TECHNICAL FEATURE

This article was published in ASHRAE Journal, February 2015. Copyright 2015 ASHRAE. Posted at www.ashrae.org. This article may not be copied and/or
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Engineers Pay and

Financial Performance
BY KATE ALLEN, P.E.

Has the economy improved for the A/E industry as predicted last year, and if so, will
it be enough to allow firms to attract and retain key employees? Another year has
passed, and its time to once again use benchmarking data as a window into the overall financial condition of the A/E industry and its impact on compensation.
First, lets go back to our findings from last year to get
started. In the February 2014 issue of ASHRAE Journal, the
article Pay for Engineers in the A/E IndustryStill on the
Road to Recovery? presented a discussion on cash compensation as it related to the overall financial health of the
A/E industry, following the economic downturn of 2009.
The intent of the article was to help both the engineer
and the employer better understand the current financial
position of the industry and how that was impacting compensation options, using A/E industry-specific benchmarking data. The benchmarking data revealed that net
revenues were rising slightly faster than expenses, and
while overall profitability as a percentage of net revenues
had improved (to a median of 11.4%), it still remained
significantly below the 2007 high of 15.2% (median). The
connection between base compensation and billing rates,
as evidenced by target and achieved direct labor multipliers, of 3.10 and 3.02 respectively, was discussed as well,
with emphasis on the impact of pricing (fees) and project

management on overall profitability. The industry was

improving but had not fully recovered from the recession in terms of profits and compensation rates. Overall,
it appeared the A/E industry was poised for growth as the
economy continued to improve.
With another year behind us, and new data at hand,
lets look at this years numbers to see where we stand
and how much improvement the industry actually saw
in the past year. The tables and figures that follow report
the median for each metric, which is the midpoint of a
set of data (not the average). There are many successful firms that outperform the industry medians, but
the tables and figures that follow may be useful to begin
comparing your firms performance.

Overall Financial Performance Impacts Compensation

OptionsAn Update on the Big Picture
The results are encouraging! Net revenues and profits
are continuing to rise faster than expenses and labor

Kate Allen, P.E., is director of A/E/C Industry Surveys for PSMJ Resources, Inc., Newton, Mass.
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TECHNICAL FEATURE

2014

2013

2012

2011

2010

2009

2008

2007

2006

2005

2004

2003

2002

costs. Overhead, as a percentage of

TABLE 1 
Comparison of key financial indicators 20132014.
direct labor costs, is holding steady
(MEDIANS)
2014
2013
% CHANGE
near 160% (Table 1). Direct labor costs
Net Revenues per Total Staff
$127,607
$125,589
2%
have increased 6%, exceeding the
Net Revenues per Direct Labor Hour
$103.95
$101.66
2%
growth of the consumer price index;
Direct Labor Costs per Direct Labor Hour
$33.84
$31.90
6%
profits (earnings before bonuses,
Total Costs per Direct Labor Hour
$87.91
$86.50
2%
discretionary distributions, and
Equity per Total Staff
taxes) have increased 14%. Balance
$31,659
$21,666
46%
sheets are improving as evidenced
Operating Profit (Net Revenues)
12.97%
11.42%
1.6%
by the substantial amount of equity
Overhead Rate (before Incentive/Bonus)
160.59%
159.56%
1.03%
that firms are carrying per total
Chargeability (Payroll Dollars)
59.56%
59.69%
0.1%
staff, which increased from $21,666
Backlog Change
9.00%
7.00%
2.0%
to $31,659, between 2013 and 2014.
Gross Revenues Change
7.00%
8.00%
1.0%
A detailed historical comparison
Staff Size Change
3.57%
2.70%
.87%
of several of these key financial
Net Direct Labor Multiplier Achieved
indicators is provided in Figure 1 and
3.07
3.02
.05%
Table 2.
Average Work-in-Process Days
18.00
25.51
7.5%
The great news is that the gap is
Average Collection Days
66.55
70.12
3.6%
closing between the target and the
Source: PSMJs 2014 Financial Performance Benchmark Survey Report
achieved direct labor multiplier
(Figure 2). If the target is less than
$120
the achieved direct labor multiplier the result is a net
revenue deficit (less profit than expected), which was
$100
Profit
a 1.6% median in 2014 results. If the target is greater
$80
than the achieved direct labor multiplier, the result is
Overhead
$60
a net revenue surplus (higher profits than expected).
$40
The improved results in Figure 2 generally indicate that
firms are achieving better fees for projects and/or those
$20
Direct Labor
projects are being more efficiently managed, reducing
$0
the net revenue deficit.
Unfortunately, the A/E industry is still struggling to
earn a reasonable profit, but its headed in the right
Net Revenue
Direct Labor Costs
Break Even
Per DLH
Per DLH
Costs
direction (Figure 2) and has seen a gain of 36% since the
low point in 2010.
FIGURE 1Historical direct labor benchmark trends. Source: PSMJs 2014 Financial
Performance Benchmark Survey Report.

Compensation Trends
Annually, for the past 32 years, PSMJ Resources, Inc.,
has conducted a management compensation survey that
solicits data from both engineering and architectural
firms for 17 management positions, from chairman of
the board to junior project manager. Historical Total
Compensation is presented in Table 3 for the past six
years. Its important to note that compensation rates
generally increase with firm size, so use the information
in the table with caution. The table is presented to demonstrate trends only, and for more detailed information,
a full compensation study would be needed.

