The party's over

The party's over

The inevitable has finally happened. For the past two years, bosses in construction have happily pocketed inflated salary rises as commentators warned that the good times wouldn’t last. In 2002, the Hays Montrose/Building executive salary guide reported the average increase as 5%, and last year executives’ wallets swelled by a whopping 8%. And this year, as predicted, increases across all sectors have slumped, with building, civil and housing averaging a meagre 3%. It seems the party is winding down and people are starting to wend their way home.

“Last year people were more bullish in housing and general construction, but interest rate rises, the housing market slowdown, and the consolidation of housebuilders has taken some of the confidence out of the market,” says Stuart Cullum, business director at Hays Executive. “Executive salaries are driven by the market – if it is bullish, people will invest heavily in bringing in people; when the market is not so bullish, firms postpone investment in new people, which results in more cautious salary increases.”

Out into the cold night: Housebuilders
As Cullum says, consolidation in the housebuilding sector has decreased competition for executives, and the cooling of the housing market appears to have led to a chill in boardrooms.

Last year housebuilders were responsible for some of the biggest salary increases. Hays Montrose reports: “The housing sector has seen a steadying down of the rate of salary increases.” Increases of 3-4% are the norm this year, which, although still above inflation, are far short of the 8% rise many stumped up last year to reward their executives.

As ever, housebuilders are forking out the most for their top people, paying on average £164,250 a year for a main board director, whereas the building and civil engineering sector managed a much more modest £103,500. It is important to remember that these are the average figures for basic pay; according to Hays Montrose, the amount a main board director of a housing company can expect his pay packet to be anything from £132,000 up to £300,000 a year.

Knocking back the whisky: Civil engineers
In the civil engineering sector, the rate of salary increase has remained steady. “Civil engineering has traditionally lagged behind the other sectors because it is generally public money that goes into investment in infrastructure,” says Cullum.

However, unlike the housing sector, where consolidation and the prospect of a housing market crash is tempering optimism, confidence is growing in the civil engineering sector. “There are some major projects due to begin in the near future, including Crossrail,” says Cullum. Salary increases are running at the rate of inflation, about 2%. However, according to Hays Montrose there is “some expectation that salary inflation will be above the norm next year as confidence in the amount of work is growing, with assurances that certain major projects are likely to come onstream in the near future, increasing demand for resources.”

The increase in executive’s salaries could have been more had it not been for the number of executives that were recruited from overseas. “Recruiting executives from abroad, without paying above the going rate has helped keep civil engineering pay increases down,” says Cullum.

Still tearing up the dancefloor: Contractors
The one exception to this year’s modest salary increases is in the £50m-200m turnover category of the building sector (see table, right). According to Cullum: “There are a number of successful regional companies that are aggressively pursuing market share, and as a result are creating considerable competition for the small pool of available staff”. With government-funded infrastructure, schools and healthcare work contributing to an already healthy regional workload, competition for staff is fierce. Cullum says: “Competition has caused salaries to rise at a higher rate than that of the other construction sectors”.

Trying to score: Bonuses
However, salaries are only half the picture – literally – for housebuilder executives. A quick glance at the benefits table reveals that all are in line for generous bonus awards. In addition to their annual salary, some executives are set to receive a bonus worth more than half their annual salary. Hays Montrose reports that all bosses from the chief executive of a £200m-plus turnover organisation right down to the director of a housebuilder with a turnover of less than £50m are set to receive a bonus upwards of 50% of their annual salary.

There are signs however, that, like salary increases, the bonus bandwagon may be slowing. Paying a bonus is a good way for firms to retain staff when times are good, profits are high and first-rate executives are in short supply. But a bonus is not linked to pension or redundancy payments, so when the gold rush ends, it does as well.

Executives are also being made to work harder for their bonus these days. Whereas in the past managers could automatically expect to receive their money, based on a company’s financial performance, now they have to prove they deserve one. According to Hays Montrose, such payments are starting to be based on executives meeting key performance indicators and personal goals as well as on a company’s fiscal performance. “KPIs are a trend we are seeing more of now,” says Cullum. “Employers are taking a more rounded look at executive’s performance. They want them to be more accountable for a wider range of issues including training and development and building a team.”

As usual it is housebuilders that pay the biggest bonus; as their profits often exceeding 15% of turnover, housebuilders can afford to use benefits such as bonuses to recruit and retain their star players. In the building sector, where margins average less than

3%, bonuses are relatively paltry; the most civil engineering executives can expect, without exception, is a bonus of up to 20% of their salary.

Not feeling too perky: Benefits
In addition to lower salary increases, there are other signs that firms are becoming more cautious. The days of executives automatically joining a company’s final salary pension scheme are long gone. Most companies have closed their final salary pension scheme to new joiners, including executives. Instead, money purchase schemes are now the order of the day as construction firms look to side-step pension liabilities.

Hand in hand with the trend toward money purchase schemes is the trend toward car allowances. Rather than providing an executive with a company car, and then be left with the problem of what to do with the it when the executive leaves, most companies now expect bosses to buy their own, and give them a car allowance to do it.

Another way firms are showing caution in the future is by eliminating share options from an executive’s benefits package. “Share options are not featuring in remuneration packages to the same extent as in previous years, and so there is a marked decline in this offering,” Cullum says. He adds that the reason companies don’t want to give executives shares anymore is because “companies don’t want to commit to long-term strategies, such as offering equity as a way of locking people in”.

It looks like the industry is set for a steady 3% rise next year, too. “I suspect this trend will continue,” says Cullum. However, he does offer a glimmer of hope that rates could once again soar: “The whole [salary] picture could change if London wins the Olympic bid,” he says. “You will see a major return of confidence to the construction sector and that will be reflected in wage rates going up.”

• Find this and a range of other salary guides at www.hays.com/cp