A Profitable Profession
Compensation rises as industry seeks better-educated, technologically savvy employees
By Victoria Fraza -- Industrial Distribution, 11/1/1998
Industrial distribution professionals expect to earn six percent more this year than they did last year. While that figure is down from the reported eight percent increase they earned in 1997, it is still higher than the average four percent raise most U.S. workers have been receiving since the beginning of the decade.Those are just some of the statistics revealed in Industrial Distribution's 11th Annual Salary Survey conducted earlier this year. ID interviewed nearly 350 people in a variety of jobs across a range of distribution segments -- general line, fluid power, electrical, fastener houses and others. The results indicate that most ID professionals are doing well and hope to continue that prosperity into 1999. Experts say a healthy industry and competitive employment market are factors contributing to higher salaries for ID workers across the country.
And while it's difficult to determine how long the trend will last, they say it should continue for the next few years -- and not just in distribution, but in a range of U.S. industries.
"In general, the tight labor market has really caused there to be some higher pay," says Mike Jurs, a spokesperson for the Chicago consulting firm Hewitt Associates. "The majority of companies are offering signing bonuses -- and that's just to get people in the door. Everyone's really trying to attract and retain talent because they need to grow and succeed. There's been a shortage of qualified people out there and that does have an impact on pay."
Hewitt Associates conducts a U.S. salary increase survey each year. This year's survey of 1,069 employers nationwide shows that salaries should increase 4.2 percent on average next year -- the highest pay hike since 1993. Until last year, salary increases for U.S. workers had been steadily declining or stagnant, according to the study.
Of note this year, says Jurs, is that the tight labor market is influencing pay in a number of hot job areas -- information technology, engineering, finance, sales and marketing. In addition to the talent shortage, the firm credits continued employer support of variable compensation plans -- performance-related award programs that must be re-earned each year -- as a key factor in increasing compensation levels.
While these and other issues will continue to influence pay in distribution, the current state of affairs is a success story that has been ongoing for some time. For the last three years, ID's surveys have shown that industry professionals see higher than average pay increases as compared to overall industry and some specialized white-collar industries. It's a trend many experts see continuing as the industry becomes more sophisticated and employers seek more educated and technologically savvy workers.
What ID professionals earn
While it's important to look at ID's survey results by job title, the study does present an interesting picture of the "typical" distribution professional. He (91 percent of respondents were male) is 45 years old, has a bachelor's degree, 18 years' experience in the field, and has worked for two distributorships his entire career. He earned $56,000 in 1997 and expects to earn $61,000 this year. (All figures reflect the survey's median and represent total yearly compensation.)
Also of note are the pay increases the typical ID professional has earned in the last few years. In 1997, he received an eight percent raise and he expects to see a six percent increase this year. The increases were the result of a normal annual review, although some professionals report that their pay increases were the result of merit raises or promotions. As noted earlier, industry raises are higher than those of the average American workforce, according to the Hewitt Associates study.
The largest group represented in our survey was outside salespeople -- 25 percent. Twenty percent described themselves as CEOs/presidents, 13 percent were inside salespeople, 12 percent were branch managers and 10 percent were vice presidents. The remaining 20 percent held a variety of positions including warehouse personnel, treasurer, accounting personnel, etc.
The high proportion of upper-level employees may account for the high average salary and higher pay increase as compared to overall industry. However, 1997 compensation figures for the individual positions are in line with those revealed in other industry surveys.
Take the Profit Planning Group's Cross-Industry Compensation Report, for example. PPG's 1998 report shows that the typical CEO/president at a U.S. distribution firm earns $111,000 in total compensation, compared to $120,000 a year in the ID survey. The Profit Planning Group, based in Boulder, Colo., conducts its cross-industry study every two years by interviewing distribution professionals from a range of market segments. Other comparisons run as follows: our survey shows that the average vice president earns $78,000 a year, while PPG reports $86,000 for that title; the average inside salesperson in the ID study earns $28,000 a year, while the PPG study reports that inside sales professionals earn $27,000 annually.
