DesignIntelligence Leadership Roundtable on Compensation Trends

April 20, 2006 · by DesignIntelligence

This leadership roundtable is focused on compensation policy and trends. Each of the firms selected have recently been cited for innovative advancements in the AEC industry and have recruited and retained top talent. Their combined staffing is over 5,100 employees.

This leadership roundtable is focused on compensation policy and trends. Each of the firms selected have recently been cited for innovative advancements in the AEC industry and have recruited and retained top talent. Their combined staffing is over 5,100 employees.

Participants in the 2006 Leadership Roundtable on Compensation Trends include the following:

Scott Wyatt is the Managing Partner and CEO of NBBJ. The firm has offices in Columbus, New York City, Seattle, San Francisco, Los Angeles, London, Beijing, and Shanghai. NBBJ believes “place” can be a powerful catalyst for change. Cities. Communities. Organizations. People’s lives. This belief is the medium where the firm is developing, nurturing, and realizing ideas to serve clients. NBBJ has developed processes and services under the banner: Artists of Change. A new book is being published about their work transforming environments under the title: Change Design.

Gordon Mills is the Chairman and CEO of the Durrant Group. The firm has twelve offices in the United States including Denver, Des Moines, Phoenix, Tucson, St. Louis, Chicago, Milwaukee, Madison, Dubuque, Minneapolis, Honolulu, and Hilo. In addition to their architecture, engineering, planning, project delivery, financing and interior design services in the United States, they have a significant workload in Asia. The firm has established a gathering place for highly talented professionals to practice in a diverse, collaborative, profitable, and sustainable environment.

Thomas Kerwin is a Partner in Skidmore, Owings, and Merrill’s Chicago office. The firm has offices in Chicago, New York, San Francisco, Shanghai, Hong Kong, Washington DC, and London. SOM is the only firm to be twice presented with the AIA Firm of the Year award. SOM’s work ranges from architectural design and engineering of individual buildings to the master planning and design of entire communities. Over the last ten years SOM has won more top global design awards than any other firm in the United States.

H. Ralph Hawkins is the President and CEO of HKS. The firm has services in architecture, engineering, interior design, master planning, multi-media production, graphic design, and model services. They are a comprehensive services firm with offices in Dallas, Atlanta, Fort Worth, Los Angeles, México City, Orlando, Richmond, Salt Lake City, San Francisco, Tampa, United Kingdom, and Washington DC. HKS is a high profile, high energy, employee-focused work environment that has recently been cited as a “best place to work” by several surveys.

Charles D. Dalluge is Executive Vice President of Leo A. Daly. The firm has offices in Omaha, Washington DC, Los Angeles, Atlanta, Dallas, Honolulu, Houston, Las Vegas, Miami, Minneapolis, Phoenix, Hong Kong, and several other significant project offices. The firm also owns Lockwood, Andrews & Newman, an engineering firm. The firm has its own Knowledge Institute that develops white papers, case studies, research market analyses, and thought leadership for their clients.

Steve Fiskum is a Partner and COO in the firm Hammel Green and Abrahamson (HGA). The firm has offices in Minneapolis, Los Angeles, San Francisco, Rochester, Milwaukee, and Sacramento. The firm has focus in architecture, engineering, interior design, sustainable design and other design areas. HGA has emergerd from a leading regional design firm in the Midwest to one with a high profile design reputation and national/global clientele. HGA provides a lively atmosphere where collaboration and learning are the keys to their success.

DesignIntelligence: Thank you for joining with us for this discussion on trends in compensation in architecture, engineering, and design. To start off the roundtable, could you please describe the current employment conditions in your firm and the prospects for the year ahead as we look to 2007?

Steve Fiskum of HGA: The business climate for design services is the most positive we’ve experienced since the heated conditions of the late 1990s. While HGA’s backlog has been steadily climbing over the past several years, its growth began accelerating at a faster rate toward the end of 2005. We expect that this will be a good year with excellent opportunities throughout the firm.

Tom Kerwin of SOM: Our current project profile is strong and prospects for the coming year are also strong. The firm’s billings have returned to peak levels experienced prior to September 11th, 2001. Our broad functional and geographic profile is healthy and should assist us in weathering downturns in any one business sector or any one foreign economy. US markets are strong particularly in institutional and government sectors. Asia and the Middle East are particularly strong in commercial markets. Europe is also a significant source of backlog for the firm.

Scott Wyatt of NBBJ: Employment conditions are growing at NBBJ, and we expect to continue in this growth mode. Anticipated expansion for the next fiscal year is somewhere in the 15-20 percent range.

