Understanding trends in compensation is paramount to attracting top talent and achieving compensation alignment within a firm. In this article, we will take a look at how and why compensation in the A/E industry has steadily increased in the last decade, as well as which disciplines are increasing at a faster rate.
Supply & Demand
Compensation trends are hinged upon a simple rule of supply and demand: if demand increases but supply remains unchanged, a shortage occurs. This reality is one of the major issues facing the engineering industry today - a market growing faster than the talent pool can support. As the need for innovation and new technology increases, so does the demand for talented engineers. However, only 4.5% of undergraduates leave school with a degree in Engineering. This small talent pool has caused increased difficulty for engineering firms looking to find qualified engineers that can manage projects, lead teams, and win work. According to a recent survey of 200 engineering firms, 74% of employers listed “a lack of qualified candidates” as their biggest hiring challenge over “specialized job requirements” and “non-competitive salaries.” Despite the decreased availability of qualified engineering candidates, demand continues to grow. 2013 has seen a new high in engineering opportunities overall, with more than 280,000 open positions.
Effects on Compensation
This lack of supply coupled with a steady increase in demand for qualified engineers is a major contributing factor to the significant compensation increases in the A/E sector. In a study released by the National Association of Colleges and Employers, seven of the top ten highest-paid college degrees are in Engineering. When analyzing compensation increases, it is important to not only look at the engineering field as a whole, but also to note how varied the increases are by discipline. According to US Census figures, engineering compensation has increased by an average of 3% annually from 2003 to 2012. This increase holds true for both managers and non-managers.
Discipline-specific Compensation Increases
While the industry average is an annual compensation increase of 3%, certain disciplines have seen staggering increases in compensation due to a variety of reasons. Average compensation for Civil Engineers nationwide in 2012 was $71,949. Civil Engineers were seeing a compensation increase of over 4.5% annually until the recession hit in 2008 when percentages began to decrease, and hit a low of 0.5% annual increase in 2011. The market seems to be on it’s way to recovering, as Civil Engineers saw a 1.73% increase the following year. Engineers in the Oil & Gas sector continue to see astonishing increases in salary. Compensation for Petroleum Engineers is growing at an annual rate of 6.7%, with the biggest increase happening in 2007 when salaries jumped 12.07% from the previous year. These large increases can be attributed to E&P companies who pay these engineers much more than traditional engineering consulting firms do, primarily because qualified engineers in this discipline are becoming so difficult to find. Petroleum Engineers in non-management have a current average compensation of $147,470 and according to a recent CNNMoney article, “salaries can reach as high as $200,000 to $350,000 for engineering professionals in senior, but not executive, managerial roles.”
How Compensation Affects Recruiting
Compensation undoubtedly has an effect on recruiting in the engineering industry. Based upon a 2013 survey released by Monster, only 39% of employers hiring engineers are confident in the ability to hire the talent they need. Depending on the type and location of recruitment, attracting qualified talent can range from difficult to almost impossible. From a talent pool perspective, those openings in Florida, Virginia, and Washington are easiest to recruit for. Currently, the most difficult states to recruit engineers include Texas, North Dakota, Minnesota, California, and Pennsylvania. In terms of types of engineers, the most highly sought after disciplines across the country are Industrial, Electrical, Mechanical, and Oil & Gas. According to CNNMoney, the most difficult engineers to recruit are the ones with five to fifteen years of experience. The search for these engineers in 2013 has increased 13% since January 2012.
Forecast for 2014
Demand for engineers is going nowhere but up. However, until the supply of skilled engineers increases, compensation will continue to increase and recruitment will prove more difficult than ever. In fact, the severe shortage and competitive dynamics may also slow economic growth as some companies delay big projects due to a lack of skilled workers. Based on our findings, we also predict compensation will continue to increase at a rate of 3-5%, depending on geography and discipline. Companies are now being forced to also place a greater emphasis on culture, perks, flexibility, and corporate responsibility in order to attract top talent as Generations X & Y head into the workplace.