Willis Towers Watson released a report in September 2016 indicating that, from the employee perspective, base pay is the number one driver in both attracting and retaining employees. On the surface this was a “Duh” moment. But, think back on the messages we received for years from the “experts” who said that pay was actually the third or fourth driver for employee recruitment and retention. Well those other driver factors (work-life balance, professional growth, etc.) are correct—as long as employees are making an acceptable wage.
Now mix that with a September 2016 Hay Group report indicating that when adjusted for inflation, salaries in the United States actually decreased 3.1 percent on average since September 2008. In other words, employees have lost buying power since 2008.
As these studies reflect, the importance of base pay and simultaneous lack of pay growth is forcing the compensation agenda for 2017 and 2018.
Construction compensation increases
Fast forward from September 2016 to first quarter 2017. As reported by Ken Simonson in the June 9, 2017 issue of AGC Data Digest, construction industry compensation increased 4.7 percent from a year earlier, the biggest one-year increase since 2012. Average wages and salaries in construction increased 4.4 percent and benefits increased 5.6 percent. All these numbers are based on the Bureau of Labor Statistics (BLS) first quarter summary of employer cost for employee compensation.
Likewise, in the PAS 2017 Construction/Construction Management Staff Salary Survey, we saw huge base pay changes in most operational job families between March 2016 and March 2017, including the following increases:
- Safety 7 percent
- Project supervision 6.5 percent
- Equipment management 6.5 percent
- Project management 6.2 percent
- Estimating 5.5 percent
Conversely, there were some job families that were stagnant during the same 12-month period. For example, human resources positions did not fare well, with minimal change in market values from 2016 to 2017.
Analyzing the full compensation picture
Of course, it would be too easy if those increase generalizations could be applied universally to anyone in project supervision or any other job family. You have to refine the specifics to a single job title or position, look at trends, and consider workforce availability to get the full picture.
For long-term trend analysis, let’s look at a position that most contractors utilize: project superintendent. First, it’s not as simple as saying that pay in all the supervision job titles moved equally at 6.5 percent. Project superintendent base pay, for example, grew 6.1 percent from 2016 to 2017, 4 percent from 2015 to 2016, and 3.2 percent from 2014 to 2015. Similarly, total compensation (base plus bonus) escalated 7.2 percent from 2016 to 2017, 4.1 percent from 2015 to 2016, and 5.2 percent from 2014 to 2015.
These are all very respectable numbers; however, it wouldn’t be wise to take those positive pay actions at face value without considering historical trend data. Remember the Hay Group report mentioned above? If we hone in on the total compensation changes from 2009 to 2014, the story goes a long way to explaining why pay is now the number one driver for recruiting and retention.
For all sizes and types of contractors combined, the 2009 project superintendent total compensation (base and bonus) was $97,411. From 2009 till 2014 the Consumer Price Index (CPI) changed 10 percent. So, to keep the same buying power in 2014, project superintendents would need a total compensation package of roughly $107,200. But the actual total compensation package in 2014 was only $100,180. Base pay kept edging upward, but the variable pay side either decreased or went flat for several years.
It wasn’t until year end 2016 that total compensation returned to the same purchasing power that project superintendents had in 2009. Most superintendents and other construction workers have good memories when it comes to pay and those years of greater buying power. It certainly shouldn’t come as surprise to anyone that pay is now the top driver for recruiting and retention—and will continue to be the top driver in 2018.