As a further comparison, CEOs/presidents in the fluid power industry earn $172,000 in total compensation, while vice presidents earn $105,000 on average, and inside salespeople earn about $32,000 -- that's according to the Fluid Power Distributors Assn., which participated in the PPG study.
Top-paid executives
While the average CEO makes about $120,000 a year according to ID's survey, here's a look at what some of the industry's top-paid executives made in 1997. Figures reflect salary and bonus only and were obtained from proxy statements filed with the Securities and Exchange Commission.
1. Richard Keyser
2. Peter McCausland
3. John C. Dannemiller
4. Donald T. Marshall
5. Richard J. Orwig
6. Leonard M. Carlucci
7. John Sergey
8. Bernard Kalish
9. Greg Grosch
10. Mitchell Jacobson
11. David R. Little
12. David Hughes
13. Jack Cahill
14. Lloyd U. Noland
15. Martin S. Pinson
16. Robert A. Kierlin
Richard Keyser
CEO and Chairman
W.W. Grainger, Inc.
Salary: $594,000
Bonus: $550,638
Total: $1.14 M
Grainger posted 17 percent growth last year and focused on growing its national accounts business and Internet commerce presence, which will include a new business-to-business unit for non-MRO supplies early next year. Keyser earned $19,240 less in salary and bonuses than in 1996.
Peter McCausland
Chairman, President and CEO
Airgas, Inc.
Salary: $500,000
Bonus: $405,000
Total: $905,000
Airgas continues its acquisition spree, rolling in seven new companies so far this year. McCausland, the second-highest earner among CEOs of the industry's publicly held companies, has led the massive expansion effort, which targets the industrial MRO market.
John C. Dannemiller
Chairman and CEO
Applied Industrial Technologies
Salary: $470,050
Bonus: $297,821
Total: $767,871
Dannemiller began steering Applied toward its philosophy of selling industrial "systems" in the early 90s. A new name, a new headquarters and a heavy investment in acquisitions have helped the firm shape its new image: that of a forward-thinking technology company.
Donald T. Marshall
Chairman and CEO
Sun Source Salary: $521,031
Bonus: $51,087
Total: $572,118
Marshall is the largest shareholder in the firm. He also has $1.2 million set aside in a long-term share performance plan. Marshall banks on long-term earnings growth of 15-20 percent. Traditional distribution now makes up only 40 percent of sales.
Richard J. Orwig
CEO
JLK Direct
Salary:$284,880
Bonus: $150,000
Total: $434,880
Orwig's salary and title reflect his compensation working for Kennemetal. In September, he was named president of Kennemetal's subsidiary, JLK Direct, replacing Michael Ruprich. Ruprich's pact called for a base salary of $264,508.
Leonard M. Carlucci President
Bowman Distribution
Salary: $220,500
Bonus: $202,965
Total: $423,465
In 1998, Carlucci is steering Bowman Distribution toward its goal of becoming the most efficient global provider of logistical management services to targeted markets and MRO customers. Under his leadership, sales grew from $213 million in 1996 to $220 million in 1997.
John Sergey
CEO and President
Strategic Distribution, Inc.
Salary: $240,000
Bonus: $180,000
Total: $420,000
Sergey joined Strategic Distribution in May of 1997 with a three-year contract and the firm set revenue records with a 61 percent gain for the year. After more than 2 1/2 years without showing a profit, SDI turned the corner in the second quarter of 1998 as sales rose 27 percent over the previous year.
Bernard Kalish
Chairman and CEO
Lawson Products Salary: $362,068
Bonus: $48,180
Total: $410,248
Bud Kalish has been with Lawson Products since 1955. Under his leadership, sales were up 11 percent in 1997. Sales are expected to increase another 10 percent this year as the company continues several key initiatives, including Y2K compliance and warehouse automation.
