April 2003 AGGMAN Management

How Much Are You Worth?

Compensation trends within the aggregates industry.

By Jeffrey Robinson

It’s no secret that compensation decisions by aggregate producers have become more conservative over the past two years. These decisions have been somewhat affected by the events of 9/11 and the continuing uncertainty of world affairs. And they are most definitely affected by the economy. But just what is this impact, and how does it affect aggregates managers’ pay?
This article summarizes current compensation activities by setting the stage with a historical perspective, reviewing how recent trends have affected individual compensation, focusing on prevalent direct pay practices, and profiling current benefit practices in the industry. All information is summarized from the 2001 – 2002 PAS/NSSGA Aggregates compensation Survey of Salaried Positions and the 2002 Aggregates Industry Benefit Survey.

Historical and future look
During the August 2001 survey, firms were forecasting a 4.3-percent increase for executives and a 4.1-percent increase to exempt and non-exempt staff personnel in 2002. While the economic slump had already established itself, the 9/11 events added to the downward spiral of salary expectations resulting in only a 3.2-percent increase for executives and a 3.6-percent increase for exempt and non-exempt staff. The forecast for 2003 is still flat with executives projected at a 3.0-percent increase, followed by exempt staff at 3.2 percent, and non-exempt staff at 3.3 percent. Though we believe the final increase numbers for 2003 will be slightly higher, it will be below those good increase years from 1999 to 2001. Chart 1 reflects pay increases for the previous six years and the forecast for 2003 for executives, exempt, and non-exempt staff.
While this 2003 forecast for pay increases looks gloomy, does this truly translate into a somber outlook for employees? Not necessarily. Maintaining and improving one’s standard of living is certainly a goal of any employee. Many of the employee’s basic needs, such as the ability to buy a house, have a nice vehicle, buy a fishing boat, have an evening out, take a vacation, and send the kids to college, are obviously tied directly to money. Given the current state of the economy, it’s easy to assume that employees’ standard of living has grown stagnate, however, that’s not the case. Utilizing the change in the Consumer Price Index (CPI) as a comparison to annual individual increases, a quick glance at Chart 2 shows that staff employees have increased their earning power substantially over the past seven years. (Note that 2003 CPI is the actual 12-month change as of January 2003.)

Compared to others
It’s one thing to know how professionals are doing in the aggregates industry, but how do they compare with professionals in other industries? The competition for most personnel crosses into many sectors. For example, engineers, accountants, geologists, safety specialists, technology personnel, and the like can slide from industry to industry fairly easily. In fact, think of any aggregates job and you can probably find an opening in another industry requiring the same skills. Chart 3 reflects a comparison between exempt aggregates employees and exempt employees across all organizations (published by World atWork, the compensation association).
It’s interesting to note that turnover at the staff and managerial level is a modest 9 percent of the workforce. As a comparison, turnover in the construction industry was at a five-year low for the same time period at 13.2 percent. Twenty percent of the survey participants indicated the highest turnover in sales, accounting and MIS/IT personnel, while turnover of plant managers and engineers has generally remained low. The largest rate was reported by the big producers (more than $250 million in revenues) with 13.4-percent turnover for the 12-month period ending August 2002. Similar to the overall industry profile, sales, accounting, and MIS/IT personnel had high turnover, but 44.4 percent of these larger firms indicated that they perceived significant turnover of their plant managers (compared to 7 percent of all firms).

The aggregates manager
The PAS/NSSGA survey “cuts” the data a number of different ways to find relationships between market rates and certain demographics. Our samplings look at the revenue size of the company, the tonnage output of total operations (individual plant output in some instances), and region of the country. Location is certainly an important factor, but by far, the two best correlations between the data and salaries is the size of company (either revenue or tonnage output) and plant output (scope of responsibility). Both affect the rate you need to pay to attract and retain personnel.
As an example, Table 1 indicates the market rates for plant managers based on tonnage output per plant.

