Is your pay on par with your peers? In the highly fragmented remodeling industry, it can be difficult to ascertain who your peers are, let alone what’s in their paychecks and how much employees value these items, from pay and bonuses to a host of benefits including health insurance, paid time off, retirement savings, and perks such as vehicle and tool allowances.
And in the current economy, with skilled remodeling professionals begging for work in some areas and commanding six figures in others, tracking compensation trends can be more elusive than ever.
With the 2008 Wage & Benefit Survey, we hope to shed some light on current compensation trends. We asked remodelers to tell us whom they employ; how often and how much they pay them; what kind of paid time-off they provide, and more. Given the broad range of respondents, we also gathered key data points by company size, allowing you to better benchmark your pay against other companies in your revenue range.
Finally, to provide a qualitative perspective on our quantitative research, we conducted in-depth interviews with nearly a dozen respondents representing companies of various sizes. Their insights — issued in the third quarter of the toughest economic climate in years — provide an honest analysis of what could prove to be a leaner compensatory picture for months to come.
Nearly 320 remodelers nationally completed this Wage & Benefit Survey. Respondents’ 2007 revenues ranged from $28 million to less than $100,000, with a median of $800,000. We hope you find the results useful.
Wages
Wages
Forty-four percent of remodelers said salaries increased from 2007 to 2008, citing a median increase of 6%. Just 5% said salaries decreased, and 51% kept salaries at the same level as 2007.
A slightly smaller percentage (40%) of remodelers planned to give raises during the next 12 months, projecting a median increase of 5%. Anticipating a potentially challenging 2009, many others have instituted pay freezes for all employees or even cut pay at some levels.
“Historically we have given 6% annual raises,” said a Massachusetts remodeler. “But this year I can’t offer them, and I’m taking a big pay cut myself.”
Said another owner instituting a pay freeze, “We usually give 5% raises, but with the economy the way it is, we’re spending a lot more on marketing. That money has to come from somewhere.”
But others see raises as earned. “The men worked hard for it,” said a Connecticut owner projecting 3% increases. “Raises are given on their previous year’s work.”
Rather than definitively slashing wages, one remodeler reported repackaging his project managers’ compensation packages to be more incentive-based. “In the long run, they could make more than they were earning, but this way we are at least operating more efficiently,” he explained.
The conventional wisdom, however, is that most employees recognize the effects that the current economic crisis has had on the industry and understand that sacrifi ces are necessary. Said a Charlotte remodeler who will not be giving his usual annual raise in 2009: “Right now most people are just thankful that they’ve still got their jobs.”
For more on ways in which remodelers are surviving the downturn, see “Surviving the Fall.”
Bonuses
Overall, 45% of respondents gave bonuses in 2007, and 83% said all staff are eligible for a bonus. The bigger the company, the more likely the bonus. Nearly 80% of companies bigger than $2.5 million gave bonuses in 2007, compared with 29% of firms under $500,000.
“Our bonuses are down but they’ll still go out this year,” said an Indiana remodeler with revenue over $4 million. “We like to reward our key players whenever we can.”
Two-thirds of companies that pay bonuses do so annually; the remaining third distribute them more often.
While larger companies are more likely to pay bonuses, anecdotal evidence suggests that bonuses are among the first benefits to be cut regardless of company size. A Massachusetts remodeler with revenue over $3 million reported suspending his bonus program indefinitely — an increasingly common trend among remodelers adjusting to lower-than-expected revenue in 2008.
A $2 million remodeler in Virginia said, “We gave out bonuses for individual job performance, but unless something drastic happens, there won’t be any end-of-year bonuses for overall profitability.”
While bonuses may be considered a luxury in tough economic times, one Maryland remodeler anticipated resuming his bonus program when possible. “We stopped profit-sharing last quarter,” he says. “We’ve got retained earnings, but right now that money is [crucial to the company] and can’t go toward employee bonuses.”
Benefits
Health Insurance
Just 43% of respondents provide employees with health insurance, down from 51% in our 2006 survey. Whether this refl ects a sampling anomaly or a worrisome trend is debatable, but there’s no question that health insurance is an increasingly expensive benefit to offer.
The Kaiser Family Foundation says that average 2008 premiums for employer-sponsored insurance are $4,704 for single coverage and $12,680 for families, up about 5% from 2007. Our survey respondents cited median total premiums of $19,485, down from $24,000 in 2007, but those are per-company, not per-employee.
“We’ve had increases of 16% to 18% some years,” said a New Hampshire remodeler. He’s grateful that his rates didn’t climb this year, and that half his staff are insured through spouses, a saving grace for small firms, in particular.
Only 10% of remodelers offer this benefit on day one of employment; 79% have a waiting period of 60 days or longer.
Among those that extend health insurance to employees’ families, 30% pick up the entire tab. For an owner in Massachusetts, this comes to $900 per employee per month. “I think it’s a big part of why we have the staff we have,” he said. “They’re family people.” Just over half — 51% — of remodelers with insurance pay 100% of premiums for employees alone.
To control costs, many remodelers shop their plans each year. A Virginia firm took the creative risk of doubling deductibles, with the company paying the difference. A Minnesota staff voted in a lower-premium, higher-deductible health savings account, which unfortunately has left some struggling to cover their share.
Financial and Retirement Beenfits
Two-thirds of respondents reported offering no retirement benefits to employees, though — unsurprisingly — the larger the company, the more likely it is to provide them. Of companies with revenue above $2.5 million, 84% reported offering some type of retirement savings plan, compared to just 7% of companies with revenue below $500,000.
