Construction’s highest earners saw their total reward packages shrink as the industry battled the fallout from COVID-19. Greg Pitcher examines how the pandemic has changed executive pay and whether it will bounce back
The basic salaries of executives at listed construction firms have grown over the past year – but their overall rewards plummeted, a special analysis by Construction News has found.
As the pandemic hit, the 20 highest-paid bosses at the sector’s public companies received a combined £7.8m in fixed salary payments in the financial year covered by their most recent annual report. This is a rise of 6 per cent on the figure recorded in CN's analysis of the issue last year, when most companies’ latest annual reports predated the impact of the pandemic.
However, the overall remuneration packages taken home by the big hitters – factoring in variable elements such as bonuses and other taxable benefits – has gone down, falling by a fifth.
CN has examined the payments of the top executives, to show who has received what and how the sector compares with the wider economy.
Pay restraint, bonus compensation
Last month, research for the CN100 found that at least £600m worth of profit was wiped out among the UK’s largest contractors since the COVID-19 pandemic hit the industry.
Lower levels of output under social distancing measures on sites, coupled with delays to new jobs starting, made it harder for companies to cover their overheads. Firms also had to cover costs brought about by the pandemic, such as the requirement to make sites COVID-secure.
All this filtered down into company metrics that affect the value of performance-related measures in top executives’ contracts.
Last year seven executives took home packages worth £1m or more, whereas this year just four from two companies took home seven-figure sums.
Overall, the 20 best paid construction bosses took home a combined £16.9m, down 20 per cent on the previous year’s total.
The drop is similar to that experienced in the rest of the economy.
An analysis by independent think tank the High Pay Centre showed a 17 per cent reduction in the remuneration of chief executives at FTSE 100 firms across all sectors last year. It attributed this in large part to lower incentive-based rewards, as the economy struggled through the pandemic.
“The main cause in the decline in overall chief executive pay was due to the reduced payment of bonuses,” the centre’s researchers wrote in September. “For some companies this is due to voluntary pay cuts in solidarity with furloughed workers, whereas for others it is due not to meeting performance targets – a more common occurrence than usual due to the economic impact of COVID.”
The biggest corporate failure in the sector since Carillion is a reminder – if one was needed – that the post-pandemic economic recovery may not be smooth for everyone
Some contractors cut the basic pay of their executives during the pandemic, with bosses at Balfour Beatty, Galliford Try, Kier, Morgan Sindall and Renew taking cuts of between 20 and 25 per cent for two to three months, from April 2020.
The High Pay Centre welcomed the reduction in the salaries of top executives, but suggested it was unlikely to be the start of a long-term trend that would see the gap closed between the highest paid and the rest of the workforce.
“While we’d very much like to see the trend of reduced chief executive pay continue as we hopefully move out of periods of economic shutdown, we are also sceptical that this will be the case,” a High Pay Centre spokesman told CN.
“Most of the reductions in pay were temporary as a direct response to lockdowns and employees going on furlough rather than any structural changes. The likelihood is that we may see an increase in 2021 to something closer to 2019 levels.
“We do hope that the increased public awareness of inequality due to COVID-19 has reinforced the need for this to be a key issue if the government really hopes to ‘build back better’. But if a trend of lower chief executive pay is to come because of the pandemic, this is likely to only become clear after a number of years, as fluctuations have been normal in the past decade, albeit showing something of a plateauing in recent years.”
Quinn still top of the rankings
The trend of lower rewards was evident even among the highest-paid executives on the list.
Balfour Beatty chief executive Leo Quinn earned the highest fixed amount of any listed construction boss for the fourth year in a row. Nonetheless, his overall remuneration dropped from £3.1m to £2.1m, according to the company’s latest annual report. His annual bonus payment was cut after the firm missed its £181m post-tax target, achieving £36m in the relevant period.
Although Quinn’s level of reward dropped substantially in this year’s analysis, his position at the top of the pile has strengthened.
“Most of the pay reductions were temporary as a response to lockdowns and employees on furlough rather than structural changes. The likelihood is we may see an increase in 2021 to something closer to 2019 levels”
High Pay Centre
His total package at the top of the latest table was almost exactly 50 per cent higher than the second-highest paid, a big jump from the 35 per cent gap he enjoyed above last year’s second-placed executive, John Morgan.
Quinn returned to Balfour Beatty – where he had previously spent many years as a civil engineer – as chief executive in January 2015, a time when the firm was facing a number of difficulties.
He told analysts at the time that there had been a “conspiracy of optimism” at the firm, and shortly afterwards introduced the Build to Last plan, which is credited with turning the huge contractor’s fortunes around.
The company similarly bounced back from a half-year loss, posted in June 2020, to make a profit across the whole of last year.
Ground engineering risers
The second and third-highest paid both came from global ground engineering specialist Keller. Michael Speakman and James Hind – chief executive and North America president respectively – both saw their packages jump from below £1m to above it, causing them to rise from 16th and 10th on last year’s list. Speakman was promoted from chief finance officer midway through the previous year, while Hind relocated to the US and was compensated accordingly.