TABLE 1/PLANT MANAGER SALARY RATES

TONNAGE PRODUCED
BY PLANT 25TH PERCENTILE MEDIAN AVERAGE 75TH PERCENTILE

Less than 750K Tons $47,550 $52,585 $53,695 $56,651

750K - 1.5 Million Tons $54,938 $58,285 $60,708 $67,450

1.5 - 3.0 Million Tons $64,000 $68,350 $67,347 $75,138

Over 3.0 Million Tons $70,850 $74,250 $75,847 $90,400

And, let’s not forget the impact of bonus and incentive payments. Bonus programs are fairly prevalent in the industry with 95 percent of the firms having a plan, though only about 70 percent of the companies grant a bonus or incentive in any given year. While these payments are not entitlements, many employees look forward to receiving something extra every year for a “job well done.”
There is generally not a correlation by revenue size or total tonnage output to bonus and incentive received by salaried staff. In fact, bonus payment expressed as percent of base salary decreased slightly with the plant output statistics.
Referring to the demographic breaks noted in Table 1 (tonnage produced by plant), bonus percentages started at 18.9 percent of base salary in plant output of less than 750K tons and de-escalated to 13.7 percent for plant output of over 3 million tons. Surprisingly, the average bonus amount for plant managers worked out to be about $10,000 regardless of the demographic break.
Since 1997, the use of formalized incentives has increased. Companies having a formalized individual incentive plan increased from 7.6 percent in 1997 to 13.9 percent in 2001, while companies utilizing group incentives increased from 28.6 percent to 37.5 percent from 1997 to 2001, respectively. Incentive plans tied to profit sharing also increased from 36.4 percent (1997) to 44.4 percent in 2001. The largest jump in incentive use occurred in special recognition programs having an increase in usage from the 1997 low of 25.8 percent to a high of 43.1 percent in 2001.

Rounding out the picture
Corporate benefit programs reflected little change in plans from 2001 to 2002. Sixty-seven percent of survey participants indicated no change in their benefit programs in 2002 while 21 percent said they improved their programs and 12 percent listed a reduction in benefits.
Nationally, the average employer cost of benefits (expressed as a percent of base salary) was 25.7 percent. For comparison, the Bureau of Labor Statistics (BLS) reported that, for all industries, voluntary benefits comprised 27.6 percent of payroll. Not surprisingly, larger employers spent more on employee benefits than the smaller firms. Companies with revenues under $5 million per year spent only 18.6 percent on benefits while firms with $5 to $25 million spent 22.6 percent; firms with $25 to $100 million revenues spent an additional 23.4 percent of base salaries; companies with $100 to $250 million in revenues are at 24.9 percent; and companies with over $250 million revenues provide an added 29 percent for benefits.
As previously mentioned, benefit plans remained fairly constant with the previous year, however, from an expenditure standpoint companies experienced substantial increases in benefit costs over the past three years, particularly in health insurance premiums. It is not unusual to hear appalling stories of firms encountering increases of 20 percent to 30 percent or more in health insurance premiums. Companies have responded to these increases by either passing along the increase to the employee, expanding deductibles, increasing co-pay amounts, increasing out of pocket expenditures to the employee, and similar techniques.
Survey highlights revealed that 91.7 percent of the firms provided health insurance, 76.4 percent offered dental insurance, 95 percent offered life insurance, 47.3 percent provided a vision plan, and 96.4 percent have a prescription drug plan. Only 32 percent of the employers pay all of the employee’s health premium and 20 percent pay all of the premium costs for dependent coverage. Sixty-nine percent of the companies reported utilizing PPOs as their main health insurer approach, followed by 27 percent who utilized traditional health plans, and lastly 12 percent reported HMOs as their principal method to providing employees health care.
In addition, the typical benefit profile indicates the average producer offers eight paid holidays per year, provides 15 days of vacation at 10 years of service, and 20 days of vacation at 20 years of service. Eighty-eight percent of the firms recognize the importance of civic duty by continuing pay for jury duty and 90 percent of the companies provide an average of three days of paid time off for deaths in the family. Sixty-eight percent of the companies provide short-tem disability benefits and 63 percent provide long-tem disability. The majority of companies offer a 401(k) program, with 37 percent also providing a profit sharing plan, and 35 percent providing a pension plan in addition to the 401(k) component.

The bottom line
What does 2003 hold for the industry? It would be nice to forecast a rosy picture, but all indications are that we are in for more of the same. Pay increase budgets will remain below 4 percent, employees should continue to enjoy a slight increase in earning power, and salaried personnel will remain competitive with professionals in other industries. Given the current economic uncertainty, more of the same may be okay.

Jeffrey Robinson is president of Saline, Mich.-based PAS. To purchase copies of the full report, contact NSSGA at 800-342-1415.

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Compiled by Angie Moehlman