Ralph Hawkins of HKS, Inc.: HKS currently staffs 845 in the U.S., 20 in the UK, and 10 in Mexico, for a total of 875 staff members. In 2005, we hired 168 net additional staff. We project approximately 120 to 150 for 2006.

Charles D. Dalluge of Leo A Daly: The employment conditions for us have changed over the past few years. It was not long ago that many architecture firms were experiencing a decrease in workload. We were fortunate during this same time to be experiencing an increase in our workload and found many good people searching for positions. Today’s employment environment is different as the majority of firms are growing. We strive each day to reinforce one of our stated goals, which is, “Attracting and Investing in the Best People”. We expect the future to continue to be challenging both in the work we will be doing and matching that with the continuing search for quality people. It will become more and more important for us to differentiate, not only in the marketplace but also in the workplace.

Gordy Mills of Durrant: Great new talent has been in short supply for some time, particularly for people who are in mid-career. This market pressure has had three distinct impacts on Durrant.

We need to be patient as we seek to fill open positions. It is very important to us that we fill a position with a superior talent and we’re very willing to wait until we find that right candidate.

We are more reliant on both recruiters and word of mouth to identify high quality candidates than we have been in the past. We’ve found that for our AECM organization, with our geographic dispersion, we need recruiters that can reach across geography in one or more of our disciplines. We’ve increased our use of word of mouth recruiting by marketing the Durrant brand not only to clients, but to colleagues in the industry that might be a good fit in Durrant. And, we continue to use our Durrant Foundation relationship with several universities, including their job fairs as a prime source for young talent.

Finally, we have formed a much more proactive posture, supported by material that describes opportunity and culture in Durrant.

We see no softening of the market for the coming year.

DesignIntelligence: Each of you is in significant growth mode. What is your compensation philosophy during this time and as we look towards the coming year?

Ralph Hawkins: Base compensation has consistently moved up in both 2005 and 2006 at HKS. Both years we saw overall increases in the range of 5 to 10 percent on an average dependent upon the position and role of the individual. Cost-of-living and inflation are not separately addressed.

Scott Wyatt: At NBBJ we anticipate a 4-5 percent increase over last fiscal year. Our philosophy on compensation is we evaluate the market place, the firm, and studio level to determine compensation. Items like region and market type come into play. However, salaries are ultimately tied to an individual level of responsibility and their realm of influence within the firm, the studio, and the profession.

Tom Kerwin: Cost of living increases which factor inflation conditions are used as a baseline for setting increases. Benchmarks within the industry are also considered, and of course one of our goals is to be constantly seeking out top talent. Attracting new talent and setting their salaries has a positive effect on the evaluation of our people with regards to their compensation positions.

We do not rely on strict percentages to adjust increases although it is correct that the cost-of-living factor does influence baseline increases. Our focus is directed at setting the proper salaries for disciplines within the firm based on talent and contribution level. When one is promoted within their discipline, it is at that time an individual sees the greatest change in their compensation.

Charles D. Dalluge: When it comes to compensation and benefits, we do not believe that treating all employees equally is fair to our staff. Our approach is performance based, using a 360-degree review of each employee to ascertain the value added performance that each individual brings to our clients and our firm. Consequently, each person is evaluated on the basis of his/her contribution to the firm and the percentage of increase in base compensation is evaluated accordingly.

Gordy Mills: For budgeting purposes, we’re using about four percent as a base adjustment in this year. That however, will provide a range of increases from zero to 12 percent. In addition, we work to identify our fast growing people and incorporate additional compensation for them. Our philosophy regarding cost of living and inflation is rather basic. We expect people to be growing and learning every day about our industry, the needs of the clients we serve, and the tools we use to serve them. We provide ample support for our staff to grow in all of these areas. If they work with their mentor and supervisor in the firm to take advantage of the opportunities that are there, they will be compensated for their growth. On the other hand, if they don’t, they will likely receive a minimal increase, or be asked to get off the bus at the next stop.

Steve Fiskum: Base compensation, at most levels at HGA, increased by an average of five percent during the past 12 months. For some senior levels in the firm, base compensation increased at nearly double that rate. While it is challenging to retain good people at all levels, it is particularly important to pay competitive base compensation to the highly motivated, experienced people who drive our business success. In addition to base compensation, HGA continues to rely on the bonus as a significant component of senior level compensation. Marketplace forces, however, are causing us to shift a greater part of compensation into base salary.

DesignIntelligence: There is much discussion today about increases in intern compensation. What are your current thoughts on compensation of interns prior to their getting licensed?

