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Executive Pay for GCs – how does your compare?

I recently joined a great organization – Construction Financial Management Association CFMA [www.cfma.org] made up of people who do the work I most love – slice and dice the numbers for construction in multiple ways. Although  the target market for the organization is “construction financial professionals” who tend to work for large accounting firms or as controllers and CFOs of large, multi-million and multi-national, corporations, I’m finding valuable information for use with remodelers.

The March-April 2009 issue of the association magazine, Building Profits, has an interesting article entitled “2009 Contractor Executive Pay.”  I was interested to learn the following facts based on their survey.

“As of February 2009 the annual unemployment rate for construction jumped to 21.6% (the highest rate in the past 26 years).”

“The CPI [consumer price index] ‘for the 12 month period ending December 2008 rose 0.1 percent. “

HOWEVER, the article goes on to say that the CPI for both energy services and grocery store food prices rising 6.6%, “the largest since 1980.”  [Note:  energy services and grocery store food prices are not considered in the standard CPI because they have been considered by the government for over 20 years to be too volatile!]

“Construction pay increases have never been less than the CPI in the past 26 years”

The article continues by defining the average pay for 6 positions at the end of December 2008.  I’ve excerpted liberally from the article to give you an idea of primary job descriptions and salary ranges for executives of large commercial contractors.  Compare these job descriptions and salaries to yours as well as to those in your company.

  • Board chair is considered the company’s senior officer responsible for overall business strategy and objectives.  The average base pay was $285,000 plus an average bonus of $295,000 for a total of $580,000
  • CEO/President is responsible for day to day operations.  The average base pay was $230,000 with an average bonus of $215,000 for a total of $445,000.
  • Executive VP has second in command responsibility for day to day operations at an average base pay of $192,000 with an average bonus of $164,000 for a total compensation package of $356,000.
  • Senior VP has responsibility for one or more divisions of the company for an average base pay of $169,000 plus an average bonus of $112,000 for a total of $281,000.
  • VP of Operations functions as day to day administrator of a major ‘operational work segment’ such as commercial work.  The base pay was $142,000 with an average variable pay (performance based?) of $104,000 – both totaling $246,000.
  • VP of Finance has total responsibility for accounting functions at an average base pay of $148,000 plus an average bonus of $84,000 for a total package of $232,000.

Another interesting portion of the article defines the relationship between levels of pay at various levels of responsibility.   Over 9 years, the average VP of operations, or general manager, has earned a base pay equal to 62% of that of the CEO, while the Senior VP has earned 74%.

Last, but certainly not least in this ‘pay for performance’ economy, bonuses as a percentage of base pay have fluctuated over time, spiking in 2008, to over 57%, up from 42% in the 23 years prior to 2007.

My point in publishing the results of this survey is twofold:

  1. To share an interesting concept that there are established heirachies of pay as well as bonuses between different executive job descriptions; and
  2. To allow you to compare your pay over the past few years with those in the larger construction world.  I believe that the greater risk taken by remodeling companies justifies greater margins.  Perhaps not 50% or 60% as I saw a year ago, but at least 30% and rising in relationship to customer satisfaction and company maturity.

How does yours compare?

YouTube for You?

Being a baby boomer, I’m not very adept at “social networking”.  In fact, I’m afraid of it — I don’t seem to have time to maintain the few important friendships I’ve got let alone search for new ones.  But perhaps I’m missing the point – I don’t seem to do a very good job of marketing either – and that might be where social networking comes in handy for people like you or me.

The May/June issue of California Builder has a good article on “Putting Social Media to Work”.  [www.cabuilder.com].

In summary Jim Adams said:

“Social media is still in its infancy.  The audience is already massive. … the fundamentals of social-media communication remain consistent:  keep the message transparent, interactive, and strong.”

How to best accomplish this very good goal?  He mentions Facebook, Twitter and YouTube.  Each of these seems to require a significant investment in time and maybe even money if you out-source it.

But one idea which seems appropriate to the remodeling community is YouTube.  He suggests that producing “real” videos which capture customer/market interest would meet the criteria of transparent and strong.    He says:

“Video is so cheap and easy to do that every sales executive can have their own YouTube account and a Flip HD camera in their pocket and post item after item.  You don’t have to worry that it’s shot in cinema quality; 95 percent of the videos on YouTube are amateur vides, and consumers like that.  It may not be pretty, but it’s transparent and real. Consumers respond to material that doesn’t look corporate.”