Remodelers that do offer retirement plans stress the importance of educating staff about the benefits of participating in such programs.
“Every year we bring in consultants to explain the tax benefits [of our plan],” said a Maryland remodeler. “But with the economy in the shape that it’s in, most [employees] are too short-sighted when it comes to retirement. They can’t let go of that extra [bit of income] every week.”
While some companies boast employee participation rates as high as 90%, most see just 25% to 50% enrollment.
To remedy this problem, a Charlotte company contributes to retirement accounts for employees of three years or more whether they contribute or not. Besides being advantageous for the owner (profits that are contributed are done so tax-free), he also feels he is performing a worthwhile service for its staff.
“This is a way to help my employees start a nest egg that they otherwise wouldn’t have,” he said.
Paid Time Off
“The cheapest benefit that our company offers is paid vacation, holiday, and sick time,” said a remodeler in Maryland. This is true for many remodeling companies—especially small firms—and it is refl ected in the majority of respondents overall who reported offering vacation and holiday pay to employees (63% and 62%, respectively).
“It’s a quality-of-life issue,” the same remodeler added. “We recognize the value of family time, and [paid time off] would be the last thing we’d want to cut.”
But plenty disagree. Just 36% of companies with under $500,000 in volume offer paid vacation, even to long-time staff. Thankfully, 95% of companies in the $2.5 million-and-up category do.
Notably less common are paid personal or sick days—just 31% of respondents overall reported offering the benefit to employees.
The Importance of Benefits
Remodelers who have built loyal teams have found that one of the best ways to do just that is to offer a comprehensive benefit package.
“A lot of companies in our area don’t offer the kind of benefits that we do,” said an Indiana remodeler. “We feel we need to offer them in order to attract the right kind of employee.”
Generous benefit packages (especially those with an emphasis on health insurance and retirement savings) tend to attract employees who are looking for long-term, stable positions. The importance of building a team of quality employees is not lost on successful remodelers—even those currently financially stretched by market conditions.
“We decided not to change our benefits at all,” said a Massachusetts remodeler who not only laid off staff but significantly cut his own pay. “Our health benefits are a big reason we’ve got the people we have.” Said a Virginia remodeler, “I want to make sure my team can take home a package that takes care of their family. I’ve got guys that have been with me 20 years, and I feel it’s my obligation as owner to take care of them.”
Our survey shows that many remodelers feel the same sense of duty to their employees. Nearly 60% said they would maintain all their current benefits even if none of their competition had benefits. (Conversely, 24% said they too would offer no benefits.)
And many owners want to provide top-notch benefits packages but simply can’t justify the expense.
“We’d love to offer at least twice as much as we do for health insurance,” said a Minnesota remodeler. “Right now though, our overhead is just too high.”
As shown at right, changes in insurance premiums and projected revenues have the biggest impact on many remodelers’ benefits.
Owners ... and Surviving the Downturn
Owners
Sixty-four percent of respondents have one company owner; only 11% have three or more. In general, the smaller the company, the more the owner makes relative to revenue, likely attributable to small staffs and low overhead.
At the high end, two owners had base salaries of $300,000 in 2007; 11% of respondents made $100,000 or more. At the low end, 5% of sole proprietors took a base salary of $30,000 or less. The highest owner bonus was $200,000; 6% had bonuses of $40,000 or higher.
How do companies with multiple owners share the proceeds? In many cases, the “primary” owner makes twice or more than the second owner, often with the latter a spouse who works part-time. Some companies are more egalitarian: 30% of those with two owners, and 10% of those with three or more owners, pay owners the same base salaries, though bonuses may differ.
Surviving the Fall
In the short time between August, when this survey was in the field, and early November, when we conducted phone interviews, many remodelers have had little choice but to scale back on pay, if only (they hope) temporarily.
“Until 60 days ago, everything was OK,” said a Connecticut remodeler who works primarily on second homes. “But when Wall Street crashes, our clients crawl under a rock.”
This remodeler hasn’t cut staff — yet. “But they’ve been forewarned,” he said. He anticipates layoffs if he doesn’t sign contracts soon.
A few strategies being used to avoid those painful cuts:
Pay freezes and/or cuts, with the biggest paychecks bearing the brunt. One owner slashed his pay by 80%; another cut all executive pay by 30%. Others are asking trade contractors to accept small rate cuts (e.g., $5 less per hour) and to guarantee estimates.
Spot bonuses. To soften the economic blows, one company gives occasional “kickers” of $100 to $500 for exceptional performance. Another doubled some employees’ vacation time, unofficially.
Shifting health insurance. Bulwarks against rising premiums include paring back from family plans to employeeonly plans, and changing from “Cadillac” PPO plans to cheaper HMOs and health savings accounts. Some employers have suspended matching employees’ 401(k) contributions.
Other strategies: repackaging pay to be more incentive-based, longer hours, and broader work responsibilities. “Your job descriptions are over,” one remodeler told his staff.
Can’t avoid layoffs? Cut the “C-players” first — those who produce less and/or need more supervision. It’s not all nickel-and-diming. “I’m keeping my highest-paid employees who ... don’t need to be babysat,” said one remodeler.
And when there’s nothing else to cut, there’s the cushion. Or there should be. “Banked money is going to be key for a lot of people,” one remodeler noted.
Specpan programmed and hosted the Web-based survey, collected and compiled the data, and provided pre- and post-survey analysis. Specpan is a business-to-business data collection provider that services the construction and home improvement markets. Specpan is owned and operated by The Farnsworth Group, an Indianapolis–based full-service research consultancy.