Helbling Insight

Construction Executive Compensation Shows Progress In Many Ways

Construction executive compensation is definitely showing signs of improvement as discussed in a recent issue of Engineering News-Record (ENR). The general consensus of ENR's article, Improved Markets Equal Higher Executive Compensation, was that salaries and bonuses, in general, are rising for most construction executive roles. While overall, this signifies good news for the construction sector, it is important to note that compensation can be vastly different from one organization to another due to geographic region, size of firm, scope of role, and many other factors that come into play.

According to ENR's article, most of the noted positions (illustrated in the charts below) showed increases between 5 - 7% over the past year. Presidential roles showed the highest total compensation increase (base salary and bonus), which rose 11% in 2016 to $425,706 from the 2015 survey of $381,986. When looking at the past four years, General Counsels have seen the biggest jump in compensation. In 2013, their median base salary was $169,500 while in 2016, it is $222,000, an increase of 31%. Similarly, their median bonuses went from $49,000 to $91,500, which equals a jump of 87%. This year, it is forecasted that companies will see an average salary increase of 3.6% across the board.

As executive search consultants specializing in construction, Helbling & Associates shares the general perspective that salaries and bonuses are rising but it is also important to keep everything in perspective. Senior Managing Consultant Tom Dunn says, "All organizations are different so it's difficult to apply these generalizations to all companies. The fact of matter is that salaries have increased with the level of industry activity along with the shortage of talent across the sector. Organizations have to make adjustments to executive compensation just to remain competitive."

President Tom Helbling explains, "While many incentive programs remain discretionary, there is a movement in the industry towards pay-for-performance compensation structures, and each organization handles these types of incentives differently. Programs vary with the size of an organization as well as the vertical sector. All organizations are cautious about incentive distributions and they try to establish equity throughout the entire pay structure. Another factor that is playing a role in compensation is the mass retirement of Baby Boomers. In response to this major shift in the industry, companies have to look at their compensation programs more closely to structure them effectively for Generation Xers and Millennials. These generations not only want pay-for-performance metrics, performance targets, and incentive compensation programs, but they also place high priority on benefits and retirement plans."

Dunn says, "I agree with Tom (Helbling), and the other type of compensation that ENR's analyses do not include is equity - company equity and/or project equity, which can be prevalent in real estate developers and private-equity backed organizations. Equity can be a significant consideration and motivator. In publicly traded companies, stock can serve the same purpose. Some large construction organizations offer Employee Stock Ownership Plans (ESOPs), which are also appealing because they can lead to significant career and retirement security. All of our clients are looking to enhance their profit margins and seek innovative ways to improve company performance. They can attract and secure talented senior-level executives by providing opportunities that offer equity and the ability to increase its value in return for performance."

In closing, Helbling notes, "I want to emphasize that, although compensation is a major factor during the recruitment of construction executives, you can't dismiss the fact that it is only one part of an executive's interest in a career move because that is not the case in any executive search. High-level professionals want to work on interesting and significant projects, and they seek challenges that will stretch and enhance their capabilities and experiences. They want to work for tech-savvy firms and play instrumental roles in the success of their employers. And last but certainly not least, they want positive corporate cultures where they feel valued and share similar mindsets with their colleagues."

*The charts below depict a portion of PAS's 2016 survey on construction executive compensation. More information can be viewed on the PAS website.