Greg Grosch
Chairman, President and CEO
White Cap Industries
Salary: $408,763
Bonus: 0
Total: $408,763
In November 1997, Grosch signed a contract calling for a base salary of $400,000 through 2002, plus bonuses. However, his indicated salary for 1998 is $300,000, plus a bonus of $56,585. Grosch co-founded the firm in 1976 and is the controlling shareholder with a 27 percent interest.
Mitchell Jacobson
President and CEO
MSC Industrial Supply Co.
Salary: $408,400
Bonus: 0
Total: $408,400
MSC Industrial Supply increased sales by 43 percent to $438 million in 1997 and expected sales of $575 million for fiscal year 1998, which ended in August. Jacobson says earnings growth has reached 43 percent a year.
David R. Little
President and CEO
DXP Enterprises/Sepco Industries
Salary: $279,277
Bonus: $112,849
Total: $392,126
Little has aggressive plans for DXP, namely to propel the company's revenues from their $169.7 million level in 1997 to $500 million within five years. DXP's growth plan includes selective acquisition of its traditional industrial supply competitors and becoming an integrated supply source.
David Hughes
CEO and Chairman
Hughes Supply, Inc.
Salary: $255,000
Bonus: $127,500
Total: $ 382,500
Hughes Supply continued its expansion strategy this year, including a merger with a large electrical distributor in Texas, which has become a major market for the 70-year-old firm. Sales for this year's second quarter increased by 37 percent and net income rose by 40 percent.
Jack Cahill
President
Kaman Industrial Technologies
Salary: $230,000
Bonus: $90,000
Total: $320,000
Cahill was named president of Kaman Industrial Technologies five years ago, but has been with the firm since 1975. Under his direction, Kaman has opened 26 new branches since 1996 -- most of them start-ups. Kaman continues its path of steady growth, aimed at penetrating new geographic markets.
Lloyd U. Noland III
Chairman and CEO
Noland Co.
Salary: $135,233
Bonus: $30,000
Total: $165,233
Noland welcomed the company's second-quarter 1998 earnings of 44 cents per share -- a great improvement over 1997's second-quarter earnings of 18 cents per share. He is counting on operational efficiencies and sales growth to regain 1995's record-high sales of $469 million.
Martin S. Pinson
Chief Executive Officer
Industrial Distribution Group
Salary: $250,000*
Bonus: 0
Total: $250,000
Pinson joined IDG in June 1997. Just over one year after IDG's initial public offering in September 1997, the company is comprised of 24 subsidiaries.
* Reflects Pinson's contractual annual salary. His employment by IDG commenced June 1, so his actual salary for the year was $145,833.
Robert A. Kierlin
Chairman and CEO
Fastenal Salary: $122,500
Bonus: 0
Total: $122,500
Fastenal gets the award for frugality; Kierlan's base salary has remained fixed for 11 years. However, the board feels financial rewards for officers should come in large part from increases in the value of their stock in the firm. Kierlan's salary was 60 percent of the maximum authorized by the board.
Education
As in recent years, education continues to play an important role in employee compensation. Fifty-four percent of the respondents held bachelor's degrees, while 39 percent reported that a high school diploma reflected their highest level of education. Those with bachelor's degrees earned 22 percent more than those with high school diplomas -- $61,000 a year as compared to $50,000 a year. The respondents who held masters degrees -- just seven percent -- earned a median salary of $130,000.
Of particular note in this year's survey is the effect technological knowledge has on pay. Thirty-one percent of respondents said their compensation is tied to knowledge of information systems, software programs, the Internet and other technologies. Gary Buffington, executive director of the Industrial Distribution Assn., says that makes perfect sense.
"That certainly is something distributors look for in new hires," says Buffington. "They need technological proficiency, so it would be natural that that would reflect compensation levels put into place."