Steve Fiskum: HGA is selective about the quality of interns we hire and we have a long-standing tradition of paying interns fair and competitive compensation. We pay interns at an hourly rate that they all seem to find attractive, including time and one half for overtime. Interns are eligible for the same benefits package, including health coverage, vacation, professional association dues, and immediate access to fully vested retirement plans, as their more experienced counterparts in the firm. We support interns through HGA sponsored continuing education opportunities and we reimburse the cost of their licensing exams when they pass.

Ralph Hawkins: At HKS, architectural interns are paid in the range of $35,000 to $42,000 depending upon part time professional experience during school. We strongly encourage licensing, although we are seeing less interest in taking the multipart exam over a short period of time. Upon licensure, the newly registered architect receives a immediate bonus as well as being put in a higher bonus pool for the end of the year.

Charles D. Dalluge: We believe that compensation is only part of what drives these individuals. In addition to compensation we focus on their growth. We encourage and support their goal to become registered by paying for the costs of the examinations and registrations as well as providing them the time to take the exams. Our offices expose our interns to a broad range of duties and responsibilities and teams them with experienced leaders from whom they can learn. Many of the interns take advantage of these opportunities and are then rewarded when they become registered. We consider interns as important to our future success.

Scott Wyatt: We recruit top graduates into our internship programs. Yet entry level (graduate) architects have experienced the same rate of increase seen at other levels in the profession. We are seeing strong quality of talent entering the design profession. Interns and staff at NBBJ are involved in our meritocracy program, by the way. We encourage fast track learning and licensure.

Gordy Mills: It is somewhat different at Durrant. We’re finding compensation for top interns increasing much faster than most other levels of employees. We find that the current crop of new talent we hire to be outstanding. While they still have much to learn, they are better prepared to contribute to our project work than those who graduated a decade or so ago. In the days of the paper and pencil ARE, we closely followed FLSA standards and interns remained hourly employees until they were registered. Today we find that interns who are actively involved with the IDP often are able to work independently before they complete the 9-part computerized ARE. We monitor their development and convert them to salary at the point they are able to work independently. At Durrant, we provide paid time off for interns to take the ARE and we pay for the first time a division is taken.

Tom Kerwin: We set entry level salaries at a competitive market level. Abundant opportunities are available for an individual to gain increased responsibility and increased compensation based on their performance. Licensure is emphasized from the outset as a priority. We are encouraged by the quality of young people entering the profession globally.

DesignIntelligence: Are funds for continuing education, professional development, and associations included in discussions of compensation?

Scott Wyatt: Yes, we typically earmark as much as 75 percent of our studio’s controllable (overhead) dollars for continuing education.

Ralph Hawkins: We emphasize our continuing education with all our recruits. It is typical with more experienced individuals that requests are made for additional professional development and professional organizations participations…and they are also discussed at the time of employment.

Charles D. Dalluge: The processes for continuing education, professional development and association membership are clearly presented to all employees in our Employee’s Manual. Each decision on continuing education, professional development and association membership is made by the Managing Principal of each office on a discretionary basis and based on its value to both the individual and the firm.

Tom Kerwin: Yes.

Steve Fiskum: We prepare an annual statement of total compensation for each employee summarizing the numerous categories of their compensation, bonus programs, and benefit programs. We have found it beneficial to issue the total compensation statements at the time we conduct annual reviews and salary adjustments. Separately, we issue certificates of continuing education for the frequent seminars and training opportunities we provide in-house. Through an internal survey, we learned that ten percent of our employees consider professional development as the top reason they are at HGA.

Gordy Mills: We do not consider funds used for these purposes as part of an individual’s compensation. We do discuss these things routinely as part of our performance review and professional growth and mentoring programs, however. Properly applied, we see these programs as vehicles to develop our talent for better performance in service to our clients and their colleagues in the Durrant Community.

DesignIntelligence: Can you tell us about your annual turnover rate and your retention record for keeping top talent? What methods does your firm employ to retain top talent and what do you think are the reasons for churn or turnover at your firm?

Charles D. Dalluge: Although measuring the turnover rate is important, and we are proud that our turnover rate is below the industry average, we realize that it is just a measurement tool. We look at turnover in different ways. Our turnover rate of our top and very good performers should be zero percent. I also believe that the turnover rate of our poor performers and unacceptable performers should be 100 percent. Poor performers not only affect their individual performance but the performance of their teams, their office, and LEO A DALY.

We do an exceptional job of retaining top talent. We spend a lot of time on their development in their current positions and development for future positions. We have accomplished an employee survey for each of the past five years. The results for the company have improved each year. Although they are not where we would like them to be in every area, the feedback from our people is that they appreciate the opportunity to provide feedback and appreciate the opportunity to hear the results and applaud the fact that the leadership is taking action in many of the identified areas.

