Earning Curve

Pay continues to rise across the board in distribution, though some workers are moving ahead faster than others

By -- Industrial Distribution, 11/1/2000

The bigger the title, the bigger the paycheck. That couldn't be more true in the industrial distribution business.

Industrial Distribution surveyed over 200 readers for our 13th Annual Salary Survey earlier this year. The results show that, across the board, employees continue to reap the rewards of a good economy and tight labor market. The median industry paycheck is $65,000 a year, according to respondents, who say their pay rose 5.5 percent last year-a significant raise compared to national averages cited in other surveys. Chicago consulting firm Hewitt Associates, for instance, has shown for the past few years that salary increases have leveled off at around 4.3 percent for most U.S. workers.

But that's just part of the story. How well you're doing in this business largely depends on where you sit and how you answer the phone. Top managers and outside salespeople have seen healthy pay increases since 1997, while pay for inside sellers has been less than spectacular. For instance, outside salespeople responding to this year's survey said their pay rose from $50,000 in 1998 to $57,000 this year. In comparison, inside salespeople saw their pay rise from $33,000 in 1998 to $34,000 this year.

The disparity in sellers' pay is magnified by the growing levels of responsibility and professionalism associated with inside sales departments. Al Bates, president of the Profit Planning Group in Boulder, Colo., says the issue is largely one of attitude. While he agrees that inside sales is becoming a more strategic position for many distributors, he says some just can't shed the "order taker" mentality towards the job.

"I just don't think there's any respect for that position the way there should be," says Bates. "There may be some other problems, as well, but [inside sales] is still a 'counter person' in terms of [many] distributors' thinking."

Those are just some of the results of this year's Salary Survey, which actually tracks more than employees' regular weekly paychecks. Each year, our survey asks readers about their total yearly earnings, including bonuses and commissions. To track changes in compensation levels, we ask for earnings information going back three more years-in this case, for 1997, 1998 and 1999-as well as anticipated, year-end 2000 figures.

The rising paychecks reported this year are good news to employees, but employers are starting to feel a crunch as the economy begins to slow. Bates, whose company recently completed its latest industry Employee Compensation Report, says payroll is "out of control" across the country. The problem, he says, is that payroll expenses are rising faster than sales, and distributors are struggling to find ways to close the gap.

"Right now, particularly for distributors, it's hard to raise prices," says Bates. "Things are still good, but they're not wonderful on the sales side."

The obvious answer is to find ways to reduce internal costs, but Bates notes that many companies are running out of ways to do that. They've already installed bar coding programs and other efficiency-gaining technologies and are left wondering what else they can do. One answer is to cut services and functions that aren't of great value to customers or to examine minimum order quantities and the costs associated with processing them. At any rate, distributors should abandon the wait-and-see attitude and begin taking action, says Bates, as the situation is likely to continue.

And distribution employees are likely to keep earning big paychecks. Respondents to our survey anticipate a five percent raise this year, which is still above national averages. In the following pages, we'll take a closer look at those earnings and what workers can expect in the years ahead.

Your "typical" distributor

Respondents to this year's Salary Survey fell into several job categories. Twenty-one percent identified themselves as outside salespeople, 19 percent as inside salespeople, 16 percent as CEO or president, and 15 percent as sales managers. The remainder filled a variety of jobs-from branch manager to treasurer to warehouse manager. While our results show what each position earns, evaluation of all the survey results gives us a picture of the "typical" distribution professional. He (87 percent of the respondents were male) is 46 years old, earns $65,000 a year, and works for a company that has annual sales of $13 million. He also has a bachelor's degree, 18 years of experience in the industry, and has worked for two industrial distributorships over the course of his career. (All figures represent the survey's median score.)

When analyzed by job title, our results are in line with those revealed in other industry surveys. For example, our study shows that the average CEO/president will earn $110,000 this year. According to Bates' Employee Compensation Report, the typical industry CEO/president earns $140,000. (The Profit Planning Group report is compiled every two years and examines compensation trends across a range of distribution segments.) Other comparisons are as follows: In our report, the typical outside salesperson earns $57,000, as compared to $47,000 in the PPG study; inside sellers earn $34,000, as compared to PPG's $31,000; and branch managers earn $60,000 according to our results, as compared to $59,000 in the PPG study.

Regional winners

The biggest paychecks are going to workers in the West-specifically, those in the mountain states and on the West Coast. Those workers reported a median paycheck of $100,000 this year, following a trend of high salaries going back to 1997. Since then, median compensation levels have risen each year from $78,000 to $86,000 to $95,000.

Sample size could be a factor in those figures, however. Sixteen percent of the respondents were from the West, as compared to 19 percent from the East, 27 percent from the south and 37 percent from the Midwest. The median paycheck in the East is $55,000, compared to $62,000 in the South and $68,000 in the Midwest.

We also asked readers about their total household compensation-and again, Westerners came out on top. Their median household income is $128,000, as compared to $91,000 in the East, $75,000 in the South and $98,000 in the Midwest.

Rewarding wisdom

Age and experience are still key compensation factors, as we've seen in past surveys. Respondents between the ages of 51 and 60 make the most money-a median $95,000. Those over 61 were next, with a median $75,000 a year, followed by those in the 31 to 40 and 41 to 50-year-old brackets, who earn a median $64,000 and $63,000 a year, respectively. Respondents between the ages of 20 and 30 earn a median $38,000.

Industry experience is still important, but seemed like less of a factor this year. There is little difference in earnings between workers with one to 10, 11 to 20 and 21 to 30 years' experience. Those employees reported earning a median $60,000, $61,000 and $65,000 a year, respectively. Those with between 31 and 40 years' experience did earn a lot more, however-a reported $115,000 this year.

In demand

While pay levels are predicted to stay high, they're rising faster for some positions than others. The Hewitt Associates study showed that 82 percent of employers feel the most pressure in attracting and retaining information technology professionals. This continues a trend that began several years ago. Other areas in which companies are struggling to find and keep quality talent include engineering, sales, and finance, according to the study. As a result, "employees in each of those fields can expect to see salary increases higher than the national average," the study reported.

The demand for IT professionals is being felt in industrial distribution, as well. When asked if their compensation is tied to their knowledge of technology-information systems, software programs, and the Internet-28 percent said yes, which is in line with results over the past few years. Interestingly, the majority of those who answered positively are in sales-38 percent in outside sales and 31 percent in inside sales.

In Summary

While pay levels are good, industry professionals can count on a solid benefits package, as well. Almost all respondents report receiving vacation time, sick time and health insurance, and 80 percent can take part in a 401K plan. Other top benefits include family health insurance (69 percent), dental insurance (64 percent), short and long-term disability (60 percent), in-house training (58 percent), and tuition reimbursement (45 percent).

As good as industry compensation packages are, however, there is still room for improvement, according to some. Twenty-five percent of those surveyed this year listed the need to make more money as a reason they would leave their present job. The top reason was retirement, at 32 percent. Other reasons cited included unease about their company's future and dissatisfaction with their last raise.

Finding and keeping employees is sure to be a top concern for distributors in the year ahead, as the tight labor market shows no signs of loosening. A recent Employment Outlook Survey conducted by Manpower, Inc., showed the strongest year-end demand for employees in the study's 25-year history. Manpower interviewed 16,000 companies nationwide and found that 32 percent plan to add employees this year, while seven percent expect to decrease their numbers, 57 percent plan no changes, and four percent are uncertain.

The figures indicate that competition for good workers won't slow down any time soon-which is good news for employees, but a continued challenge for employers.

"It's a buyer's market," Bates explains. "And we don't see any major changes away from that."

Executive Decision