Is there a compensation imbalance at your firm?
In times like these, it is more important than ever to monitor your costs and develop an action plan to ensure your firm can weather the storm. There are so many fixed costs associated with running a business (rent, utilities, debt-related expenses, salaries and equipment costs) that it can become difficult to determine what costs are absolutely necessary.
In a typical AE firm, there are not a ton of fixed assets so, adjustments to fixed costs typically come from one place: staff cuts and salary adjustments. Last year 66% of principals that were surveyed in Zweig Group’s 2019 Principals, Partners & Owners Survey of AEC Firms, said that principals should take the pay cut first, while 34% said all staff and principals should take a cut at the same time. In an industry that uses billable hours as the primary method of generating revenue, salaries or hourly rates can be viewed as both a fixed and variable costs. Adjusting salaries up or down based on hourly production can in certain circumstances be a way to reduce the fixed costs associated with running your business. Be careful and make sure you consult an HR professional before you think about making ANY adjustments, but this is just one alternative to sweeping layoffs.
Over the last two years, firms in the industry laid off less than 1% of their staff, while they averaged a voluntary turnover of about 11% (Zweig Group’s 2019 Recruitment & Retention Survey). In the same period, firms grew by over 10% meaning that leaders and HR professionals had to hire ~20% of their staff each year to maintain that growth! It seems that HR activity is about to reverse course based on the current guidance coming from Wall Street and our historical data on the industry. In our 2008, 2009, and 2010 Financial Performance Surveys, 28%, 51% and 70% (respectively) of firms laid off staff, with an average of 12% being laid off in 2009 and 2010.
In 2019, we developed custom compensation assessments as firms went all-in on talent retention and hiring. We developed this service so firm leaders could get a grasp on the compensation imbalance across their staff and make informed decisions regarding base compensation, titles, incentive compensation and professional development.
This exercise helps firms categorize staff and develop program’s for professional growth. The outcome is a critical communication tool that can inform many policies and procedures that your management team can focus on as you re-group and look for your next competitive advantage in the market.
If you’d like to learn more about this service, contact:
DIRECTOR, OWNERSHIP TRANSITION