I believe that turnover can be attributed to one reason. It gets down to leadership at all levels. At LEO A DALY, we conduct surveys with people that have made a choice to leave us.

Most frequently, we find that a person’s reason for leaving the firm is as a result of their relationship with their direct supervisor. Usually, we find that either they were not provided the right opportunities, they were not communicated with, they were not provided the right tools, or they did not know what they were responsible for. All these reflect the skill and leadership qualities of the direct supervisor.

Ralph Hawkins: Our overall turnover rate is 8.7 percent which is quite low when compared to the average of 16 percent of large architectural firms across the U.S. Our plan for employment is to be the employer of choice. We utilize job sharing, flex time, and emphasize a learning environment with our DoubleCheck Education and Training Program. Recently, HKS has been recognized as one of the best places to work in Dallas, Texas, and the U.S. We have also been recognized by DFW Child Magazine as the “Family Friendliest Place to Work.” The top three reasons for turnover at HKS according to our exit surveys include compensation, geographic moves due to spouse, and career advancement.

Scott Wyatt: NBBJ continues to, and has historically, have a turnover that is quite low. We do like some turnover, because we enjoy retaining the best and also finding homes for those other people that would have a better fit outside our firm. But because we are not a hire and fire firm, and believe in consistency, value of tenure, and spend countless time with hiring people that fit our high intellectual need and culture, our turnover is expected by us to be less. NBBJ takes pride in that and it appears to remain so, even with the economic conditions that have varied throughout the years. We continue to invest in our continuing education programs like, traveling fellowships, an in-house management training program, and offering many varied in-house lunch seminars. However more specifically why people stay at NBBJ is our culture, the linear management structure and the many opportunities to work on diverse project types.

Gordy Mills: Right now our situation is different. Our turnover for the past year was about 20 percent. This, of course, is an unusually high rate for Durrant. It is due to some significant changes that we’ve made in the firm. We are believers in having the right people on the bus. Over the past 18 months we’ve asked some people to get off at the next stop and some have departed voluntarily. Our high turn over during this period is purpose driven and will settle towards our target number of 12 percent which we believe will be right for our growing company. The top three reasons for turnover in Durrant are:

Steve Fiskum: We have an excellent record for keeping top talent, in part because of our philosophy of broad ownership whereby top talent is offered the opportunity to purchase HGA stock. Over the years, stock has proven to be an excellent financial investment for our shareholders and, as owners, they have a vested interest in providing excellent service to our clients. Our annual turnover rate is eight percent. We strive to retain top talent through winning great projects, articulating values people believe in, fostering a collaborative environment, and paying competitive compensation. We conduct exit interviews of everyone who leaves HGA so we learn from the reasons for their departure. Some leave because the opportunities we have available did not meet their needs. Others leave for more money, although several of these have returned, at their previous salary, because they prefer our culture.

Tom Kerwin: Our retention record is outstanding. That being said, it is important to be constantly infusing new talent at all levels into the firm. This has a positive collateral benefit of the firm gaining firsthand knowledge of necessary compensation levels for top professionals in the field. Our primary method of retaining top talent is maintaining a high standard for the quality of our work and client base. Rewarding work in vibrant urban environments all over the world helps motivate all of us. Although maintaining proper compensation levels is important, to be involved and a part of great work is equally if not more important.

An extreme amount of dedication is necessary to succeed at SOM. The work is demanding in addition to being rewarding. Not everyone is prepared or suited to commit themselves at that level. However many people are committed, and we are fortunate to practice with each other every day.

DesignIntelligence: Let’s turn now to executive compensation in your firms. Can you share what models you employ?

Scott Wyatt: Because of NBBJ’s flat, studio-driven organizational structure, our compensation programs reflect accountability and an active meritocracy system. We have sixteen partners and a meritocracy system, meaning that high performance is expected. We use a 360 degree evaluation that includes partners being evaluated each year. In addition to a competitive base salary, we have performance rewards; there is a lot of rigor in this system. We also enlist an independent private advisor.

Charles D. Dalluge: Our executive staff compensation philosophy is driven by our business plan, market conditions and unique individual circumstances. Leo A Daly is a privately held firm (one owner); incentive compensation bonuses play a major role in our executive compensation package, and are performance-based.

