Home » Features » Wage Wars

Wage Wars

INDUSTRY WORKFORCE SHORTAGE IMPACTS CONSTRUCTION PAYCHECKS

BY SHERYL S. JACKSON

Weathering the recession required a number of strategies for construction companies: downsizing staff, cutting bonuses, freezing wages and finding ways to do more with less. With the recession in the rearview mirror and more active construction sites, employers are reinstating bonuses, wage increases and positions for new employees.

Finding those employees, however, is not as simple as it once was, and when they can be found, their salary requirements may shock construction managers who have not hired recently. In a national survey of construction companies conducted in October 2014, AGC of America found that 83 percent of respondents say they were having trouble finding craft workers and 61 percent report difficulty finding qualified construction professionals.

Because craft and professional employees left the construction industry during the recession, there is a smaller pool of experienced workers. “This represents a major shift in hiring practices for construction companies because they are not hiring people who are unemployed; they have to find new workers from other industries or attract people from other construction firms,” says Ken Simonson, chief economist, AGC of America.

In fact, 28 percent of survey respondents report losing craft workers to other local construction firms, while 15 percent indicate they’ve lost them to construction firms in other parts of the country. The same holds true for construction professionals with 22 percent of respondents reporting a loss to nearby construction firms and 14 percent to firms in other parts of the country.

“During the downturn, we made a commitment to retain our core team and found ways to keep them busy and on our payroll so they would be with us when business improved,” says Jeffrey A. Raday, P.E., president of the McShane Construction Company, an Arizona Builders’ Alliance and Builders Association member. “Firms that were not able to retain key people are looking to other companies’ staffs to find the experience they now need.”

This shortage of staff in all areas means that businesses need to offer compensation, benefits and “intangibles” that will retain experienced employees and attract new people, says Raday. Although job satisfaction is not just about money, it is critical to make sure wages are favorably comparable to competitors, so McShane leadership routinely benchmarks company wages against competitors. “We are very transparent about our compensation and share how we compare to others with our employees – even naming the other companies.”

Professional staff at McShane saw salary cuts in 2010 but by the end of 2013 all salaries were back to the 2010 level. “Now, we are probably 5 to 10 percent above 2010,” adds Raday. In January, AGC of America released its annual Construction Hiring and Business Outlook, based on a nationwide survey (see infographic, “Ready to Hire Again” on Pages 26-27). More than 900 firms participated in the poll and, according to respondents, 51 percent report having to increase the base pay for professional positions in order to retain or recruit workers. Forty-six percent indicate the same for craft workers.

WAGES INCREASING ACROSS THE BOARD
This steady increase in professional wages and bonuses is typical throughout the industry, says Mike Rose, consultant with FMI Corporation, a member of multiple AGC chapters. “We are seeing base pay rise for construction professionals at an average of about 3 percent per year overall,” he says. Within professional construction positions, business development shows the greatest increase in base pay – 29 percent since 2010. “The increase for this position suggests an increased emphasis on new business acquisition, which is critical to growth of the company,” he adds.

Employers of craft workers also have to pay more to attract skills that are in short supply, says Jeff Robinson, president of Personnel Administration Services (PAS). In PAS surveys of open shops, Robinson has found that wages for carpenters, laborers, pipefitters and heavy equipment operators are up overall, representing between 3.36 and 3.5 percent increases in 2013 and expected increases between 3.27 and 3.47 percent in 2014. “Between 2008 and 2010, many companies froze wages so craft employees saw no increase. This means some of the wage increases just after 2010 were to bring wages back to pre-recession levels, but the increases continue so firms can stay ahead of competitors and keep experienced workers,” he says. “Another reason some craft jobs are increasing over others is the boom in industrial megaprojects on the Gulf Coast, which often means localized wage increases of as much as 6 percent.”

Dennis Noland, consultant with Alpha Resources, an Alabama AGC member and a firm that specializes in point-in-time, open shop, craft compensation data for industrial contractors and power plant owners, agrees that craft wages for skills needed for heavy industrial construction are rising dramatically. “Even though the majority of megaprojects are along the Gulf Coast or in California at this time, the higher wages offered in these areas pull large groups of skilled craft employees from around the country,” he explains. “There is over $100 billion of work in progress between Corpus Christi, Texas and Baton Rouge, Louisiana and there are not enough workers who live in the area to do the work.”

Wages are increasing every quarter in these areas, says Noland. For example, in the Houston area, wages for pipefitters in one 2014 quarter were 2.7 percent over the previous quarter, but then jumped another 3.9 percent the next quarter. “In addition to wage increases, we are starting to see a return of per diem payments and incentives, such as $1 per hour for perfect attendance.”

Even with rising wages to attract craft employees to specific jobs or to specific companies, there is a growing concern about the workforce shortage, points out James Apodaca, LEED, AP, senior project manager at Commodore Builders, an AGC of Massachusetts member. “Increasing wages might attract people now, but the real problem is five to 10 years down the road, when experienced baby-boomer craft employees are retired,” he says. “We need to be talking to subcontractors and unions to work together to bring new people into the trades now so they will have experience when older workers leave.”

NON-FINANCIAL FACTORS AFFECT RETENTION
In the meantime wage increases are not the only financial incentives construction companies are using to retain good employees. While bonuses, which were limited during the recession and initial recovery, are back on the table for most companies, they are structured differently, says Rose. There is a move to tie bonuses to achievement of specific goals versus the traditional discretionary bonus. “This means each project has a base performance expectation and goals are set to earn additional bonuses,” he says. “In the case of business development personnel, bonuses can be higher for acquisition of new customers versus gaining an additional job from a long-time customer.”

Of course, maintaining relationships with long-time customers is the role of everyone in the company, so bonuses can also be tied to how the company is doing. At Commodore, bonuses are company performance-based versus project-based, says Apodaca. “We also incorporate compliance with safety requirements as part of the bonus,” he says. Goals include 100 percent of employees undergoing OSHA training and tracking on-site safety records as company-wide performance indicators that affect bonuses.

Although wages and bonuses must be competitive with other construction firms or other employment opportunities in different industries, retention is based on more than money, points out Raday. “A company culture that matches their philosophy, opportunity for advancement and a work-life balance are intangibles that today’s employee, especially younger employees, find attractive,” he says. “We’ve learned in exit interviews that although it is easy to say money is the reason someone leaves, the real reasons are related to more than money.”

Construction companies that want to keep good employees need to address professional development, mentoring and an overall culture that fosters long-time employment, recommends Raday. “Do what you can to improve the intangibles that make a company a good place to work so salary is not the primary factor in someone’s decision to join or stay with your company. The glow of a big raise dims quickly when the corporate culture is not personally rewarding.”