PAYnotes on Reward trends in Construction 2016

Since the UK economy went into recession, overall trends in reward within the construction industry have appeared to have changed very little. However, look more closely and you will find that latent skills shortages for key industry roles and a pick-up in work won have increased pay pressures in the last three years.  Furthermore, there is some evidence to suggest that this may change again, post-Brexit.

Year-on-year variations

Our PAYaward pay settlement database highlights higher pay review increases in the construction industry this year, compared to the ‘All sectors’ figures:

Pay Reviews 2016

These Construction figures are similar to those seen in 2015 and 2014, although last year the most common review had dipped to two per cent, compared to three per cent in both 2014 and 2016. What hasn’t changed in the last three years is the percentage-point difference between Construction and All Sectors, which indicates the external pay market pressures faced by construction companies. Before 2014, Construction settlement figures were more in line with, and for a time half a per cent behind, the ‘All sectors’ figures.  Indeed, our ‘All sectors’ figures have changed little from above for the last five years.

Despite a one per cent difference between Construction and All Sectors, a three per cent median pay settlement still appears relatively restrained when compared to the huge pay pressures that construction companies have reported in the last three years – for example, £15,000 to £20,000 pay increases being offered to poach employees. The reality of the past three years is that a further 0.5-1% of payroll has been spent on out-of-cycle increases, to attract or retain the talent / skills required to service work won.

Obviously, pay freezes have been almost non-existent in the construction industry for the past three years and only 1.3 per cent of organisations have frozen pay in all sectors.

Predictions for 2017

It is still early to be making concrete predictions for 2017 pay reviews, as most companies start their 2017 pay review budgeting from September. However, anecdotal evidence suggests a slowdown in work won, in both the run-up to and following the Brexit vote, which has had an influence on pay. Certainly a number of construction companies have stated that whilst pay pressures still exist in certain areas, e.g. Central London, Planners and Project Managers, they are not as acute as 12 months ago.

In addition, an analysis of 2016 pay reviews in the construction sector shows a downward trend since January:

Pay Reviews 2016 by month

The drop in construction reviews is not reflected in the overall 2016 figures as most reviews are centred on the December to January period.

The most likely scenario for 2017 is that construction companies will pay an increase of between two and three per cent, dependent on their future order book. Indeed, a number have stated that work winning is a medium-term cycle that goes in peaks and troughs, with 2017 nearing the end of the current peak.

Pressures on key roles

In May, 86 per cent of construction companies surveyed by Paydata*, stated that they would have retention problems in the next six months, with a further 76 per cent saying they would have recruitment problems in the next six months. In the past few years, the pay market rates for some survey jobs have increased markedly, including:

  • Commercial Managers
  • Quantity Surveyors
  • BIM roles
  • Project roles
  • Planners
  • Estimators

Geographic variations

The pay gap between different geographic regions has widened marginally in the past two years, largely between London and the rest of the UK, which shows a pay difference of 14 per cent (and seven per cent for the South East). Many construction companies have commented on the acute sector pressures in London and these figures appear to re-enforce their views – with Greater London usually paying 11-12 per cent more than the national average in other sectors and the South East paying six per cent more.

The current reward agenda

A combination of the introduction of Gender Pay Reporting and pay pressures, has pushed both diversity and pay structure up the reward agenda for many construction companies. Indeed at the last Paydata HR Group meeting, job evaluation/grading appeared at the top of many companies’ agendas. A job grading system is not only essential for making accurate gender pay comparisons (via an Equal Pay Audit), but also to create a pay structure in order to better manage pay progression and decisions.

Unsurprisingly, employee engagement is also high up on the agenda, as organisations look to retain existing people and attract new talent.

We will continue to track trends in reward within the construction sector – should you require any further insight, or help and advice, call us on +44 (0)1733 391 377. 

By Tim Kellett

* Paydata UK Reward Management Survey Spring 2016