Considering a Bonus: Attractive compensation is part of retaining a firm’s leaders
by Jonathan McGaha | May 31, 2010 12:00 am
In general, design firms report in the 2010 “PSMJ A/E Management Compensation Benchmark Report, 28th Edition” that their total direct compensation(salary plus bonus) results fell nearly 1 percent but there is significant variation among the 18 different management titles. Examining the two individual components of total direct compensation:
- Base salary compensation changed only -0.1percent with respect to last year’s results. Individual management titles varied from -12.3 percent (director of human resources) to 17.3 percent (director of administration).
- Last years trend of awarding significantly lower bonuses continued this year and this reduction was the primary factor in the direct compensation results. The median bonus decreased this year by 9.6 percent. The changes in bonus awards by management title varied from —29 percent to 365 percent.
The net effect is a median decrease in total direct compensation of -0.8 percent but the range across the management positions varied from —8.3 percent to 45 percent. These changes are reflected in Figure 1, comparing the 2009 and 2010 survey results.
Combined management group results
Another method of examining these results is to combine the 18 management titles into three basic groups: owners/ principals (chairman through other principals); staff managers (director of finance through director of computer operations); and operations/project managers (branch manager through junior project manager). These combined results are presented in Table 1.
It’s apparent from this analysis that design firms made significant adjustments, especially in bonus awards, to their operations/project staff positions in 2010. Also indicated is the fact that owners/principals indicate a median total compensation increase of more than 4 percent.
An important concept to remember
Many people equate the results of this management compensation survey directly to changes in individual salaries. This is not correct. These survey results represent the salary, bonus and benefits of all respondents holding that specific title at the point in time the data is collected during February and March 2010. This includes the compensation levels of current staff members, new hires and internal promotions. If an individual receives a change in title, his or her compensation parameters move to a new position. Thus, year-to-year changes in survey results for specific positions do not reflect only raises and bonuses given to people with that title. Yearly variations are impacted more by the movement of individual people into and out of each position.
Additional results
- The median staff growth rate estimated for 2010 is zero. Even staff growth rates for the firms at or above the 90th percentile are only 10 percent. In previous years, these fastest-growing firms projected growth rates in the 30 to 50 percent range. The impact of current economic conditions can be seen in this reduced optimism for near term growth in business and staff levels.
- Expected changes in 2010 bonus levels reflect continued uncertainty in the overall business environment.While nearly 64 percent of firms expect their bonuses to stay level, only 11 percent of firms expect bonuses to increase. About 22 percent expect to continue to see decreased bonus levels in 2010.
- Most firms in our industry project salary increases at the start of 2010 to be nearly the same as those anticipated at the start of 2009, with the average wage increase expected to be around 2 to 3 percent. Responding firms expect low-end raises to be 1 to 2 percent, while some high-end projections may easily exceed 10 percent.
Some final thoughts
It appears that 2010 will continue to offer significant challenges to most firms in the design industry.Certain sectors of the economy are beneficiaries of the current injection of stimulus funding by the federal government—notably transportation, homeland security, etc. Other segments of the private economy continue to struggle as any attempts to stimulate growth and capital investment are not providing the desired results. Unemployment rates remain at historical levels as the next recovery cycle appears to slide into the future one year at a time.
Especially in these challenging times, design firms must offer attractive compensation packages to retain its current leadership team and attract new members. Competitive salary and bonus compensation form the foundation of this program. However,don’t neglect the full range of possible employee benefits—such as retirement plans, profit sharing,paid time off, insurances, etc. In addition, implementation of ownership and leadership transition plans will create a positive impact on your top leadership talent. These plans can be a powerful differentiator in your firm’s overall compensation program and help you retain the leaders you’ll need in the future.
For more information on the 2010 PSMJ A/ Management Compensation Benchmark Report, call (800) 537-7765 or visit www.psmj.com.
Ed Hannan is vice president of publishing at PSMJ Resources Inc. in Newton, Mass. Details can be found at www.psmj.com.
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