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Compensation Trends in Construction
MCC Construction Zone
Compensation Trends in Construction
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Marty McCarthy, CPA, CCIFP
As a certified construction industry financial professional (CCIFP), I have access to insights from my peers who also hold this distinguished designation. We share information on important topics so we can advise clients on the best course of action based on industry best practices.
I recently read an article entitled Compensation Trends by Jeff Robinson (Construction Financial Management Association (CFMA). Building Profits. March/April 2022). Robinson is the president of PAS, Inc., a leader in compensation research and consulting for the construction industry. He shared data on construction compensation trends, which I believe is important to share with you. The following is a summary of the main points made in the article.
Compensation Considerations As in other industries, contractors are being forced to increase starting salaries at all levels to attract skilled workers. Paying workers higher salaries and providing enhanced benefits cost money. These additional costs are typically passed on to the consumer, however in construction, that is not always possible. Contractors bid on jobs and are often bound by the price accepted by the customer. Depending on the contract terms, it might not be possible to pass along the increase. Jobbidsmay have beenacceptedmonths oreven years ago. Since those contracts were signed then, in most cases it is virtually impossible to pass that increase along.
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Outside forces also impact compensation, forcing contractors to pay more to remain competitive. Other industries are increasing compensation levels. Federal, state, and local governments are raising the minimum wage, and inflation continues to be a threat.
Once wages are increased for entry-level craft, administrative staff, and other positions, comparable wage increases should be considered for supervisors, project managers, senior management, and others.
Compensation paid to current employees may also have to be adjusted. Employee engagement will decrease, as well as satisfaction if employees learn that new workers are paid a higher salary, signon and retention bonuses, or offered a better benefits package. Current employees may resent the fact that they were not offered the same.
Staffing and Turnover Staffing continues to be an issue. Not only is it challenging to find qualified workers, but it is also hard to keep workers at all levels. For example, PAS, Inc.’s 2021 Benefits Survey for Contractors found between July 2020 and July 2021, there was a 17.9% turnover rate for professionals and middle managers–the highest in 15 years.
Overall, 58% of construction companies reported turnover in the superintendent ranks and 48% in project managementpositions. Additionally, 80% of contractors with over $500 million in revenue reported experiencing turnover insuperintendent positions,and 64% reported turnover in project manager positions.
Inflation Inflation causes us to pay more for food, gas, goods, and services. Bloomberg reported on June 10, 2022: “U.S.inflation accelerated to a fresh 40-year highin May, a sign that price pressures are becoming entrenched in the economy. The consumer price index (CPI) increased 8.6% from a year earlier, as per the Labor Department data. Thecore CPI, which strips out the more volatile food and energy components, rose 0.6% from the prior month and 6% from a year ago, also above forecasts.”
Inflation is putting pressure on employers to increase wages. While PAS, Inc. believes that the cost of labor should be the driving force for pay decisions, many contractors consider the costofliving (COL) when determining annual increases.
While COL has increased over the past twenty years, construction staff pay increases have remained unchanged. For example, in 2002, theannual COL was 1.6%, and construction staff pay increase was 4.1% compared to 2021 when the yearly COL increase was 4.7%, and the construction pay increase was 4.2%.
Pay Increasesfor Craft Workers According to Kenneth D. Simonson, Chief Economist of the Associated General Contractors of America(AGC), “Construction has fallen behind its historical position relative to other sectors because pay increases in construction have not kept up with the acceleration in pay that has occurred elsewhere. In 2020, construction wages and salaries increased at the same 2.8% yearover-year rate for all private-sector workers. Although construction wages accelerated to a 3.8% increase in 2021, this fell far short of the record 5% increase for all private workers last year.”
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As of year-end 2021, Simonson stated, “‘premium for construction wages relative to total private sector has shrunk from 20-23% pre-pandemic to 17% for production and nonsupervisory employees.” The construction industry’s 15-year history of favorablecraft wages dropped 3-5% compared to non-construction peers.
According to PAS, Inc.’s 2021 Merit Shop Wage and Benefit Survey, pay for carpenters increased by 2% in all construction sectors combined, and laborers increased 4.7% from 2020 to 2021.
The industrial sector was flat except for a few positions, such as boilermaker pay increasing 2.4% and structural ironworker pay increasing 3.2%. On the other hand, the heavy civil sector saw exceptional overall growth at 4.9%, with heavy equipment operators changing 4.7%, tandem axle drivers moving 5.7%, and laborers growing 9.7%.
In mid-2021, WorldatWork reported that contractors projecteda 2022 increase of 3.9% in construction for nonexempt hourly nonunion classifications (craftworkers).
Professional, Middle Management and Executive Wage Increases WorldatWork also published its2022 forecast for all industries and construction at various levels. Again, the construction industry was in alignment with all other industries.
Exhibit 1: Salary Forecast for All Industries & Construction
Classification All Industries Construction
Nonexempt Salaried 3.2% 3.1%
Exempt Salary 3.3%
3.4% Officers & Executives 3.2% 3.1% Source: 2021-2022 United States Salary Budget Survey. WorldatWork
WorldatWork conducted a pulse survey of all industries in late December 2021, focusing on what compensation professionals said they needed to attract and retainemployees. Survey participants said they needed an average of 4.8% and a 5% median, but their organizations were budgeting, an average of 3.6% and a 4% median.
Pay Projections Experts project that for all industriesthe average pay increase will be between3.2% to 3.9%in 2022.The Conference Board had an April projection of 3% for 2022, which they revised to 3.9%. FMIanticipates the average pay increase for E&C respondentswill be 4.1% in 2022.
PAS, Inc.’s 2022 Executive Compensation Survey for Contractors reported an actual 2021 pay increase of 4.3% for executives. The anticipated increase for 2022 is also 4.3%. Historically, pay projections are 0.3-0.5% higher by year-end. Therefore, executive increases averaging about 4.8% are expected by December.
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Exhibit 2: Pay Projections by Position for 2022
Position Overall Base Pay Average Salary Average Bonus Project Superintendent $105,000-$132,000 $120,000 $16,000 Sr. Project Manager $118,000-$148,000 $135,000 $27,000 General Superintendent $134,000-$171,000 $152,000 $38,000 VP of Operations $155,000-$210,000 $189,000 $88,000 Sr. Estimator $ 99,000-$127,000 $115,000 $15,000 Chief Estimator $125,000-$170,000 $150,000 $33,000 Accounting Supervisor $ 68,000-$ 89,000 $ 79,000 $10,000 Accounting Manager $ 86,000-$120,000 $103,000 $18,000 Controller $109,000-$141,000 $126,000 $29,000 CFO $156,000-$228,000 $201,000 $106,000 Executive VP $179,000-$297,000 $245,000 $189,000 Source: 2022 Executive Compensation Survey for Contractors. PAS, Inc.
Based onexecutive increases, it can be inferred that professional and middle management year-end increases will average 4.5%,and craft increases will be about 4.1%, which is considered a conservative estimate.It will be interesting to see the actual impact inflation and other variables will have on compensation at year-end.
About the Author Martin C. McCarthy, CPA, CCIFP, is the managing partner of McCarthy & Company. Sureties and bankers respect Marty for his high-quality work and profound understanding of the construction industry. Marty helps clients by givingthem the insight needed to grow their businesses. He can be contacted at 610.828.1900 or Marty.McCarthy@McCarthy.CPA.
Disclaimer: This article is for informational purposes only and should not be relied upon for tax or accounting advice. We strongly advise you to seek professional assistance concerning your specific issue(s).
Marty McCarthy, CPA, CCIFP
