It's a little tougher at the top, according to the 2001 Hays Montrose/Building executive salary guide. But with salaries static, many companies are sweetening the pill with increased perks. Victoria Madine and Alex Smith peer into the wage envelope.
top executives' waistlines are likely to fill out more this Christmas than their wallets have all year. According to the 2001 Hays Montrose/Building executives' salary guide, the job market for high-flyers has remained relatively static over the past 12 months. Executive pay rates in the building, housing and civil engineering sectors have increased by an average of just 3.5% since 2000 – only marginally ahead of inflation.

Recruitment experts say housing executives have been particularly affected as consolidation in the sector has gathered pace, leaving more executives competing for fewer top slots. And as construction's profit margins remain tight as ever, companies are increasingly using performance-related bonuses to motivate their leaders and non-monetary incentives to tempt new recruits.

Chris Cheetham, senior manager at Hays Executive International, says some housing executives have actually seen their salaries fall. "Some executives in housing are taking up jobs with salaries lower than those they have left. A lot have been made redundant because newly merged companies have closed regional offices," he says. This means there are more executives floating around in the system, making it easier to recruit somebody. "You have less bargaining power if you are on the dole. Companies don't have to pay the premiums they normally would."

For Richard Milsom, joint managing director of recruitment consultant and headhunter Potensis, the stagnation of housebuilders' salaries is a result of growing uncertainty in the market. "Consolidation in the industry is having some effect, but nervousness in the sector is even more of a factor. Luxury house prices dropped last quarter for the first time in years – so housebuilders' confidence has been dented," he says.

Giles Wilson, marketing technologist at Wilcon Homes, says housebuilders are pumping less into salaries as they look to firm up for the future: "At the moment, housebuilders are looking at rationalisation and taking costs out of the business. Salaries have not changed much over the past year."

Housebuilders and recruitment consultants agree that companies in the sector are increasing project bonuses rather than basic salaries in a bid to get the best from their executives (see "Happy customers, happy directors", right). Potensis' Milsom says: "Project bonuses are becoming the norm and they are geared to early finishes because when all is said and done, housebuilders make profit through cheap land and how fast they can build houses."

Housebuilding is not the only sector where perks are becoming the norm: executives in the building and civil engineering sectors are also enjoying more bonuses. Milsom explains: "Performance-related bonuses lock in managing directors and give them more of a stake in specific projects. I've noticed that builders in particular are rewarding their staff in this way." For Milsom, the reason lies in the growing competition between the big players for the best people and the fact that margins in contracting remain low. He adds: "With benefits such as car allowance, companies can claim back tax, which means that they are able to reward more to staff and protect their margins." The salary guide also shows that share options are still popular despite the recent setbacks on the stock exchange (see "Why shares are still an option", overleaf).

Cheetham agrees that building companies are competing more fiercely than ever for hot shots, although basic salaries have hardly shifted on last year. He says: "There is a shortage of high-calibre candidates driven by the fact that, during the early 1990s, a lot of these companies got rid of their middle management. The fit-out market was particularly affected."

Most recruitment experts expect to see executive salaries grow in the civil engineering sector as government spending on infrastructure projects, such as road maintenance, increases. Cheetham says: "Spending on roads went down when the present government took power and a lot of companies had to move into other areas. But I can see civils increasing because there are now major metro and road schemes being proposed."

Potensis' Milsom agrees that executives in the sector could finally see their salaries budge: "Salaries should go up next year," he says.

Recruitment experts predict that the trend towards bonuses and perks will continue. But the main driver behind the recruitment of executives will remain the personal attributes and talents the individual can offer. As Brian Marsh, branch manager for recruitment consultant Options Technical, says: "The right person can drive a hard bargain – it depends so much on the individual. Executive QSs are particularly in demand and companies will pay over the odds if they feel they can tempt the person they want for the job."

And despite some salary cuts, the picture is not all bleak for housing executives. Jarrett Sullivan, joint managing director at Potensis, says: "We recently placed a regional managing director for a well-known housebuilder on a £200,000 package. More usually the package stands at between £60,000 to £150,000. It shows there are no hard-and-fast rules."

Happy customers, happy directors

Laing Homes has changed the way it calculates its directors’ bonuses so that the payments correlate to customer satisfaction rates rather than monetary profit. Ian Randall, managing director of Laing Homes South Thames, explains: “There is more of a move towards rewarding good performers and our bonus payments are now based on customer satisfaction rates. As a result of this and other measures, customer satisfaction has rocketed in the past 12 months from about 75% to 90%.” Randall says that in the future basic salaries won’t go up – instead remuneration will depend on performance criteria such as sustainability, profit margin and customer satisfaction. Richard Milsom, managing director at recruitment consultant Potensis, says that along with performance-related bonuses, companies are also looking to provide more non-monetary rewards. He cites the example of a well-known contractor that has furnished a top project manager with a package most executives would relish. “A project manager we know of has a two-bedroom flat in London, a gardener, chauffeur, kids have been sent to boarding school, and his wife gets flown down from Scotland once a week. He’s looking after a project worth £150m – which is more than the value of most companies.”

Why shares are still an option

Company share schemes have come under scrutiny following the collapse of Railtrack, and the plunging value of IT shares. More than 90% of Railtrack’s 11,000 employees hold shares that are now potentially worthless. But company share schemes in the construction industry remain popular, according to the Hays Montrose/Building salary guide. Independent financial advisers say company share schemes, if approached wisely, can benefit both the employer and employee. “Share options are as widely used now as ever in construction,” says Chris Cheetham, senior manager at Hays Executive International. “It is true that for five or six years the value of the stock exchange rose and now it’s falling. But construction isn’t doing too badly and all employees can benefit.” David Cassidy, chairman of IFA Nelson Money Managers, agrees and says Railtrack should not deter directors from taking up share options. “You cannot lose out as the holder of share options in your company,” he says. “Whether it is the company share options scheme [aimed at directors] or the “save-as-you-earn” scheme [aimed at all other employees], they both allow employees to set aside up to £30,000 for up to seven years. Once this term has expired they can either claim the money back plus tax-free interest or exercise their option to buy shares. If you buy the shares and then find their value drops, that’s where losses could be made.” For both Cassidy and Donna Bradshaw of independent financial adviser Fiona Price and Partners, these losses only become a problem if an individual has invested excessively in one company. “Don’t just buy your company’s shares. Investors need a diversified investment portfolio,” Bradshaw advises.