The annual compensation survey conducted by DesignIntelligence and the Greenway Group reveals opportunity and strategic optimism, even in the face of a gloomy economy.Creative professionals such as architects, designers, and engineers are powerful shapers of the future. They have enormous influence on the environment and on the economic success of capital investments made by corporations and governments. For this reason, it could be argued that the stronger the condition of the design professions, the healthier our global future. The burgeoning power of design underlies the current trends we see in financial remuneration in North America, with compensation levels having increased nicely — rising even faster, in fact, than general market conditions. Can this trend continue as the economy softens further?
The past five years have been good for design studios and firms. Projects have had the required monetary resources, creative independence has been valued by clients, and fees have been fair. Not only do design professionals enjoy visibility as solution providers, but they are respectably paid at both entry and mid-career levels. Moreover, even higher levels of financial reward come to the growing ranks of practitioners with ownership in their professional practices.
Navigating Change
Holding positions of increasing relevancy and value, designers are not just players in the global economy but are now often leaders and strategic innovators. These design profession leaders are surveying the current landscape of problems (including the ominous recession of 2008) and bringing forward ideas that are notable for their transcendent value. This includes faster projects that deliver value as return on investment: “Bilbao-effect” designs that stimulate the economy and lift the human spirit, high-style yet efficient work environments that save time and money, and adaptive reuse that turns real estate headaches into sustainable communities. It remains to be seen if these positive trends can remain durable in a fragile economy.
Notwithstanding the worrisome economy of the moment, the professional practices that responded to the annual DesignIntelligence/Greenway Group compensation survey conducted in January and February 2008 point to their game plans of resiliency and strategic optimism to see them through rough patches and inevitable surprises. Recent conversations with leaders of professional practices remind me of a statement made by one of my graduate school professors, Hubert Humphrey: “The rocks across the stream of change may be slippery, but they’re to help you get to the other side.”
Indeed, the design business landscape is new and different. Research by the Greenway Group reveals that international fees in some firms are up 100 percent over three years. A majority of the top 30 U.S.-based multi-national firms report fees increasing from outside the United States by more than 16 percent a year for 10 years running. Included in this group are the global elite practices, the star firms, the large corporate design solution providers, and various building sector gurus. Along with their enviable growth, they describe corresponding talent shortages and the associated lessons of supply-and-demand economics. These issues are increasingly coming into play with regard to compensation, bonus, and benefit theory and administration.
The DesignIntelligence/Greenway Group compensation research and analysis tracks trends in salaries, benefits, bonuses, and executive compensation in design practices. It is now the largest of its kind in the world. Data collected for the current survey includes responses from more than 135 leading firms with some 400 offices employing nearly 19,000 people. The survey reports on compensation within professional practices only, not corporations employing architects and not large construction organizations. More than merely interesting, this information will be useful to the full range of design practitioners: students and would-be students contemplating career options, practitioners seeking to gauge their financial performance, entrepreneurs surveying the landscape for talent, and executives conducting financial planning, business model development, and strategic planning.
Leaders Diagnose Their Practices
Most professional practices are earning fair fees for their work, bringing in reasonable profits that are often in double digits on a pre-bonus, pre-tax bottom-line analysis. This is not to say that all is rosy. These are uncertain times, and clients frequently pressure design practices to hold down fees. However, research conducted by Greenway in late 2007 reveals that project fees for most all building types are well negotiated and fair. There are exceptions, of course. Nevertheless, the design professions are rife with new and magnetic value propositions and nimble business models.
Furthermore, professional practices today tend to be much better managed and better led than those of previous generations. The performance culture of firms leans increasingly toward high performance. In the best firms, founders, principals, and staff consistently aspire to be top performers. And this aspiration directly affects compensation, nudging it upward. While attitude it essential, it is not enough. Individuals who wish to make it in one of the top-performing (and top-paying) firms will find they need an exhaustive understanding of design theory and an exemplary design aptitude along with the communication skills, emotional maturity, project delivery excellence, design management judgment, and overt collaboration attitudes now expected by leading practices.
Every Firm Has Dilemmas
One study by the Design Futures Council shows that productivity of professional practices will have increased 100 percent over the recent 10-year span.
Beyond survey data, Greenway uses an additional diagnostic to analyze leadership, empowerment, accountability, and processes — the Greenway LEAP diagnostic. Having analyzed hundreds of organizations with this diagnostic, we find it is not unusual for a firm to perform at best-in-class levels in four to six of 14 standardized assessment categories, putting it in the company of the top 15 percent of all firms in those categories. The correlation to compensation in high-performance firms tends to underscore the success of a meritocracy philosophy. Simply put, successful firms are more apt to pay more for higher performance. Where meritocracy rules, there is less patience with low-performing staff because in firms where fitness is recognized and rewarded, underperformers do not fit for the long term.
