A&E Firms: Inflation and the Great Resignation

A&E firms face new complexities as they compete for top talent. The dual pressures of emerging inflation and the “Great Resignation” (in which workers began leaving jobs in large numbers during of the COVID-19 pandemic) have prompted A&E industry leaders to rethink their approach to attracting and retaining the top employees they need to stay competitive.

Recently, we talked with Julie Hasiba of EFCG, a valued AEC industry consulting partner. Take a look at these industry trends and learn what leading firms are doing to find, engage, and reward high-performing staff.

Compensation Factors

Clayton & McKervey client estimates and EFCG’s research data show that compensation structure hasn’t changed much in the past 30 years. In 2022, A&E salary increases will stay close to an annual norm of 3% to 4% against inflation of around 6%. Base compensation and traditional incentives that pay out within one year still follow a familiar pattern. Beneath that layer, however, industry thinking is beginning to move:

1. HR executives are taking a closer look at total rewards strategies
2. Firms are considering long range incentives beyond a one-year window
3. Legislation is driving more employee awareness around peer salaries
4. Retention is driving higher conversion from hourly pay to salaries
5. Firms are looking beyond money to more creative and flexible schedules and benefits

Backlog Factors

Although backlog fell in the early phase of the COVID-19 pandemic, a combination of pent-up demand and legislative news restored backlog to pre-pandemic levels and higher. As with compensation, industry averages don’t tell the whole backlog story:

1. Rising salaries are beginning to conflict with client pressures for lower billing
2. The effects of higher wage bills against base inflation levels will start to show in 2022
3. Clients are pushing for lower rates for the same services
4. A “pay more, charge less” trend may push contracts from flat fee to time and materials
5. Mergers and acquisitions are rising in order to buy new talent and service capabilities
6. Firms are rethinking utilization and productivity metrics to better fit current reality

Human Factors

A&E productivity soared in 2020, due in part to “work from home” dynamics that reclaimed employee focus time from things like commutes and office distractions. As the pandemic wore on, Hasiba said, “We’re entering a burnout phase where work/life balance boundaries have blurred to the point where there’s no visible difference. Backlogs are getting bigger and it’s harder to do everything than it was before. Employers can’t continue to ask for more work hours.”

We’re seeing many of these factors at work with our A&E clients. Leadership teams are more sophisticated, and partly due to private equity influence, are taking a more data-driven approach informed by technology. Here are some influencers on the human side of the industry:

1. Provide more innovative family leave, flex time, retirement, and childcare benefits
2. Base compensation investment decisions on the whole person – understand staff needs
3. Pay attention to mentorship, coaching, and training to reskill your talent base
4. Show employees that they’re valued on an individual level
5. Return to the core by trimming less profitable business that burns people out

Continue the Conversation

These questions are all front and center for A&E firms, but there are no single, easy answers. Clayton & McKervey’s A&E practice group specializes in helping firms focus on the right metrics, maximize financial performance, and prepare for a profitable future. Contact us to discuss your individual situation.