Uncovering the Crown Jewels of Procurement Salary Benchmarking in ISM’s 2014 Salary Survey

- May 12, 2014 2:19 AM
Categories: Commentary, Industry News | Tags: ,

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The Institute for Supply Management (ISM) released its ninth annual salary survey, and I’ve been spending some time pouring through the detailed study results (which can be purchased on the ISM web site here). I have to say that it is an impressive document containing some very interesting findings. I’ve also been spending time going through some of the results with Paul Lee, my research partner at ISM on the snap polls that we’ve been doing together. Let’s go through some of the key findings and implications:

Salaries have decreased 2 percent from $103,793 in 2012 to $101,608 in 2013. What?! With procurement being more valuable to the enterprise, how can this be? Especially since the “Amount of Pay” was the most important feature of a new position for supply chain candidates – followed by “Prospect of Improved Work/Life Balance” and “Benefits Package Offered” (there were 14 such factors listed in the report).

So what’s causing it? Cost containment of labor expenses is likely the major factor, and economist Mark Zandi from Moody Analytics did show that US labor expense growth has basically shrunk to zero, which is great for a macroeconomic driver of US revenue growth, but the flip side of course is the effect on wages. Just look at the 10-year procurement efficiency benchmark trending from The Hackett Group, and you’ll see the visible hand of CFO-led efficiencies pretty clearly. There are other factors here too. I asked Paul about the wage lowering effect of offshoring, and he said that while there was a small effect from this, it only explained part of the decrease. Another factor could be the inherent variability in the data based on the sample, even with the large sample of 2,316 respondents. Paul is currently tuning the model to provide more accurate trend analysis that eliminates the sample variation that occurs year-to-year in multi-population studies.

Higher bonuses, but less of them. There are 6 percent fewer bonus recipients than 2012. Sixty-two percent received bonuses – down from 68 percent. However, the average bonus has risen to $18,360, up 4 percent from 2012. The study showed that compensation packages that include bonuses and stock options can significantly increase pay. The average of the top 5 percent of bonus earners came out to an impressive $127,000 (about 43 percent of salary) – something akin to a sales rep’s bonus! Also, the study showed the degree by which variable compensation (in the form of bonus as percentage of salary) increases with positional level. CPOs had bonuses that represented about 37 percent of their salary. The study even lists how bonuses vary by tenure and by the criteria of how the bonuses were calculated.

It’s nice to have options – stock options. It’s important to note that stock options are not included in the salary figures listed in this summary, nor in the report. But, the report did actually ask for and analyze stock options. The average stock options value was $29,435 and the median was $12,600, which shows skewing of the population. And it’s indicative of how much stock options begin disproportionately contribute to the highest salary earners – reflective of executive compensation in general. The report stratifies stock options value against many variables.

Men are paid almost 30 percent more than women. The average salary for the men who responded was $112,677, compared with $87,071 for women respondents. This nearly 30-percent difference is a fair degree more than the 20-23 percent gender gap statistics usually cited for the broader US labor market. However, female CPOs turn the table on their male counterparts by roughly the same percentage, but this is really due to variation within a small sample of female CPOs.

This is the real issue here. In the big picture, the staircases through the many glass ceilings of the “house of procurement” are very small. Women represent 59 percent of the entry-level workforce, but then only 34 percent of managers, 30 percent of directors, and 21 percent of CPOs. I would estimate it’s even lower for an EVP of supply chain. My old friend and colleague Kevin O’Marah put this number at about 5 percent in his nice write-up of a women’s supply chain leadership forum that he helped lead. When you see this visually in the graphs in the report, it’s shocking and frankly depressing.

Supply management offers a terrific career path salary-wise, with “emerging supply management” professionals (those with less than eight years experience) earning $66,532 and CPOs earning $295,037 on average. Roughly speaking, the average manager, director, and VP (non-CPO) make about $100K, $150K, and $200K respectively. If you can move up in the ranks, you will be financially rewarded. You’ll need to earn it though – procurement is indeed a full contact sport.

Tenure, education, and credentialing all make a difference. As you might expect, longer tenure correlates to higher salary, but is not that interesting itself as a metric. Education also correlates up to a Master’s degree, but then drops when going to a PhD level. Bachelor’s degree holders earn on average $98,079, while those with Master’s degrees earn $121,475. Interestingly, liberal arts bachelors degrees did just as well as supply chain management / procurement degrees. Even history majors can do well in market, as evidenced by our own Jason Busch (ever wonder how he learned to write so well?). For credentialing, respondents who hold ISM’s CPSM certification earned $103,415 on average, compared to $96,655 for those who lacked any designation. The detailed report gives salary averages for over eight different certifications. There were a few that I admit I hadn’t even heard of before.

Company attributes such as size, industry, and geography also have some bearing on salary, which can help from a benchmarking standpoint. The type of firm, and not just the type of employee, has an effect. Obviously, there are industry and geography differences. Coastal locations tend to pay more (to match cost of living), as do industries with more money to spend. Also, mega firms do pay more, although any firm over $500 million tends to pay similar salaries (smaller firms pay less). The report goes into great depth in these areas.

Employee benefits – a different “value beyond cost.” The report spells out 25 different benefits that employees enjoy. It’s not an HR benefits benchmark, but is interesting nonetheless. I think ISM would do well to partner with an HR-centric membership organization to look at mutually beneficial areas.

The crown jewels of this report lie hidden inside: salary reporting by category/level, by business process / level, and by “spend under responsibility.” As I read through this report, it became apparent to me that this report could credibly be called a benchmark study. It lists the salary by spend category level (by positional level), by business process area level (again by positional level), and by level of spend responsibility. The report lists almost 20 spend categories and 30 processes. By triangulating different salary estimates based on what you do, what you buy, and how much you buy, you can really hone in on comparative salary estimates paid out in the real world, and get more granular than the purchasing salary estimator on, say, Salary.com.

Now, keep in mind that the population is fairly heavily biased towards the US and towards manufacturing, but I think this will change if ISM plays their cards right. That said, CIPS also has a salary survey with obviously a strong UK/EMEA population bias. Nancy Clinton also wrote up the results of Next Level Purchasing’s latest salary survey study over on Spend Matters UK here. Although NLP’s sample size was less than half of ISM’s, there were some common themes regarding gender wage disparity and other topics, and NLP also provided some interesting comparisons across continents in its global study that really highlighted the difference in the demographics in its study population. The NLP population tends to be lower level staff, smaller companies, and more global companies (Africa, Asia, etc.). This drove its population average down to $56,306 and is not indicative of a “synthetic” Global 2000 firm.

For example, within the NLP study, firms with more than $1 billion in revenue had salaries at roughly $88K in North America ($74K outside) – which is closer to the ISM average. But, for firms with less than $1 billion in revenue, the salaries are $75K for North America and $36K elsewhere. And with an average of $48K for the below $1 billion segment, you can see that the mix is driven heavily by the firms outside the US. A higher mix of lower level respondents can similarly be inferred, but regardless of the sample composition, the key in any of these reports is to use the different segmentations to compare yourself on each of the key dimensions.

In conclusion, as much as we’d love to see $249 spent on our monthly PRO level premium content access, I would completely understand a practitioner client foregoing a month of it to buy this report! For practitioners in the UK, the CIPS report might be of similar value, even though the price tag is slightly higher. I think ISM also has a huge opportunity to own this area of salary benchmarking and also tie it into some of the other services that ISM does relating to talent management in terms of talent diagnostics, training, etc. More to come on this in the future, but for now, I tip my hat to Paul Lee and the ISM team for a study well done.

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