Jurs points out that the technology trend is job related. In other words, while it's important for all employees to have a basic understanding of technology and how to use it, it's those who are specifically hired for technology-based jobs that are seeing the correlation between that knowledge and pay. He adds that the demand for IT professionals with knowledge of particular programming languages -- like HTML, C++, and those related to Y2K issues -- is outstripping demand, which is causing salaries in those professions to rise.
Age and experience still factors
As would be expected, older workers and those with more experience earn more. For example, ID professionals with one to 10 years' experience earned $42,000 in 1997, while those with between 31 and 40 years' experience earned $108,000. Twenty- to 30-year-olds earned about $34,000 last year, while those in the 51-60 age bracket made an average of $62,000.
Women continue to be paid less than men in the industry, according to a comparison of responses from 21 women and 219 men. While one-third of the women surveyed report they get paid under $30,000, only seven percent of the men said the same. At the top end, three percent of women report salaries of $70,000 or more, compared with about 40 percent of their male colleagues.
Top pay at mid-sized firms
The largest group of respondents -- 30 percent -- work for companies with annual sales of $40 million or more. Just five percent work for firms with less than $1 million in sales and just nine percent work for firms with between $20 million and $40 million in annual sales. The rest work for firms with sales between $1 million and $20 million.
Once again, those who work for small to mid-sized companies -- between $6 million to $20 million in revenues -- say they are paid more than employees in larger firms. The median salary for employees of firms in that range was $82,500. Those who work for firms with more than $40 million in sales reported a median salary of $52,000. Once again, the lowest-paid employees work for companies that have less than $1 million in sales. Readers, however, should be careful interpreting survey results when there is a small percentage of respondents per category.
In summary ...
Thirty-two percent of those interviewed for ID's 1998 Salary Survey said that if they were to leave their current job it would be to retire; 21 percent said they would leave to make more money; 13 percent said they would leave because they are uncertain about their company's future and 10 percent said there is too little opportunity for advancement. The remainder of those surveyed listed a variety of reasons for potentially leaving their jobs: the need to be more challenged, the desire to get into another industry, and the wish to have salary tied to performance ranked as top concerns.
The pay for performance issue is one that Hewitt Associates has been tracking for some time, and one that industry watchers say is becoming more popular in industrial distribution. Over the last few years, Jurs says, employers across the country have placed increasing importance on variable compensation plans -- programs that include special recognition awards, business incentives, individual performance awards, and stock options/ownership programs, for example. In 1998, 72 percent of the employers Hewitt Associates interviewed for its salary increase survey reported offering at least one variable pay plan -- up from 67 percent in 1997.
"In general, we're seeing more companies move toward both financial and non-financial business incentives as a tool for helping employees focus on the business goals," says Ken Abosch, compensation business leader for Hewitt Associates. "Given that incentives generally pay for themselves through results and performance, these types of programs give employers more flexibility than traditional salary increases."
Jurs adds that rewarding employees based on meeting personal, group or other goals gives them the opportunity to earn much more than the four percent increase most U.S. workers get each year.
Just 20 percent of those interviewed for the ID survey said they receive no incentive compensation at all. (It's important to note that the majority of respondents are in sales and management positions.) The remainder said their incentive compensation is tied to: individual sales performance (23 percent), company or branch sales performance (21 percent), individual profitability (17 percent), and company or branch profitability (37 percent).
Experts say the pay for performance issue can also be related to a good benefits package. And those interviewed for the ID survey seem to be doing well in that department. Almost all of those surveyed get vacation time (93 percent) and health insurance (92 percent), while a high percentage (82 percent) receive sick time, as well. More than 70 percent can take part in a 401K matching program and 42 percent qualify for tuition reimbursement.
Much of the good news ID workers are hearing can be attributed to the "professionalization" of the industry, according to I.D.A.'s Buffington.
"Distribution continues to professionalize itself," he says. "So the compensation levels and the benefits [employers] are providing those people are going to go up accordingly."
The challenge now is to wait and see just how high those levels will rise.
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