A mixed bag: the highest-paid executives in construction

Construction News’ analysis shows that some executives have seen their pay packages fall while others are celebrating heights never seen before

The median pay for a chief executive at a FTSE 100 company reached £4.19m in 2023, the highest level on record, according to the High Pay Centre (HPC).. The HPC was cutting in its commentary on the data. “It is entirely understandable that lots of people feel very uncomfortable with pay awards that are way beyond what anyone needs to live a life of considerable luxury accruing to a tiny number of already very wealthy executives,” the centre says in the introduction of its report Analysis of UK CEO Pay in 2023. At the same time, “millions of others work incredibly hard” but struggle to cover housing, food and energy costs, it adds.

According to Construction News’ exclusive analysis of executive pay, construction industry leaders’ pay also towers above that of the average employee. The average annual package of the 20 best-paid construction executives has consistently risen since 2019, although the rate of increase has tempered since the huge jump of 66 per cent between 2020 and 2021. The following year it rose 30 per cent, and between 2022 and 2023 the increase was a more modest – but still inflation-busting – 17.5 per cent.

Industry commentators may say that rewarding directors for strong performance is a good thing, as it can drive further strong performance. And our analysis of headline numbers reveals substantial conditional bonus packages that take into account sustainability as well as workplace health and safety performance.

Within the sector, Construction News found that the proportion of executives enjoying a year-on-year pay increase has begun to fall. In 2022, 80 per cent of the sector’s top 20 executives enjoyed pay increases, dropping to 60 per cent in 2023.

The best-paid executive in the sector, Balfour Beatty’s Leo Quinn, saw his overall remuneration package slide by around 17 per cent – from £4.4m to £3.7m. But Quinn is still the most highly paid executive by a comfortable, though thinner, margin.

He is one of eight executives in the top 20 who saw their overall pay packages drop in 2023 – double the number of last year.

The pay increases for the remaining 12 counteracted the falls, resulting in the total pay packages of the top 20 construction execs going up by an average of 17.5 per cent year-on-year, the biggest rise being 123 per cent for Severfield’s Ian Cochrane. This suggests a slowdown after the surge in executive pay following the Covid pandemic.

Simon Rawlinson, head of strategic research at Arcadis, tells CN: “There is an important recognition of the role of senior management in driving forward organisational performance [and] shareholder value.” He points to the impact that Quinn and Kier chief executive Andrew Davies have had on boosting their firms’ financial performances – to name just two.

According to the latest data from the Office for National Statistics (ONS), average pay across all sectors was up by 6 per cent in 2023. Within construction it was up by just 4 per cent. “Earnings in the sector have lagged behind the wider economy,” Rawlinson says. This is despite the notorious labour shortage in the sector. Since the pandemic, the number of workers in the industry has fallen from 2.3 million to 1.8 million.

Ups and downs

Total pay dipped for eight directors at three firms – Balfour Beatty, TClarke and Renew. For those eight executives, basic pay rises averaging 9.8 per cent were cancelled out by lower performance add-ons.

Long-term incentive plan (LTIP) payments were down for all eight – while bonuses slipped for the executives at Balfour Beatty and TClarke, pushing their net pay packages down by an average of 20.4 per cent.

Quinn and Balfour Beatty’s chief financial officer (CFO) Philip Harrison both received praise in the firm’s annual report from
the firm’s remuneration committee for “performing strongly” against “consistent strategic business objectives”.

In particular, Quinn was recognised for achieving “strong progress” towards the company’s objective of achieving £3bn worth of social value by 2030. The firm achieved social value worth £937m in 2023, a rise of £120m on the previous year, according to its annual report.

The leader of the UK’s largest contractor was also praised for launching its Bridging the Gap sustainability plan and including scope three emissions in the firm’s carbon measurement methodology, which was not a requirement.

Harrison, meanwhile, received plaudits for replacing the firm’s revolving credit facility, which increased in value by £100m to £475m.

TClarke’s three top-paid directors could have received bonuses equivalent to 150 per cent of their basic pay packages, but only reached 86 per cent – mainly after they missed their operating profit target of £12m. The company posted an operating profit of £9.4m – with that specific target making up two thirds of the eligibility for a bonus.

Hiking the pay

After a strong year in which Galliford Try nearly doubled its pre-tax profit, chief executive Bill Hocking took home a full pay package of £2.4m, second only to Quinn and a hike of nearly £400,000 on the £1.9m Hocking scooped in 2022. In that year, Hocking was the fifth-highest paid executive in the construction sector.