At the other end of the performance spectrum are underperforming firms, whose challenges are very different. In addition to the financial problems that underperforming inherently presents (including lower performance metrics in marketing, operations, finance, and professional services), there is the issue of staffing. In a market that is somewhat squeezed for talent, finding and retaining great professionals who are satisfied to work in an environment of underperformance is a lingering problem. Young and emerging talent are looking for mentorship along with financial reward, and they are increasingly migrating to the stronger and higher-performing organizations.
Despite the difficult economy that brings corresponding decreasing backlogs for some firms, the highest percentage of organizations that responded to our compensation survey showed significant growth in 2007. In fact, 95 percent of firms in the Eastern region reported growth in fee volume, with 11 percent of those showing revenue increases of 30 percent or more. A majority of responding firms reported growth, some of it dynamic, across all geographic regions. On the other hand, 16 percent of Midwestern firms reported either no growth or negative growth of up to 9 percent. Scrutiny of the data indicates an even more interesting story: 16 percent of Midwestern firms grew by more than 30 percent. There is a captivating body of evidence proving that well-led design organizations can grow even in recessed markets and tectonic shifts in categorical service demand if they have a strategic game plan.
Beyond Stats: Interns Have Value
Before unfolding our statistical focus on executive compensation, let us turn to intern salaries, which have become one of the more interesting bellwether subject areas. Insight on the future health of the profession can be found in how we treat our young. That is why each year we examine compensation policies in hundreds of firms and we see patterns of concern — riveting examples of pacesetters and laggards.
We sometimes find that the old growth in our professional forest is blocking the sunlight of the younger saplings. Not surprisingly, compensation increases fastest and highest for owners and experienced architects. This can leave fewer resources available to trickle down to the younger people in the profession, so the numbers become skewed even on a percentage basis. Additionally, there tends to be more strategic focus on top-level than entry-level compensation. This is a dangerous strategy. The negative impact in any one year may be negligible, but over time, this circumstance can seriously erode the strength of the profession. Generational values are different; they need to be recognized, and financial incentives must play an increasingly important role in architecture and design. With this understanding, then let us take a closer close look at intern compensation.
The compensation survey solicited data not only on mean earnings but also on the lowest and highest paid salaries for each professional title. The national mean for interns ranges from $37,725 in their first year to $47,475 in their third — a respectable range. Top earning interns can make $70,500 in their first year, $72,500 in their second year, and an unbelievable $120,000 in their third year. (Although reaching that level of compensation as a third-year intern is extremely rare, and in fact, it may be that only one such individual exists.) In addition to their salary, interns are rewarded with bonuses: 6.7 percent to 7.1 percent, on average.
Because graduates can begin taking the NCARB Architectural Registration Exam immediately upon graduating, we expect to see a shorter time delay between graduation and licensure in the future, and there is likely to be corresponding financial rewards for licensed architects still in their 20s.
Another factor in the changing landscape of internship is that M. Arch graduates typically earn 9.3 percent more than their B. Arch counterparts. Eighty-one percent of private practices pay all or partial expenses associated with preparation to take the registration exam. Upon passing the exam, newly minted architects will get a 5 percent to 9 percent bump in salary.
Stars and Exemplars; Gurus and Global Elites
Data that follows this article illustrates how experience and positioning affect compensation and benefits. You will see mean wages by region as well as the upward potential of many positions. Non-owner employee architects with 10 to 14 years of experience, for example, earn a mean of $73,229, but the mean for the highest paid professionals in that category is $84,206. These individuals will likely get a bonus in the range of 9.3 percent on top of their base compensation.
Due to a shortage of talent, there is greater emphasis on competitive salaries, benefits, and quality of the work environment. Incentive compensation is increasingly important in the 2008 economy. For example, while bonuses for project managers range from 8.7 percent to 14.8 percent depending on their years of work experience, we expect to see a somewhat slow rate of base salary increase with a corresponding emphasis on bonuses based on the financial performance of the practice. This tactic allows firms to spread risk, sharing it among owners and employees, while allowing the best performing firms to continue to pay employees well and therefore retain a competitive advantage.
Interior designers are increasingly important members of the design and delivery team. Granted, there is a gap in compensation between employee interior designers and practitioners who are full owners or who have a significant equity position in their firm. Large professional practices and the global elites appear to have little difference in the compensation of architects and interior designers when pay-for-performance metrics are in place.
Employee interior designers without equity are increasingly well paid. Nationally, the mean for an interior designer with 10 to 14 years’ experience is $64,662; however, the highest salary in this category was reported to be $165,000. Our survey includes primarily those interior designers who work in practices where their focus is on hospitality, health care, and commercial projects. They can expect a bonus of between 7.4 percent and 11.5 percent depending on experience. The survey population did not include high-end single-family residential interior designers; however, based on previous Greenway research, the range for residential is competitive with those in corporate contract interiors and can be significantly higher for those with equity positions if their firms are well managed and led.
