By Susan Avery -- Purchasing, 12/17/2009 2:00:00 AM
Results of Purchasing's 29th annual salary survey show that compensation rose 6.9% to $94,317 in 2009, up from $88,206 a year ago.
These findings reflect top management's recognition of purchasing's leadership role in controlling costs, and increasingly, at initiating activities that help add to the bottom line.
They also demonstrate that purchasing continues to draw professionals to the field who are experienced, well-educated and aren't hesitant about taking on increasing responsibilities, traits that tend to command higher levels of compensation.
They also demonstrate that purchasing continues to draw professionals to the field who are experienced, well-educated and aren't hesitant about taking on increasing responsibilities, traits that tend to command higher levels of compensation.
Purchasing is not alone in reporting such spectacular results for the profession, despite the recession and an unemployment rate that has topped 10%. The Institute for Supply Management (ISM) conducted a survey of its members earlier this year that also shows salaries climbing—6.8%.
Compared to their peers in other related professions, purchasers are faring well. They are better compensated than engineers and logistics managers and are enjoying salaries that are growing at a faster pace. Results of a reader survey by Design News magazine shows compensation growing 4.5% to $89,748, while a Logistics Management survey finds its readers finally saw salaries grow 5.9% to $85,000, after falling in 2005, then remaining stagnant for two years. These magazines, along with Purchasing, are all published by Reed Business Information.
"Purchasing is doing all the right things to position itself," says Phil Krotz, director of supply chain services at Rockwell Collins in Cedar Rapids, Iowa, and a survey respondent. He says that the supply operation at his company, which received Purchasing's Medal of Professional Excellence in 2005, is meeting more often with president and CEO Clay Jones as the economy recovers and is now involved in new initiatives that help the company improve inventory levels and cash flow.
"More CEOs are bringing purchasing to the table, asking, 'where can you help us?'" says Russ Boyd, senior procurement and contracts specialist with Perot Systems in Plano Texas, and a survey respondent. He sees purchasing taking on a bigger role in such non-traditional areas as risk mitigation at their companies. "We've always been involved to a degree in supplier risk, but now we are paying more attention to the financial aspects of risk."
Purchasing professionals responding to Purchasing's salary survey this year fall into a demographic profile of professionals who earn salaries generally higher than the average. Survey respondents work for big companies (with over $500 million in annual sales), have many years of experience and manage larger spend categories (over $50 million). For the most part, they have supervisory responsibility and work in senior management positions in corporate purchasing operations. They have graduate degrees and hold professional certifications.
One respondent, for example, is the CPO (corporate procurement officer) at an energy company with more than $3 billion in annual sales. With 30 years of experience, he holds a technical degree and is responsible for more than $500 million in annual spend; one of the more important categories he manages is services. He earns a salary of $700,000, with bonus.
More respondents work in the process and energy/mining and utilities industry sectors than in previous years. These sectors tend to provide purchasing pros with positions that are well paid. On average, those working in the process industries earn $109,687, with those in energy/mining and utilities seeing yearly paychecks of $107,750.
Purchasing professionals who toil in manufacturing, an industry particularly hard hit by the recession and the high unemployment rate, on the other hand, saw average annual compensation fall in 2009. Purchasing salaries in the wholesale/durable goods industry sector declined $4,042, while compensation decreased $1,830 for purchasers in the automotive/transportation sector.
"Purchasing has been able to increase salaries significantly over the past 20 years because they've made the function a core part of the business," says Tonia Deal, president of Tonia Deal Consultants in Hudson, Ohio. "Still, there is some great talent on the market because of the economy and all that has happened. For instance, in the auto industry, there are people who were earning more than $100,000 taking positions paying in the 90s and looking to make up the difference with bonuses."
Deal says purchasing operations became leaner this year with companies hesitant to move on higher level director and CPO posts, opting instead to fill the roles internally. "And there are purchasing professionals who were managing $100 million in spend now responsible for spends of $300 million," she says.
Kevin Rohan, director of procurement recruiting at J.P. Canon Associates in New York, says that while hiring was down considerably in 2009 compared to previous years, there were companies that were hiring selectively. "In the beginning of the year, we saw companies freeze merit increases and annual reviews, eliminate bonuses or reduce them significantly and suspend pension and 401K contributions," he says. "Layoffs and hiring freezes meant longer hours and heavier workloads for employees.
Retention of top performers was a priority for many clients who found it more cost effective to give pre-emptive increases or promotions, but to fewer employees." But many companies also took the opportunity to strengthen and improve their purchasing operations, with hiring occurring in the pharmaceutical/healthcare, consumer products and financial services industries.
Positions Rohan worked to help fill in the past year include those with responsibility for these spend categories: raw materials (chemicals), packaging, technology (IT hardware/software/services), contract manufacturing and MRO/facilities/capital equipment.