Steve Fiskum: Executive compensation is based, first, on the firm’s performance and, second, on the individual’s performance. The top individual performers at HGA have the potential to earn a bonus equal to their base compensation. Those individuals who secure new work for the firm and nurture the client relationships comprise the highest paid at HGA. Fee volume, profitability, and client satisfaction are key determinants of executive compensation. Other top level individuals focus more on managing the work or producing the work. In years of lower financial success, we tend to stretch the bonus range more so as to continue to motivate the top performers. In years of higher financial success, we tend to compress the bonus range. Another aspect of compensation is the amount of stock our board offers to existing and new shareholders. More stock is offered to the top performers. In addition to the financial benefits, stock ownership carries the ability to influence the composition of the board and to help direct the future direction of the firm.

Gordy Mills: Just last year we completed a review and assessment of executive compensation in Durrant. Our Compensation Committee led the assessment with assistance from a consulting firm. We used the results of that analysis to benchmark our base and incentive compensation with our industry peers. This has led to an increased focus on performance expectations tied to compensation, first at the executive levels, and now at other levels in the company. With our geographic dispersion, a member of the Durrant Community can hang his or her hat just about anywhere. We believe in comparable compensation for performance value regardless of where a person might reside.

Ralph Hawkins: HKS is somewhat unique to most large firms in regard to executive compensation. We emphasize contribution over stock ownership. If an individual contributes to the firm, we attempt to reward that individual commensurate with their contribution as opposed to stock ownership. Stock ownership is only used in one vote per year and that is for the executive committee which also serves as the compensation committee.

DesignIntelligence: As we look on the horizon, what trends in compensation, benefits, and incentive bonuses do you see?

Charles D. Dalluge: As we move forward we will see more focus on performance based salary programs. We will also see incentive bonus programs reaching out farther into the organization. I also believe that we will provide more flexible options for workers in different age groups. Younger staff will be looking for shorter vesting periods for 401 K and profit sharing programs, flexible schedules, extra time off and significant bonus programs. The Baby Boomers, by contrast, are looking for steady compensation without any cuts in benefits. I also think that the demand for qualified staff will also lead to older employees staying on beyond retirement age and that this group will be looking for a different level of benefits altogether, such as agreeing to larger payroll deductions in order to receive larger benefits, 401 K matches and long term care insurance.

Ralph Hawkins: Overall compensation is rising with the demand for architects. Benefits such as healthcare insurance are beginning to be shared between the employer and employee as premiums continue to rise. Other benefits are somewhat stable, although our match for the 401 K has risen in 2005. Bonuses at HKS are a tremendous incentive both in retention and attraction of employees.

Scott Wyatt: NBBJ continues to evaluate additional program elements that support our legacy firm philosophy and our celebrated, long-term employee growth.

Gordy Mills: I see increasing compensation for architects who adapt to the changing reality of our profession, who are better collaborators and communicators, who embrace the emerging tools that enable us to capture and transfer the value of our knowledge of the buildings we design through construction and occupancy. With regard to incentives, I expect an increasing link between compensation and performance that will be realized through incentive bonus. In Durrant we’re tying a substantial part of this to project performance. Benefits, not too many years ago, consisted of not much more than health care, vacation, some paid holidays and sick days, and perhaps a modest life insurance component. Today it is far different and benefits often include, flextime, day care, parking, wellness programs, and a game room at the office to name just a few. I mentioned earlier that we have a group of people working on our Best Talent strategic direction. Much of that is directed at incorporating meaningful benefits as part of an agreeable work environment that enables staff to balance the demands of work with life. We see this as the area of largest benefit change in the future.

Steve Fiskum: Flexibility in our compensation packages is key to retaining and motivating employees in a marketplace where the demographics are rapidly changing. Over the next 15 years, the 55-64 age group in our firms will increase by 47 percent while the 35-54 age group will decrease by 6 percent. Successful firms will implement creative compensation approaches to attract and retain top employees. Many design firms already have four distinct generations employed in their organizations, each with different work philosophies and compensation expectations. Going forward, we expect that retirement will be redefined, with design professionals working in new and different roles later in their careers. And, it’s important for design firms to offer flexible policies for women and men who choose new ways of balancing a successful career with family needs. Specifically with regard to bonuses, an internal survey of HGA employees revealed that only three percent are here for the money. It’s important that people are well compensated; however, they stay at their job for other reasons. At HGA, people have told us they are here for the quality of projects, the core values, and the design excellence.

Tom Kerwin: We see the trend of performance based incentive compensation as a primary means of reward for our people continuing. As is the case in many firms, a larger portion of ones individual compensation is based upon their part in fulfilling the firm’s core values and the success of the firm in a given year. The vehicle for this is through incentive compensation, and rigorous constructive evaluation of us all is essential for the compensation determination process to be successful.

DesignIntelligence: We thank each of you for your candor and for sharing your thoughts with us on compensation and employment trends.

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