Low remuneration in the industry is self-inflicted

In today’s business cycle, there is plenty of work yet profit margins are still generally reported as poor. Many in the industry are searching for qualified people. Starting salaries for engineering graduates often don’t compare well with the salaries offered by other industries looking for today’s engineering talent, and enrolment in civil engineering programs is declining. And in a related issue, a majority of members have identified succession planning as an important concern for their firm.

These issues are all symptoms of the same problem — consulting engineering firms are not adequately remunerated. In the 1999 ACEC Business Survey, firms show a median before tax profitability of 8% — this compares to the median in the United States of 13% as reported in the PSMJ Survey of the same year. A recent study in Alberta reported that the median salary for consulting engineers is 15% lower than the median salary earned by other engineers in the province. This significant difference results in firms making insufficient investments in their businesses to stimulate innovation, and makes it very difficult to attract and retain the best new engineering minds or train and develop existing staff.

Poor industry remuneration, if left unchecked, will directly have an impact on the sustainability of our industry and on the quality and reliability of services that clients, society and the economy have come to expect of consulting engineering. This article suggests that many of our problems with remuneration are self-inflicted and it points to what we can do to change our fortunes.

How we got here

There are a variety of industry views on why remuneration levels are low. Some believe it is because industry members and clients are not respecting fee schedules. Others believe that fee schedules have, in fact, contributed to poor remuneration because they justify fees based on internal company costs and not on the relative value to clients of the services being provided.

Some lament the lack of industry discipline that has contributed to low-balling, while others attribute industry remuneration levels to the belief that there are too many players providing similar services and that clients have been unable to differentiate one from the other. Others have argued that remuneration is low because engineering services rarely have such an immediate impact in the market as those, for instance, of doctors. Still others believe that the industry has not yet learned how to properly price its services in the commodity market that large parts of our businesses have become.

It is probably also true that today’s industry remuneration levels are not universally low and that some sectors are doing better than others. Different project delivery methods and the engineer’s role in those will have an impact on our remuneration. No doubt different remuneration approaches — fixed fee, cost plus, lump sum — make it easier or more difficult to realize good returns. And there is also the variable of sole-sourced versus competitively awarded projects and their impact on remuneration.

A simple question. If remuneration levels are jeopardizing the sustainability of our industry, what do members think is reasonable remuneration and how should the industry move forward?

A way forward

In October, professional baseball player Carlos Delgado signed a four year, U.S. $68 million contract extension with the Toronto Blue Jays. Any bets on whether the contract was negotiated on the basis of the number of times he would appear at the plate over the life of the contract or how often he would wear the uniform? Perhaps it was calculated on an appropriate per diem basis. Nope. It was determined as a function of the Blue Jays’ perception of his market value that in turn was based on his past performance and reliability and on the prospect of comparable future performance, full stop.

Our industry, on the other hand, seems more inclined to justify its fees based on a multiplier of salary and internal corporate cost structures than it does based on the market’s value for our services. This is just plain wrong. It is none of the client’s business what our cost structure is or how we price our services. Like Carlos Delgado, we need to be promoting our fees based on the value of our professional services.

We need to stop acting in the marketplace like “journeymen” players who are just relieved to have a job. Instead we should start acting in negotiations with clients like reliable, high-performing components of a competitive team. If we did so, remuneration would go up. If we established our fees based on the market’s perception of the value of our services rather than on a multiplier of salary, then our remuneration would go up. If the value of engineering services was more obvious and less “embedded” in the client’s perception of what we do, our remuneration would go up. If we and clients understood that better industry profit margins are required to attract, train and develop our staff in order to sustain our performance levels and remain reliable providers of quality service, remuneration levels would go up. If we accepted that the practice of low-balling devalues our industry and the services we offer in the eyes of clients, and we stopped it, our remuneration would go up.

Much of what needs to happen to see improved industry remuneration can be accomplished within the industry itself because many of our problems are self-inflicted.

What market knowledge does Carlos Delgado have that engineers do not yet have in great enough numbers to make a difference? He has an understanding that he is a commodity and a belief that he should be compensated based on market value. He also believes that he is worth what the market is prepared to pay him and knows that if he has the discipline to accept nothing less than market value, his own value will not decline.

Member firms can help themselves to improve remuneration if they:

improve employees’ understanding of how the firm makes money;

conduct peer pressure efforts to bring greater discipline within the industry to set fees based on the market’s value for the services requested, and to justify those fees according to the market’s value and not to the firm’s internal cost structure;

walk away from work where the firm can’t make a reasonable return;

improve clients’ perception of the market value of the services provided by engineers;

develop strategic relationships with clients at the boardroom level and not as end-of-pipe technology/commodity providers to middle/lower management;

repackage engineering services to help resurface embedded values that have been forgotten or discounted by clients.

Your Association can assist the consulting engineering industry to solve these problems by:

conducting business and client surveys and publishing information showing the low level of remuneration; this information would be meant for both firms and clients to see;

developing image-raising campaigns to display the value that consulting engineers provide to society such as by lowering project life cycle costs and improving the health and safety of citizens through innovative technical solutions;

opening doors into the hearts and minds of students to attract the best and the brightest into the technical professions, and by

promoting practices that improve the business climate for our industry.

ACEC and the provincial associations are actively working on these and many other fronts on your behalf.