Controlled cuts

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A rocky economy has forced many employers to hit the breaks on raises and bonuses in 2010, but they're still hanging on to key talent.

April 13, 2010

Rob JohnsonIt wasn’t something he’d ever done before. And it wasn’t something he wanted to do.

At the end of 2009, Mike Stephens didn’t dole out his usual employee bonuses – for the first time in the seven years he has owned The Lawn Ranger in Kyle, Texas.

And wages? Stephens had to freeze them, too.

“This year I’m trying to get by paying employees what I think it’s going to take to keep them around,” Stephens says. “I’m starting new employees off lower, and if they’re not performing at a high standard, then I’m going to be a lot quicker to replace them. If they’re slow, it’s costing me money.”

For his commercial and residential ground maintenance, landscape installation and design firm, which brought in $400,000 in revenue last year, every saved dollar counts.

It’s a situation many lawn and landscape businesses are grappling with right now.

The slow but steady increase in employee salaries over the past few years hit a speed bump in 2009 – and the road isn’t going to get any smoother in 2010. Due to an economy in need of repair, many companies like The Lawn Ranger have been forced to maintain their 2009 wages – and, in some cases, even to reduce compensation to levels below last year’s.

It doesn’t mean employers value their employees any less. It’s just a product of the times.

“My employees realize what’s going on,” Stephens says. “I pretty much had to flat-out tell them, and with the economy, they understand. In years past we’ve almost doubled revenue every year, and this year it’s pretty much staying the same.”

The Numbers Game
The double-digit pay increases many employees enjoyed in 2008 are a thing of the past.

Business owners surveyed by Lawn & Landscape reported that for hourly workers, only spray technicians received a 6 to 7 percent pay increase in 2009. For the most part, other employees across the board were hit with wage reductions.

The same holds true for most salaried employees. Only owners/operators and crew foremen/leaders received pay hikes – typically between 2 and 4 percent. For supervisors, account managers, landscape designers and architects, wage cuts between 1 and 4 percent were the norm.

Yet average wages for most categories are still higher in 2009 than they were when the same research was conducted in 2007. It’s anyone’s guess at this point whether that’s good news – or whether it means wages still have farther to fall.

Of course, how much employers pay varies depending on their location and size of business.

Tom Curdes, owner of two companies, Barron’s Lawn Service and Weed Man, both in Toledo, Ohio, is paying $8 an hour for new laborers and $10 to $12 an hour for team leaders. This year, Curdes says, compensation packages will be close to what they were last year. “We went against the trend in 2009 and gave raises, but for 2010 we are going to freeze all salaried employees,” he says.

“I’ve always started guys out fairly high in the $12 an hour range, although that will probably have to change,” says Bill Commers, owner of Bill’s Lawn and Landscape in Greenfield, Minn. “We didn’t do a lot of cost-cutting last year, but this year I’ve already started it. I’m cutting out some advertising and some of the fat, so to speak, and getting as lean as I can.”

The goal with these cuts, Commers says, is to keep compensation as close to last year’s wages as possible. “There’s just not a lot of demand right now in this market and there’s still a lot of competition, so if people want to continue to work they’re going to have to sit tight and hold on to what their salary is,” he says. “There won’t be any bonuses or big pay raises this coming season.”

It’s a common scenario. “I think everybody at one time was probably giving 3 to 5 percent raises annually, until the bomb dropped,” says landscape industry consultant Jack Mattingly of Mattingly Consulting. “Now it’s going to be awhile before raises come back. It all depends on this economy.”

One problem? Mattingly says homeowners and corporations are not spending money on improvements – at least through this year, maybe even for two or three more years. As a result, landscape companies will continue to struggle with raises.

“It’s difficult to raise the pay of individuals in this environment, with many companies low-balling their bid just to keep work on the table. When your single biggest expense in the company is labor, such as in the landscape business, it is almost impossible to give raises,” Mattingly says.

Jean Seawright of Seawright & Associates, a human resources management consulting firm, says it’s a trend that isn’t exclusive to the lawn and landscape industry. “Salary freezes and lower bonuses were common over the past year – approximately 30 percent of employers across the board froze salaries in 2009,” she says. And according to a recent Mercer compensation survey, 18 percent of service firms are expected to maintain pay freezes in 2010.

Yet some companies are bucking the trend. “We’re paying more,” says Maurice Dowell of Dowco Enterprises, a full-service landscape maintenance company specializing in high-end residential properties in the St. Louis suburbs.
His company, with a revenue of $2.4 million, pays hourly wages of $14.34 for design/build laborers, $12.17 for maintenance, $18.59 for irrigation and $16.14 for lawn care.