Even with the recession, he says there were some roles that were difficult to fill, especially those that require chemical engineering or technical backgrounds.
Even with the recession, he says there were some roles that were difficult to fill, especially those that require chemical engineering or technical backgrounds.
Coincidentally, salaries for purchasing professionals with degrees in these areas saw some of the greatest increases in compensation, according to results of Purchasing's salary survey.
Bargaining for bonuses...
Bonuses have always been an important part of compensation packages earned by purchasing professionals responding to the salary survey. This year, a slightly smaller percentage of respondents (62%) got bonuses compared with last year (64%). Still, the amount of bonus is the same (14% of salary).
Bonuses have always been an important part of compensation packages earned by purchasing professionals responding to the salary survey. This year, a slightly smaller percentage of respondents (62%) got bonuses compared with last year (64%). Still, the amount of bonus is the same (14% of salary).
The bonuses are based on meeting company financial goals for 66% of survey respondents. Other criteria for receiving a bonus include progress toward product development cost targets (for 21% of respondents), cost targets for purchased parts (for 18%), supplier quality improvements (8%) and cycle time improvements (6%).
Rohan at J.P. Canon reports that companies in the pharmaceutical/healthcare, food and beverage and financial services industries all paid bonuses in 2009. Bonuses, he says, "are especially important now as they are a good sign of a company's financial health."
Respondents to the salary survey also receive stock options (17%), with a median value of $11,000. Last year, 16% got stock options, with a median value of $9,000.
Respondents to the salary survey also receive stock options (17%), with a median value of $11,000. Last year, 16% got stock options, with a median value of $9,000.
While the percentage of salary survey respondents receiving bonuses as well as the amount of the bonus has changed little in the past year, purchasing still is doing better than other professionals. Results of a recent survey of 1,156 large organizations by Hewitt Associates, a human resources consulting and outsourcing company in Lincolnshire, Ill., show spending on variable pay (bonuses) as a percentage of payroll for salaried exempt employees in general was 12% in 2009. For 2010, companies are budgeting variable pay bonuses at 11.8%.
"Even in the toughest economies, companies are willing to reserve money for top-performing employees as a way to reward performance and ensure they retain these employees after the job market rebounds," says Ken Abosch, leader of Hewitt's North American broad-based compensation consulting business.
Data from the Hewitt survey show base salary increases for all professionals averaged in 2009 were just 1.8% and are expected to rise to 2.7% in 2010. Industry sectors expecting above-average salary increases in 2010 include energy (3.7%) and food/beverage/tobacco (3.1%). Industry sectors with the lowest expected increases are industrial machinery/equipment (1.2%) and automotive/vehicle manufacturing (1.2%).
2010 outlook...
Already Deal at Deal Consultants sees some pick up in hiring among companies, especially in the consumer products goods industry. "These are companies that had positions on hold for over a year that are finally moving forward," she says, adding that purchasing professionals looking for work will see more activity starting up after the holidays.
Already Deal at Deal Consultants sees some pick up in hiring among companies, especially in the consumer products goods industry. "These are companies that had positions on hold for over a year that are finally moving forward," she says, adding that purchasing professionals looking for work will see more activity starting up after the holidays.
Rohan at J.P. Canon notes an uptick in hiring of purchasing and supply chain professionals since August, especially for temporary positions. He also sees increased activity from management consulting companies. "We anticipate that hiring will continue to improve in the first and second quarters of next year and that hiring criteria will continue to be comprehensive," he says.
"The expectation of most hiring managers we have worked with this year is that the selected individual will have prior industry experience, expertise in the managed supplier base, appropriate systems knowledge, and be able to deliver a result right away," he says.
"The expectation of most hiring managers we have worked with this year is that the selected individual will have prior industry experience, expertise in the managed supplier base, appropriate systems knowledge, and be able to deliver a result right away," he says.
Echoing these thoughts on qualities companies look for in purchasing professionals is Brent Shinall, vice president, global supply chain, at Helix Energy Solutions Group in Houston, who says that negotiation skills are always at the top of the list of what he looks for when hiring an individual for his team. "But I would take it a step further than that," he says. "At Helix, we are leaders of projects and sourcing initiatives, so we like individuals who are not afraid of that role." Many of the purchasing pros on his team have technical degrees.
According to the Bureau of Labor Statistics Occupational Outlook Handbook, 2008–09 Edition, a bachelor's degree, combined with industry experience and knowledge of a technical field will be an advantage for those interested in working in purchasing at a manufacturing or industrial company through 2016. It reads, "Demand will be stronger for purchasing in the services sector as it grows more rapidly than manufacturing."
Still, the BLS shows employment for purchasing growing more slowly than average for other functions. Work purchasing has done over the past few years to automate processes has helped to take the function from tactical to strategic—and raise compensation levels, but it has also put a damper on demand for new hires, because it now takes fewer people to do the work.