For a remodeler, that sounds pretty easy.  You could shoot a quick tour of the rough inspection, for example, explaining in detail the beautiful work you do to keep the structure sound, waterproof, secure and efficient.  This would be educational and to a certain type of client highly interesting.  Another video could explain aging-in-place decisions and remodeling.

Whatever you do, make it short and easy to get up on the web.  Keep your clients entertained and educated.  As Garrison Keillor says at the end of his weekly Writer’s Almanac:  “… and stay in touch.”

Flashback to Summer 2008!

Last year this time Jay Goltz, columnist for Fortune Small Business, “thought maybe I was dodging a bullet.” I’m not sure what he’s thinking now but I’m sure he hasn’t dodged that bullet, at least not according to his monthly columns.

How about you?  Did you think last year you were dodging a bullet, that the downturn might be less dramatic and that standard responses to the downturn could pull you through?

How about now?  Do you expect that this summer building season will protect you through the expected downturn late in the year?  Many people have work for this summer but late fall and winter looks bleak.  Now’s the time to put into place significant changes to the business model.

Goltz says:  “if your revenue is off about 10%, that might not sound so bad.  But because of fixed costs such as rent, that 10% decline can easily wip out 100% of your profit.”

Here are some of his suggestions and observations from that article:

“I recently asked one vendor for a discount if I paid on delivery instead of the standard 30 days later.  The salesperson was skeptical but called back after five minutes offering 10%.

“I’ve saved by cutting back on yellow pages advertising … I think new media offers a better return.  But don’t be tempted to gut your advertising.  Companies that continue to advertise come out ahead after a recession.

“That’s another lesson I’ve learned the hard way:  you can survive decreased profits if you have cash flow, but the converse is not true – if cash flow takes a dive, you’re in trouble.  This will happen if you let your receivables … get our of control, which is surprisingly easy.

“Consider laying off someone instead [of cutting hours].  Cutting everyone’s hours might sound fair and reasonable, but it can do more harm than good.  What happens is that everybody suffers and eventually somebody quits.  Too often it’s the best person in the department who walks.”

Now, you, what’s your company’s biggest issue right now?  Cash flow is huge all around the country, track and manage your receivables vs. payables better to control cash better; have you cut hours across the board rather than biting the bullet and letting go the employees who aren’t truly A caliber; are you marketing better or just more?  And just as important – what are your numbers telling you?

1st Deadly Sin: Sloppy Accounting!

I devour Fortune Small Business magazine monthly; my favorite section is “Start-up: Taking Ownership” by Jay Goltz a very savy man who is the author of “The Street-Smart Entrepreneur”.  I’ll read that this summer over a beer on the beach.

The June column is entitled “Seven Deadly Sins” in which he defines the ‘business-killing traps that every entrepreneur must avoid.”

NUMBER ONE is sloppy accounting!

He says “Done properly accounting is a diagnosis of everything that’s right and wrong with your company.”

He’s not the first to say something like this but he says it very well at a time when every business owner needs good numbers from which to manage for this very unpredictable future.

Down a couple paragraphs he next says “Crucially, you need to understand the ratio of sals to expenses that will result in profitability.”

I couldn’t have said it betterright now we’re all working hard, we’re all focused on surviving this indefinite downturn.  Some are doing better than others – some started with more cash, now in many cases depleted, some started with better credit or a good backlog of clients with good credit.

No matter who you are, no matter what you sell, it is the owner’s job to assure that every sale results in profitability: not just gross margin profitability but net profit as well.

Lastly, he says “I used to think that if you worked really hard, profits would inevitably follow.”

Only if you’ve got good numbers:  by that I mean numbers which are accurate, completely and timely.  Any less than that puts your company in jeopardy.  Don’t risk it.

Find the article here plus all his other columns, equally good:  http://magazine-directory.com/Fortune-Small-Business.htm , then type in Jay Goltz.  You’ll find the list – choose the June column to read this one.

Jim Collins is GREAT!

Read the article, RIGHT NOW, from the New York Times Business Section of May 24, 2009,  entitled “For this Guru, no Question is Too Big.”