“With the economy the way it is you have an opportunity to pick up ‘A’ players, and they give us a greater return on our dollar spent,” Dowell explains. “I don’t mind spending money up front because the return is quality and leadership. You get what you pay for.”

Considering the Competition
Figuring out what to pay employees is a constant challenge for businesses large and small – particularly right now.

“There is both an art and a science to designing an effective compensation plan,” Seawright says. “To be perceived as fair, pay rates and overall target compensation must be consistent with market standards and must be equitable from an internal standpoint.” In addition, she says all compensation plans must fit within the framework of what is legally acceptable.

“The days of the $6 (an hour) laborer are gone,” Curdes says. “Twenty years ago you could find all kinds of people for that. Today, with minimum wage, you can’t do that.” But, he says, the quality of employees is improving.

In order to determine wages, Curdes considers his budget as well as what it takes to stay competitive with other companies in his area.
Mattingly encourages business owners to learn what the competition pays for certain positions. “Have you considered calling the competition and asking what their pay ranges are? Pay fairly but don’t overpay,” he says.

Compensation depends on competition and what the marketplace will bear. “If you pay minimum wage, you’re not going to get good employees,” Commers says. “ I’ve always thought that you have to pay more for physical labor. You just try to pay a fair wage that’s competitive in the marketplace.”

For Stephens, the key is offering those employees he can’t live without a bit more than they can get working elsewhere so they’ll stick around.

Dowell says putting fewer guys on each truck and paying them more increases profits. “The biggest thing is economies of scale. Our clients demand a lot but their properties are generally relatively small and located close to our facility,” Dowell says. “We put as few individuals out there as we have to in order to get the job done.”

“Our guys can make more money than at any other landscape maintenance company because we don’t have the waste of five or six guys on a team,” Dowell adds. “Our people are skilled, a lot of associate degrees or higher, and are able to come out and practice their trade, the skill they went to school for.”

Rock-Star Recruiting and Retention
For employers who are positioned to offer at least a little bit more than competitors are paying, it’s actually prime time to recruit new talent.

“I haven’t had any problems finding employees,” Commers says. “With the down economy there are a lot of good, qualified candidates out there, so in some respects it’s a good time to hire because you can probably get labor less than you could’ve five years ago, just based on the economy.”

“One thing I’ve seen that blows me away is the range of people you get when you now run an ad,” Curdes adds. “The different skill sets range from just out of high school with no skills to the people who have been factory workers to professionals who are just looking to find a job.”

It’s also easier for employers to keep quality workers around – even if they are getting paid less.

“People can’t find jobs right now – that’s the fact. These employees know it. They’re just happy to have a job right now,” Mattingly says. “From the owner’s standpoint, you have to be fair. We shouldn’t take advantage of the situation, but at the same time we have to make adjustments in order to survive.”

It all comes down to communicating the reasons for pay cuts. “Start sharing information so they know it’s nothing personal, that it’s a business decision,” Mattingly says. “Most employees will understand that. They won’t like it, but they’ll understand it, particularly if you hold wages for the entire company.”

“When you explain everything to them, they understand,” Curdes says. “They’re not oblivious to what’s going on in the news. They see the same forecast and newscast I do every day. But I never use the ‘r’ word in our business. If you portray to employees that there’s a recession and there’s an issue with the economy, they’ll believe there’s an issue.”

If you tell them you’ll continue to forge ahead, Curdes adds, they’ll believe that. “You have to have a positive attitude and lead by example,” he says.

“The company is in the driver’s seat at this time,” Mattingly says. He sees companies watching their production and efficiencies and not hiring any more than people than is absolutely necessary. “They are lean and mean when it comes to labor. Therefore, the employee cannot become too demanding when it comes to raises.”

Developing relationships with employees – much as companies do with clients – is key, Mattingly says. “Employees need to be recognized, appreciated and liked by the managers and owner of the company. Treat them with respect and be clear on your expectations,” Mattingly says.

To gain an upper hand in recruiting and retaining employees, Seawright says landscape companies need to earn the reputation of being an “employer of choice.” That involves providing an attractive company culture, fair pay and benefits, strong leadership, a professional image and a positive community reputation.

“As the economy begins to improve, it will become even more important for employers to ensure they position their organizations to keep talent,” Seawright says. “To retain talent, an employer will have to ensure that compensation and benefits are competitive and aligned with industry and market standards.”

Dowell agrees that down times are ideal for developing a company culture that fosters growth, inclusion, training and earning – the type of environment that attracts potential applicants. “You will get people who come in and say they’ve heard about you,” he says. “It gives you higher-caliber individuals in your organization and is an opportunity to sharpen management skill and position your company for success.”

The author is a freelance writer based in Lincoln, Ill.