The Truth About Executive Compensation

April 1, 2009 · by DesignIntelligence

An economic downturn can represent an opportunity to develop sharper pay-for-performance compensation scenarios that reward and encourage a firm’s best performers. Nowhere is this more true that in the salaries and bonuses paid out to the firm’s executives.

Discussions about equitable compensation and salary benchmarking have taken a back burner in many architecture and design firms as issues related to simply keeping the lights on weigh heavily in the sleepless minds of firm leaders. However, an economic downturn can represent an opportunity to develop sharper pay-for-performance compensation scenarios that reward and encourage a firm's best performers. Nowhere is this more true that in the salaries and bonuses paid out to the firm's executives, we found in the new DesignIntelligence 2009 Compensation and Benefits Survey.

Underlying the need for scrutiny of executive compensation in design firms is that due diligence takes on even more importance in an economic slide. The most successful firms will be the ones that are able to attract, develop, and retain the most talented people, including principals, partners, and C-title professionals. Not only do sound compensation policies build higher performing individuals and teams, but they will also keep the best leaders in place and therefore maintain readiness for emerging opportunities on the mid-term and more distant horizon.

Professionals with some ownership in a firm usually have titles of principal or partner in addition to any others that may include officer or specific categorical titles. In medium and large practices, principals are usually owners who have a less significant equity or stock position; in S or C corporations or LLCs, principals are not partners as no partnership exists. Often, but not always, the title principal is used by firms of all sizes to indicate some level of ownership. There is a trend in the largest firms to distinguish principals as those who have non-equity or low-equity positions and partners as those who with majority equity.

According to the DesignIntelligence Compensation Survey data, the average architect principal of a professional practice who has some ownership in the firm is paid an average annual salary of $147,452. An additional bonus averaging 45.6 percent puts the total compensation above $214,600.

The average architect partner who is also an owner earns $179,594. The mean bonus for this position is 62.5 percent, delivering a total compensation of more than $291,800. However, a significant number of owner partners do make considerably more. (See DesignIntelligence 2009 Compensation and Benefits Survey for complete data, including compensation for the top 20 percent of earners in each category.) The most highly compensated can earn $2.2 million per year when their bonus is included in the total. This includes the elite or "starchitect" category as well as highly differentiated medium-size firms and some of the global giants.

The highest paid professional in a firm is typically the president/chief executive officer or the chairman/CEO. (Some firms do not use officer titles.) Our survey reveals that the president/CEO of a firm earns a median annual base cash compensation of $198,684. This individual's typical bonus is 82.2 percent, bringing total annual compensation to $362,000. However, the top 20 percent of CEOs of firms of all sizes earn $354,286 plus bonus, for a total cash compensation of $645,509. The bonus can often run at 180 percent of base, with some consistently exceeding three times that amount.

For hundreds of salary, bonus, and benefit data points, see the DesignIntelligence 2009 Compensation and Benefits Survey.

 

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