I hate the tag “guru” applied indiscriminately! But Jim Collins is a GURU!.  He studies long before he writes.

And his new book “How the Mighty Fall: and Why Some Companies Neve rGive In” is perfectly researched, beginning in 2005, and timed, coincidentally, to coincide with his next “bout of flat out luck.”

The article says “Now the stages of decline that he maps out in the book – hubris born of success; undisciplined pursuit of more; denial of risk and peril,; grasping for salvation with a quick, big solution; and capitulation to irrelevancy or death – offer a king of instant autopsy for an economy on the stretcher.”

The article goes on to say that “institutional decline is a ‘staged disease – harder to detect but easier to cure in the early stages”.

The long article (read it here: http://www.nytimes.com/2009/05/24/business/24collins.html) goes on to say that “Vigorous debates continue on blogs about the merits of Mrs. Collin’s books.  One of the more thoughtful, on Business Pundit, says ‘The points in the Good to Great book may seem very general, however you’ll be amazed that not many people understand ‘general’ concepts like that things don’t happen overnight or the importance of facing facts.”

I expect you’ll be blown away by the article.

Close your Business – is now the TIME?

Last week another bit the dust:  a really sweet  small company who I’d watched over the past few years as it grew successfully, I thought.  It won local NARI awards, seemed to be highly involved in community activities, built a perfect office on a main street in town and genuinely cared about both clients and employees.

It went bankrupt!  I hadn’t known the financials or watched the struggle with an ever-increasing debt load over the same few years — but that’s where, it turns out, most of the capital for these investments came from.  Investments in land and build-out – not to mention the huge owner distraction – investments in marketing collateral, upgraded computer systems and new office personnel.  There was, for a few months, a new salesman on staff as well being trained in the latest Sandler techniques – not an inexpensive investment.

The capital invested came from a home equity loan – you can see the rest.  The economy turned, faster and deeper than most of us anticipated, credit dried up even for those with good credit, consumer confidence plummeted and the company couldn’t afford payments on the equity line.  When the bank called the balance on the line a month ago,  there was no escape!

The owner would agree with at least two of the following “5 signs it’s time to close your business” written by Joseph Anthony on the Microsoft Small Business Center.

The first is:  “your debt-to-asset ratio is on the rise.”  He goes on to say:  “effective and prudent use of leverage is an accepted part of many sectors of American business.  But the greater your leverage or debt ratios, the more debt you have to service, the greater the drain on your profitability and the less equity you have in your venture.”

The second:  “you’re losing money and the losses are increasing.”  See the post referencing Jay Goltz’ May column.

The third:  “your inventory turnover is slowing down”.  That means that you’re doing fewer jobs in the year, using your capital less efficiently and making less gross margin.

The fourth:  “you’re unable to raise more money for the business.” This is HUGE – especially now; no one I know is able to increase their credit limit; in fact many have had it cut in half if not by 100%.

And the fifth, but not the least important: “you’re not having any fun.”  Although it is hard, if not impossible, to have fun navigating the tricky waters of this ‘great’ recession, if you’ve been scared, angry and upset for months now, unable to find a way to put the Rubrik’s cube of your personal and business finances in order, perhaps it is time to close your business.

Don’t make such a momentous decision alone – talk to your family, talk to your accountant and your lawyer.  Investigate all your options and then, even then, proceed with great caution.  None of us (even those in power) know how long this recession will last nor how deep it will go. But if you’re already at the end of the proverbial rope, take action to learn everything you can about those options, decide on one and don’t look back.

If you’re young, you’ve got plenty of time; if you’re older, you’ll pass the wisdom down to the younger.

Here’s where I’d insert the MP3 “keep on believing” if I knew how.

New Diet – start today!

After my new-found excitement with energy efficiency I’ve read everything I could find which comes across my radar.

When I introduced the concept to my son and his wife last night at dinner my son, scientifically curious, immediately went on the web to google ‘super insulated houses’.  We read a couple articles of interest.

But this one is even more exciting:  an ENERGY diet which attempts to reduce energy useage by single family households by 50%.  Try it … get skinny today!

http://ngm.nationalgeographic.com/2009/03/energy-conservation/miller-text