still lie ahead for most companies regardless of their industry, and full economic recovery will probably be gradual and incremental. A number of big commercial projects have been cut and financing is still hard to get. However, paying for performance is a necessity for companies that want to retain their top talent and most organizations are continuing to budget for these increases.   

Appendix A: Survey Methodology 

The Construction Professional 3B and Executive 1B Surveys cover full-time exempt or executive employees and are open to any Construction or Engineering & Construction company. Payroll dates for both surveys are May 1 of each year. Results are only published for positions in which five or more companies report data.  

The following equation is used to calculate Total Cash:

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