Definitions of Success
There are interesting contrasts in the compensation data for each of the design professions by role, responsibility, and experience. A landscape architect, for example, can earn on par with a structural engineer, and a graphic designer can earn a salary similar to a mechanical/electrical/plumbing engineer. Still, the mean difference is $11,334 lower for the graphic designer with similar 20-plus years’ experience than the equivalent MEP engineer. In graphic design, there is tremendous variation in compensation scales. At the high end, even employee designers without equity can earn more than $100,000 plus a 7.4 percent bonus.
As you review the compensation data, consider the differences in talent value propositions as much as or more than category and position. As we track professional behavior through decades of research, we can understand how merit and talent drive economic conditions more than title or years of experience. While our data should bring clarity to economic realities and to patterns of compensation, keep an open mind to exception, talent, attitude, and meritocracy. Increasingly, these are factors of financial success along with the more traditional issues of license, experience, and professional traditions. Fashioning a strategic compensation policy is both an art and a science.
Entrepreneurship and Leadership
Let us consider design professionals with ownership in their firms. By virtue of their ownership, these individuals take on risk and are also the most likely to create wealth in the design professions. It is only fair that they be compensated accordingly. While owners’ base compensation is often lower as a percentage of their total earnings than that of employees, their bonuses account for more. The mean base compensation of a principal owner is $140,067; however, typical bonuses deliver a healthy 50 percent of salary. In most major practices, there is a diversity of professionals represented in ownership. Therefore, equity owners, principals, and partners include representatives from each of the design professions — architects, engineering, environmental graphic design, and landscape architecture.
The CEO of a professional practice is often the highest compensated of all design professionals, and this is especially true for those with a significant ownership position, which most have. The national mean for a CEO’s base compensation is $178,677 with a bonus of 75 percent, bringing the total compensation to more than $312,000. Keep in mind that this number includes firms of all sizes in our survey, including small, medium, large, and extra large. For firms employing more than 100 employees, the CEO has a mean base of $205,531 plus a 65 percent bonus for a total of more than $339,000. Some salaries and bonuses are significantly higher, and this is where we see total compensation soar into the million dollar-plus range.
Demographic Risk Ahead
The shortage of talent begs questions related to recruitment, location, and benefits. To help cope with recruitment, 38 percent of firms use outsourced recruiters to help search out the best talent. Firms in the Midwest are most likely to use recruiters. Nationally, of the firms that use recruiting help, only 14 percent are very satisfied with their recruiter’s performance, and 18 percent are either somewhat or very dissatisfied with these services. The majority are either somewhat satisfied (47 percent) or neither satisfied or dissatisfied (20 percent).
Signing bonuses are increasingly common, with 41 percent of firms using such recruiting incentives in the past year. Again, the Midwest region is the highest, with 55 percent of firms paying signing bonuses. The largest cluster of firms offer a 5 percent signing bonus, the second largest 10 percent, and the third 3 percent.
Professional practices vary in their employment and compensation policies. Some have different compensation schedules to account for the higher cost of living in certain geographic locations. One-quarter (25 percent) of firms that have multiple offices provide for cost-of-living differentials. The U.S. cities with the most frequent exceptions to the compensation scales are San Francisco, New York City, Los Angeles, Seattle, and Washington.
With supply-and-demand economics present, even in a downward sloping economy, professional practices are giving more attention to the quality of benefits offered to employees and partners/owners. Most all firms now provide a 401(k) or similar retirement plan, offer medical insurance, and pay for association dues. Continuing education, dental insurance, flexible spending accounts, and long-term disability are also popular. More than a third (39 percent) of firms provide full medical insurance, paying 100 of employees’ premiums. Partners and owners have additional perquisites that are common, including automobiles and additional insurance.
The Future
Some professional practices have inadvertently created traps in their cultures during these years of prosperity, creating incentives to spend money freely rather than investing in their future. Now scrutiny of operations, finance, and professional services are being brought into focus. Moreover, talent spotting with commensurate salaries that reward higher performance and penalize mediocrity will be increasingly important. We will see a variety of behaviors on the part of design firms in these uncertain times: Some will rush to retreat, others will take a strategic turn. Some will create sustained, superior performance year after year in spite of weakening economic outlook. Today’s leading practices are poised for further creativity — even while facing the discordant new music.
Some practices will languish, will be the victims, and will be stuck in the traditional ways of doing business. They will not understand that savvy compensation systems, management, and administration can make a huge difference during times of change. Times ahead will evidence disruptive change that will challenge conventions. We’ll also see a decoupling of the categorical professions that will further separate leaders from laggards. Increasingly, firms are recognizing that some professionals are worth more and that is why they are being compensated better for their achievement. In the face of a recession, these people will be the ones creating market value and having growing influence on the environment and the quality of life. Creativity and innovation will be rewarded financially, and the demand for high-end design services will boost professional fees and outperform North American market conditions.