Galliford Try’s success in 2023 also pushed its CFO Andrew Duxbury up to seventh spot, after he was tenth last time. His full pay package reached £1.9m, around 28 per cent higher than the £1.5m he earned in 2022.

The firm’s remuneration committee highlighted its commitment to its sustainable growth strategy, which included the acquisition of two businesses during the year. “Despite the macroeconomic headwinds, [Galliford Try] delivered another year of improved operational and strong financial performance,” the remuneration committee said in the firm’s annual report.

Due to that, bonuses were paid out worth 70 per cent of the maximum possible, and 97 per cent of the LTIPs from the year to September 2020 were also paid.

Morgan Sindall’s directors also made substantial bonuses following their performance. The firm’s remuneration committee said it had made “notable improvements in KPIs, underpinning priorities such as ‘securing long-term workstreams’ and ‘maintaining financial strength’”, while also meeting its environmental, social and governance (ESG) commitments.

In its report, the committee laid out how it had reduced its scope one, two and three emissions by 39 per cent since 2019 – on track with its 60 per cent reduction by 2030 target. That meant big bonuses for chief executive John Morgan, who scooped a full package of £2.3m, up from £2.2m the year prior. CFO Steve Crummett received a similar pay increase, from £1.8m to £1.9m.

The big pay gap

CN analysis shows that executive pay was at least 14 times greater than average pay across the sector’s top 20, with Leo Quinn having the largest multiple of 50 times bigger. In 2022, it ranged from 13 to 57 times higher for Leo Quinn, with an average of 28 times bigger.

Bill Hocking earned 44 times the average salary at Galliford Try, while Kier chief executive Andrew Davies’ pay was 38 times as big as the average company salary. On average, construction executive pay is 25.3 times bigger than average pay, while for FTSE 100 companies the multiple is 120 times bigger.

However, Arcadis’ Rawlinson points out that this may not show the full picture, due to the presence of subcontracting across the sector. “Within a construction business, […] you’ve got a lot more people who are senior grades than junior grades [within the company structures]”. If work farmed out to subcontractors was done in-house, the average salary would be lower, and the differential between average and executive pay would be greater.

This could also explain the relatively high average salaries across the board. At Morgan Sindall, for instance, the average salary was £80,166 in 2023, while it was £50,105 at steel specialist Severfield.

Slow progress on diversity

Earlier this year, CN reported that women make up only one of nine top positions at major construction firms. Analysis of executive pay paints a similar picture, with just one woman – Costain CFO Helen Willis – named in the top 20.

At 14th place, her full pay package increased by 22.1 per cent to break the £1m barrier. Her full package for the year came in at £1.1m, in comparison to £931,000 the year before.

Female representation is set to double in next year’s top 20 table, after Kelly Gangotra replaced Steve Crummett, Morgan Sindall’s current finance director in May 2024. As well as being another woman in the top 20, Gangotra would also be a person of colour in the top 20 executive pay list – of which there were none this year.

Two of the firms analysed had female non-executive chairs. Costain’s Kate Rock earned £195,000 in 2023, while Alison Wood of Galliford Try earned £182,900.

Safety focus

Safety is also taken into consideration when total pay packages are decided. At Balfour Beatty, the directors were marked lower on safety leadership after two fatalities at its construction sites in 2023.

“Despite strong safety leadership and safety metrics that are industry leading, there were two tragic fatalities in 2023,” the remuneration committee said.

“Reflecting on this the committee, in discussion with the executive directors, decided to apply downward discretion to the safety element of the strategic business and personal objectives for both executive directors.”

Rawlinson says it is “utterly appropriate” that safety is taken into consideration when it comes to construction firms’ executive pay, adding that it is an example of where “culture change has really, really been spectacular, and [safety is] taken deeply seriously”. Including safety in assessments should help to tackle safety issues on site, he adds.

But he also called on other contractors who do not take safety into account to include it in their remuneration considerations.

“It’s the organisations who have not done that that should be looked at as laggards, and they should be applying that into their organisations.”

He also believes the focus on safety should “cascade down into organisations” so that project leaders are incentivised to deliver the safety outcomes required in the sector.

The government’s pay plans

Without making explicit reference to executive pay, the new Labour government has committed to mandatory “action plans” for firms with more than 250 workers. These plans focus on closing the gender pay gap and ending outsourcing as a way for employers to avoid paying equal pay.

On top of that, the party has pledged to ban “exploitative” zero-hour contracts, widely used in the construction sector to manage change in demand for work.

Both of these policies would impact on wage budgets. But for now, there are no indications that executive pay will face any more scrutiny from this government.