Keller reported a £29.2m pre-tax profit in the six months to June 2021, on revenue of £984.1m.
Speakman last year told CN the company wanted to expand its market share in the UK, with more work on HS2 key to its growth drive. Since then, it has won a £95m groundworks contract on the rail megaproject in a joint venture with fellow ground engineering specialist Bauer. Speakman said this summer that Keller could consider acquisitions in the UK next year as it eyes further growth.
Balfour’s chief financial officer Philip Harrison was the fourth-highest paid. He and Quinn were the only seven-figure earners from last year’s list still earning more than £1m.
Quinn’s table-topping salary was cut from £800,000 per year to £773,333, while Harrison’s dropped by £8,200 to £397,300, with the rest being made up of bonuses. Both took a 20 per cent salary cut for April and May 2020 in response to the pandemic.
Although Quinn’s level of reward dropped substantially in this year’s analysis, his position at the top of the pile has actually strengthened
The biggest falls came at Morgan Sindall, where chief executive John Morgan and finance director Steve Crummett saw their combined remuneration deals fall by almost £3m in a year. The pair received no annual bonus in 2020 and saw the value of long-term incentives plummet. Both also took a 20 per cent salary cut from 1 April to 30 June.
Crummett was the 11th highest-paid boss in 2021’s list with £751,000, falling from third last year, when he received more than £2m. Morgan’s basic pay was cut from £520,000 to £509,000, and Crummett’s fell £9,000 to £406,000.
Fifth-placed Morgan took home £936,000 for the year, compared with £2.6m previously. The company founder also made £4.1m from the sale of shares during the period covered by Morgan Sindall’s latest annual report, in February 2020, following a £4m share sale in November 2019, and prior to cashing in £13m more in April 2021 in what was described as an “estate planning” move. Share sales are not included in the analysis because they are not part of remuneration packages.
A spokesperson for the company said at the time: “[Morgan] is now 65 and the sale is about estate planning. He still retains a 7.5 per cent shareholding, which amounts to a circa £70m-plus stake in the company.”
She added that he was not planning to retire.
Although the firm's trading, like most in the industry, was badly hit by the pandemic, there have been strong signs that Morgan Sindall is bouncing back stronger. With pre-tax profit at £54.1m for the six months to 30 June 2021, higher than the same period in 2019, Morgan said he was “excited” about the future and “confident” of a continuing strong performance.
There were just five new entrants to the top 20 in our latest analysis – down from 11 last year, perhaps suggesting that companies are putting faith in trusted leaders to see them through the choppy waters of the pandemic.
The highest was Keller engineering and operations director Venu Raju, who went in as the ninth-best compensated construction executive at a listed company with a total package valued at £785,000.
Henry Boot chief executive Tim Roberts was not far behind, with his remuneration bundle of £715,000 placing him at 11th on the list.
TClarke’s finance director, Trevor Mitchell, was another new entrant, in 18th place, with a £595,808 package. Watkin Jones chief executive Richard Simpson was 19th with £537,044.
Severfield group finance director Adam Semple was the final new entrant, in 20th position, taking home just over half a million pounds.
Since CN started tracking executive pay at top firms in 2018, no women have made the list, reflecting the dearth of women in senior positions at UK contractors. Among the major listed firms, there is just one top female executive, Costain CFO Helen Willis, who joined the company in November 2020. The last female CEO was Debbie White, who led Interserve for two years until late 2019.
NMCN no more
The chief executive and chief financial officer at NMCN were among construction’s highest-paid plc bosses from that 2018 list onwards.
In last year’s rankings, then chief executive John Homer took home £1.2m and was the fifth-best paid boss in the industry. His colleague, group chief financial officer Daniel Taylor, landed 14th place with remuneration of £677,000. Both men left the company during 2020.
As CN was carrying out the bulk of the analysis for this report, the company’s accounts for 2020 were overdue and, as a result, its shares had been suspended from trading.
On 4 October, it was announced that NMCN, which previously had a £400m turnover, had gone into administration after failing to secure a refinancing package.
The biggest corporate failure in the sector since Carillion, coming on top of months of material and labour shortages, is a reminder – if one was needed – that the post-pandemic economic recovery may not be smooth for everyone.
Latest figures show that construction output fell for the fourth month in a row in July, as material shortages hamstrung work.
Recent data from the Department for Business, Energy and Industrial Strategy also revealed that overall construction material costs had risen more than 23 per cent in the year to August 2021, while surveyors have forecast that prices could rise a further 10 per cent over the next year.
With the prospect of high energy and fuel prices, and further supply difficulties over the winter, not all contractors will find it easy to meet the targets they are setting themselves for this financial year and beyond.
It is against this background that the leaders of the sector’s listed companies will try to steer their firms and reward shareholders – and ultimately themselves.