TABLE 2 
Comparison of key financial indicators, 20102014.
(MEDIANS)

Net Revenues per Direct

Labor Hour

2014

2013

2012

2011

2010

$103.95 $101.66

$100.32

$94.69

$86.63

Direct Labor Costs per

Direct Labor Hour

$33.84

$31.90

$31.31

$30.99

$30.99

Total Costs per Direct Labor

Hour (Overhead + Direct
Labor)

$87.91

$86.50

$88.73

$86.06

$87.78

Operating Profit (Net

Revenues)

12.97%

11.42%

9.31%

9.86%

9.49%

Source: PSMJs 2014 Financial Performance Benchmark Survey Report

FEBRUARY 2015 ashrae.org A S H R A E J O U R N A L

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Actual Net Fee Multiplier

2014

2012

2010

2008

2006

2.50

1980
1984
1986
1988
1990
1992
1994
1996
1998
2000
2002
2004
2006
2008
2010
2012
2014

2.60

2004

2.70

2002

2.80

2000

Net Revenue Deficit

1998

2.90

1996

3.00

1994

3.10

18
16
14
12
10
8
6
4
2
0

1992

EBBT (Percent of Net Revenue)

3.20

1990

TECHNICAL FEATURE

FIGURE 3Operating profits as a percentage of net revenues. Source: PSMJs 2014

Financial Performance Benchmark Survey Report.

Target Net Fee Multiplier

FIGURE 2Target versus achieved direct labor multiplier. Source: PSMJs 2014

Billing Rate Trends

Financial Performance Benchmark Survey Report.

Total compensation reached a five-year high in the 2009

10 time period but fell to a five-year low in the 201112 time
period for most positions/roles. While total direct compensation for the majority of the senior level roles (Chairman of
the Board, CEO, COO, etc.) has yet to recover to 2009 numbers, more production-focused positions/roles have generally increased and have exceeded 2009 (Department Head,
Senior Project Manager, and Project Manager).

Compensation is directly related to hourly billing

rates, which are intended to recover all design firm costs
(including direct labor and overhead) and provide for
profit. For example, if a highly billable Senior Project
Manager is paid $50 per hour (excludes labor burden or
fringes), and the firms overhead rate is 160% on direct
labor, then the break-even billing rate would be $50 x (1 +
1.6) = $130 per hour; and a billing rate of $150 provides for
about 13% profit. Reimbursable expenses are recovered
from the client directly and not included in these billing

TABLE 3 
Historical total direct compensation results.
2014

2013

2012

2011

2010

2009

Chairman of the Board

$201,392

$215,000

$212,066

$233,589

$250,000

$240,144

Chief Executive Officer

236,700

265,342

233,000

233,216

247,500

250,000

COO/Executive VP

206,560

203,913

221,933

224,133

246,500

231,061

Senior VP/Senior Principal

185,645

198,674

200,000

178,092

210,137

200,500

Other Principals/Partners

144,000

145,000

143,415

150,000

146,641

149,327

CFO/Director of Finance

159,968

175,000

184,538

175,905

170,226

171,290

Controller

100,000

100,807

101,109

96,000

97,000

100,500

Business Manager

64,745

78,972

78,630

82,994

95,000

77,845

Director of Administration

83,500

140,246

128,750

80,528

123,668

85,280

Director of Operations

137,750

146,000

137,510

149,740

154,686

150,000

Director of BD

119,000

135,229

120,800

108,768

119,724

178,500

Director of Human Resources

97,314

102,231

100,000

91,655

92,867

99,309

Director of Computer Operations

104,257

104,589

97,000

96,000

100,000

105,500

Branch Office Manager

123,513

125,521

125,377

118,000

128,608

130,742

Department Head

123,355

120,000

120,560

112,677

114,000

115,752

Senior Project Manager

103,537

102,000

98,315

98,000

95,554

97,500

Project Manager

82,035

78,285

77,000

76,000

75,000

73,883

Source: PSMJs 2014 Management Compensation Benchmark Survey Report

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TECHNICAL FEATURE

rates. If compensation rates exceed what can be recovered

in billing rates, then profits may be negatively impacted.
Billing rates have been generally tracking with total
compensation. Many of the senior level roles (COO and
Senior VP) have yet to fully recover to pre-recession
rates, while more production-oriented positions (Senior
Project Manager, Project Manager) are above 2009 numbers (Table 4).

Conclusion
The numbers tell the story. The A/E industry is nearly
fully recovered to pre-recession compensation and billing rates. The achieved direct labor multiplier is on the
rise, net revenues are increasing, and expenses are holding steady. Employees are demanding salary increases,
post-recession, and by understanding the overall financial position of the A/E industry (at the median level of
performance) you can use that knowledge as you consider
your firms compensation strategycash compensation is
only one spoke in the wheel when it comes to employee
engagement and attracting and retaining staff.

TABLE 4 
Historical billing rates by position/role for billable staff.
2014

2013

2012

2011

2010

2009

Chairman of the Board

205

197

195

200

191

190

Chief Executive Officer

198

200

195

191

190

200

COO/Executive VP

180

185

185

185

185

200

Senior VP/Senior
Principal

190

195

190

186

182

200

Other Principals/
Partners

180

186

172

172

175

170

Director of Computer
Operations

130

117

125

115

138

120

Branch Office Manager

165

164

154

150

139

145

Department Head

165

157

155

150

147

140

Senior Project Manager

150

144

140

135

135

135

Project Manager

126

122

120

112

117

114

Source: PSMJs 2014 Management Compensation Benchmark Survey Report

Note: If you are interested in participating in PSMJs 2014 surveys you can find out more about the benefits of participation at:
www.psmj.com/surveys-research/participation.cfm.

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