Perspective: Assessing the Bottom Line

By Betsy Feigin Befus, National Multi Housing Council

Economists track a variety of indicators to assess the strength and future performance of the overall economy of a particular industry. For our industry, that means vacancy rates, rent levels, transaction volume and the availability of both equity and debt financing. But employment and compensation trends are two of our industry’s most important data sources; they reveal the industry’s vigor and how it is reacting to the present set of economic challenges and opportunities.

NMHC recently released its tenth National Apartment Survey of Compensation & Benefits Practices, published in partnership with Watson Wyatt Data Services. This year’s survey provides detailed data on the apartment industry’s compensation and benefits plans for more than 65 positions.

It goes without saying that apartment firms are cutting expenses everywhere—from the corporate level and regional offices to individual apartment communities—during this period of higher vacancy rates and slower rent growth. Employment-related budget items such as salaries, incentive pay, 401(k) contributions and medical insurance are being carefully scrutinized as apartment executives decide whether these items are human capital investments with appositive bottom-line impact on productivity or discretionary expenses.

Salary information

This year’s survey found that budgeted median increases for 2009 were 3.0 percent for all employees. In 2008, by comparison, actual median salary increases were 3.0 percent for non-executive managers and nonexempt employees, including leasing consultants and other staff who are entitled to overtime pay under the Fair Labor Standards Act. The actual median salary increase for executives at the vice-president level and above reached 3.3 percent in 2008.

The survey projects median salary increases for 2010 at 3.0 percent for all employees, and average salary increases of 3.0 percent for executives, 2.8 percent for exempt  non-executives and 2.8 percent for nonexempt employees. According to Watson Wyatt’s 2009-2010 Salary Budget Report for general industry, which does not provide median salary increase data, 2010 projections for average salary increase budgets are 3.1 percent for executives, 3.0 percent for non-executive managers and 3.0 percent for exempt employees that are not managers; average increase budgets are 3.0 percent for nonexempt salaried employees and 2.9 percent for nonexempt hourly staff in 2009.

NMHC’s survey reveals reductions in total compensation for some key corporate and on-site positions. Some firms reported cutbacks in some or all compensation areas, including base salary, short- and long-term incentives and medical insurance. Even when incentive and bonus programs have not been changed, market conditions have resulted in reductions in pay.

Employee turnover

The apartment industry has long struggled with employee turnover, especially among on-site staff, resulting in a significant impact to the bottom line. Turnover can cause damage to resident retention and new lease-ups. It also translates into higher recruiting, screening and training expenses. It is therefore important for apartment firms to carefully balance the need to contain expenses with the need to keep employees engaged and productive when considering cost-cutting. Providing competitive pay—particularly when it comes to the high performers who will carry the company through difficult periods—is critical. Fairly compensated employees who are kept informed about the company’s organizational plans and financial health are more likely to remain loyal and productive, thus keeping overall employee turnover to a minimum.

Employee turnover can indicate an organization’s ability to hire and retain well-qualified, productive employees. Unfortunately, it can also be a measure of deficiency in a company’s compensation and benefits practices.

The average total turnover rate remained relatively unchanged at 36.1 percent for the period from April 2008 to April 2009; from April 2007 to April 2008, it was 36.9 percent. The average total turnover rate for leasing consultants (54.9 percent), maintenance assistants (52.0 percent) and maintenance technicians (43.4 percent) is particularly significant because those on-site positions are arguably the most influential drivers of both new leases and renewals. Similarly, corporate and regional-level property operations staffs have the highest turnover rate—29.2 percent—among all categories of corporate and regional positions.

Employee salaries and benefit costs for the year ahead are at the forefront of the overall budget planning process facing many firms in the fourth quarter. With detailed compensation benchmarks for dozens of multifamily-specific positions, NMHC’s Survey of Compensation & Benefits Practices is a valuable tool to help apartment firms make smart decisions during a difficult time.

(Betsy Feigin Befus is vice president, employment policy & counsel for the National Multi Housing Council in Washington, D.C.)