ASHRAE Journal - February 2014 - 12

SPECIAL REPORT

Still on the Road to Recovery?

Understanding Salaries
In the A/E Industry
BY KATE ALLEN, P.E.

A firm's compensation strategy and philosophy clearly communicate firm
leaders' expectations and reward systems to existing and potential new hires.
Engineers want to know how much pay they should be getting and employers want to know how much they should be paying. As the industry continues
to recover from the recent recession, compensation strategies to retain and
attract key staff are crucial.
The number one asset in any professional services
firm is the staff-they not only bring in the work but
they must also do that work in a way that allows a firm
to prosper. In the past, compensation analysis may have
been more focused on cutting costs, but in today's economy, compensation is a strategic tool used to rebuild and
position a firm for growth. Understanding the current
financial position of the A/E industry as well as using
benchmarking data can help answer both the engineer's
and the employer's questions.
Total compensation, which is defined here as base
pay and bonus, has been under substantial pressure
in the last few years-expenses continued to increase
yet net revenues were not increasing at the same rate,
resulting in lower profitability. Beginning in 2011 and
continuing through 2013, net revenues are finally rising faster than expenses; overall profit has improved
but is still slightly below the 2009 high of 11.7%
(median) and well below 2007/2008 highs of just over
15% (median).
Because base pay is an expense and is part of the cost
of doing business, many firms adopt a philosophy to
pay a lower base pay and make up the difference with
bonuses. This approach allows firms to weather variable market conditions and provides a small cushion

of protection when the economy goes into recession.
However, this approach demands that firms drive
profit levels that not only fund retained earnings and
pay shareholders a return on their investment, but also
award bonuses that ensure that total compensation is in
step with the market.
The financial performance of a firm and compensation are an integrated system and the more successful
a firm is the more options they have to attract and
retain key talent. So what is the financial position of
firms in the A/E industry today and have they fully
recovered from the recent downturn? Have compensation levels recovered as well after several years of
cuts, freezes and minimal bonuses? Have billing rates
been increasing to allow firms to recover costs? Many
firms have been in survival mode and not all are on
the road to recovery but we can learn more from what
the data is telling us.

Overall Firm Performance Impacts Compensation Options
Firms in the A/E industry continue to struggle in this
economy - fact or fiction? Reviewing several key financial metrics can provide some insight:
Direct labor costs are the raw labor costs (without labor
burden or fringe benefits) allocated to project-related work.

ABOUT THE AUTHOR Kate Allen, P.E., is director of A/E/C Industry Surveys for PSMJ Resources, Inc.
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