Practices claw back lost ground on prices

With fees edging up, pay rises are returning. Yet salary bills generally seem static. How’s that?

The latest services producer price estimates by the Office for National Statistics suggest that inflation in architectural services in the first quarter of 2016 was about 1.3%.

That’s slower than price rises seen late last year, when annual inflation was topping 2%. But it’s still good news for the bulk of architectural practices that suffered a depressing squeeze on fee levels and a struggle to push them back up. It is, after all, a real increase in prices.

The data series for architectural services doesn’t go back before 2010, but since then prices have risen just above 7%, compared with consumer price up about 12%. Given that wages make up a large slice of costs it’s not surprising that pay rises have been tight for years.

However, consumer inflation has been fairly static for a couple of years. This has given room for practices to sustain real price growth without huge hikes in prices. Consumer prices over the past two years were up about 0.5% while architectural services prices rose by about 3.2%.

The healthy construction market over that period also appears to have supported a gentle boost in prices. As we see from the chart, the index of architectural services prices bumped up faster than the overall producer services index.

This will have given more scope to raise salaries. Naturally architects can do things ever smarter, boosting productivity, and in doing so create opportunities to raise pay higher salaries without charging clients more. But, at the same time, there is constant pressure to improve the quality of work, the value of which doesn’t necessarily get accounted for in the figures even though the client gets more for less.

So how is pay doing according to official data? The chart includes the annual average hourly pay rates for architects and chartered architectural technologists, together with trend lines to indicate the general direction of travel. Mean and median pay data come from the Annual Survey of Hours and Earnings. There’s no data for architectural technologists in 2010.

The chart shows that both median and mean earnings for architects have been pretty flat. The optimist might see a hint that the mean may have risen gently. Given the vagaries in the data it’s wise to assume average hourly pay among architects has been flat over the past six years, measured both as a mean and a median.

Pay rates for architectural technologists is more interesting. The mean has been rising reasonably strongly, about 4% to 5% a year on average. But the median earnings have, like those of architects, remained flat.

This may all seem rather puzzling at first sight, especially to those who’ve seen their personal earnings rise. But there’s no need for confusion, smugness, coyness or embarrassment. There’s a perfectly reasonable, albeit speculative and statistical, explanation that seems to fit the facts.

Pay rates for architectural technologists is more interesting. The mean has been rising reasonably strongly, about 4% to 5% a year on average. But the median earnings have, like those of architects, remained flat

The thing about averages is that they tell us less about individual experiences and more about the group. The group, however, has a habit of changing.

After inevitable freezes on recruitment over the recession, practices have been taking on staff over the past two to three years or so. Many, if not most, will be taking on young blood in junior roles. They don’t earn as much as the experienced staff – those that survived various culls and those that didn’t.

Statistically, the effect is likely to drag down both the mean and to a greater extent the median, as the higher proportion of newcomers will be at the lower end of the pay scale. So, while experienced talent may be enjoying fairly refreshing pay rises, this need not raise the average.

Meanwhile, practices will also be looking to recruit technologists. We might assume also that the new recruits will be younger and be earning less than existing staff. What is interesting is that the rise in the mean, while the median stays flat, suggests there has been quite a bit of a catch up in pay among more experienced technologists.

So, this is one reading of the data. And it’s positive. It suggests that fees are rising, recruitment is pretty strong (which we know from RIBA surveys) and experienced staff are getting what they will feel are long-overdue pay rises and promotions. But the wage bill for practices measured on a per-head basis may not be rising that much.

The downside is that with younger teams the need for training and mentoring is higher. But looking positively, this is an opportunity to correct any past mistakes by nurturing new talent.