On easy street

Calling construction executives. Beware, the purveyors of golden golf-ball paperweights and silk smoking jackets, because they may well start interesting you in their wares – if they find out how well you are all doing. According to the 2002 Hays Montrose/Building executive salary guide, the job market for bigwigs has been busy over the past 12 months, with all sectors experiencing bigger salary increases this year than last.

Head honchos in the housebuilding sector have received the largest increases – an average of 5% – and the extra 4% earned by executives in contracting and civil engineering has not left these sectors far behind. Recruitment experts are confident that the upward trend will continue as government spending in construction looks set to keep rising, counteracting the weaker commercial sector.

And it is not just those at the helm of large companies who are commanding salary rises above the inflation rate (currently 1.8%). Executives in medium-sized firms have got the largest salary rises – and their bonuses are getting bigger, too, as employers fight to fend off the headhunters.

Chris Cheetam, regional director of Hays Executive, says middle-range contractors, such as Rok, Styles & Wood and Cowlin Construction, are growing so fast that their executives' pay has leaped by more than any other group. "As these companies expand, senior people are taking on a lot of extra responsibility – and they're being rewarded for it," he explains.

But the success of this group is attracting attention from larger firms, which are anxious to bring individuals with business sense on board. "Larger companies are increasingly looking to recruit the managing directors and regional directors of smaller firms to head up major projects. After all, running a £100m PFI job is tantamount to running a small business; most will have their own accounts and be run quite separately from the parent company," says Richard Milsom, joint managing director of recruitment consultant and headhunter Potensis. He says directors are being targeted specifically for their business skills, which together with their technical know-how makes them ideal for these roles.

Big spenders
These days, more and more competition for top executives is coming from clients. Milsom says companies such as BAA and Network Rail are looking for executives with a contracting background – and some are prepared to pay well, especially those from the retail sector. "Over the past year, clients have become more active in recruiting senior construction professionals – sometimes they are surprised at how much they have to spend to get the best quality people, but they are prepared to shell out. And in sectors like retail the margins are much greater, so they can afford to pay more."

Competition is also increasing for decision-makers in the civil sector. Civil engineers are the lowest-paid executive group in the industry at the moment – and have been for the last decade. But recruitment consultants agree that the gap between engineers and other construction executives is starting to close. "Execs at the head of civils firms involved with PFI projects are seeing their salaries go up a lot. And the amount of road and rail work around at the moment is also inflating salaries," says Milsom.

The increasing demand for consulting and civil engineers means there is a dwindling pool of candidates for senior positions – and this in turn could mean salaries go up more dramatically over the next few years. "The civils market has been depressed for so long that a lot of senior people have, by now, gone into other sectors. So we could find there's a real shortage of execs in the future. For those left in the market, their salaries will go up," says Hays Executive's Cheetham.

Larger companies are looking to recruit bosses of smaller firms. After all, running a £100m PFI job is tantamount to running a small business

Richard Milsom, headhunter Potensis

Cats with the cream
The market for housebuilding executives is also hot, and as a group they are paid the highest salaries with the biggest bonuses – 50% is the norm, but 100% is not uncommon – as well as the largest annual rises. Despite the spate of consolidation in the industry over the past two years, the most talented seniors will not spend long on the shelf. "Execs might float for four to eight weeks but they do usually find positions. The turnover in the housebuilding sector is quite high, so jobs are always coming up. A lot of companies will use a regional managing director to take them into a new geographical area. Once they have completed working on sites there they'll pull out – often making that regional director redundant," explains Milsom.

The need to retain successful managers means bonuses and perks are playing an increasingly important role in executive recruitment. Contractors Costain, Willmott Dixon and Morgan Sindall are some of the companies that offer top managers, and often those lower down the career ladder, performance-related bonuses. Most recruitment consultants agree that the bonuses paid out in this sector are gradually increasing. "Some contractors at plc level will now award 100% bonuses on top of a basic salary, which is a relatively new development. But why not? If you're looking after a £600m turnover company, you deserve it," says Milsom.

But it is not just the large companies that make big bonus payouts. Paul Hodgkinson, chief executive of medium-sized contractor Simons, says bonus payment is an important feature of his firm's reward system. "Everyone from secretaries to chief execs can get up to 80% of their basic salary as a bonus – depending on the individual's performance. For the top 20 or so execs there's the added incentive of 'phantom shares': we calculate how much the company has gone up in value and give individuals a slice of that value because we are a private company so don't have public shares."

Performance pays
Performance-related bonuses and generous pension schemes are becoming more important as benefits like share options and company cars become less so. Over the past year, the stock market has lost 40% of its value, and companies such as Atkins, Amey and Carillion have watched their share values drop dramatically. "Share options are no longer trusted as a secure form of benefit," says Hays Executive's Cheetham. "People want the prospect of a definite benefit in the near future rather than shares that might pay off in 12 months' time." Company cars, in turn, have become less popular since changes to car tax were introduced last April.

In contrast, performance-related bonuses have the double benefit of helping to keep the wage bill as low as possible and rewarding the most talented individuals at a time when a lot of other firms will be trying to poach them. And employees are increasingly keen to ensure that their pension provision is competitive. Says Cheetham: "Over the last year, execs have become more exacting over their pension provision. As more top companies close their final salary schemes to newcomers in favour of money purchase schemes, which are linked to the performance of the stock exchange, people want to make sure they are adequately compensated."

Other consultants say a final salary scheme can be worth an extra £10,000 a year, so execs are making sure that if they have to move to a money purchase scheme, they are paid the difference in value between their old scheme and new scheme in their salary.