Top pay levels keep going up
By Kevin R Fitzgerald -- Purchasing, 12/10/1998
For the eighteenth consecutive year, Purchasing Magazine surveyed purchasing professionals across the entire breadth of U.S. industries. As we began to see last year, this year's data indicate that corporate America is recognizing purchasing's long-term strategic value by significantly raising compensation levels of purchasing professionals who have management responsibility.Last year's early indicators hinted that top management in U.S. industry was beginning to shift purchasing away from an activity-based, tactical profession toward one that is based on strategic supply management. This shift, in turn, would result in top executives placing a higher value on strategic supply managers and a lower value on purchasers involved in activity-based tasks such as processing transactions.
Data from this year's survey show a continued trend toward rewarding higher-level purchasing professionals. For example:
* Average annual salary in 1998 is $54,700, a $2,500 increase (4.8%) from last year's average of $52,200. This is the highest year-to-year percentage increase in eleven years, and it results from a substantial increase at the top compensation levels.
* The highest paid purchasing professional in the survey this year made $530,000, compared to $478,000 last year, an increase of nearly 11%. And the highest salary last year was a whopping 54% higher than the high reported in 1996--$310,000.
* The gap between the lowest paid ($15,000) and highest paid ($530,000) purchasing professional hit a new record, smashing last year's record gap of $463,000 by 11%.
* A significantly higher percentage of purchasing pros--6.1% this year versus 4.8% last year--earn $100,000 or more annually. The percentage of survey respondents earning $150,000 or more annually stayed about the same--around 1%.
* Salaries for purchasing management jobs are increasing at a faster rate than salaries for lower-level jobs. Over the past two years, salaries for people with titles of buyer, senior buyer, and purchasing agent increased 8.8%. Salaries for people with purchasing manager and materials manager titles increased 10.2%, and salaries for people with titles of materials director, purchasing director, and VP purchasing increased 12.8% over the same two-year period.
* The difference between average pay at large versus small companies increased nearly 11% from last year to this year. Based on other research and observation done by the editors of Purchasing, larger companies appear to be most active in shifting purchasing from a tactical to a strategic role.
As always, results from Purchasing's annual salary survey reflect the wide diversity of backgrounds, compensation levels, experience, responsibilities, and, of course, compensation levels among people who work in industrial purchasing in the U.S.
Bonuses paid to half
Nearly half of survey respondents--47%--report they receive bonuses as part of their compensation. This result is almost identical to last year's 46%. But the percentage of purchasing professionals who receive bonuses has increased 11% over the past ten years--in 1988, only 36% of purchasing pros said they received bonuses.
Among this year's survey respondents who receive bonuses, the average level is 12.3% of base pay. This is up only slightly--less than 1%--from last year's result.
As might be expected, senior purchasing execs receive bonuses much more frequently than purchasers in lower-level positions. Seventy-eight percent of VPs of purchasing report receiving bonuses, versus only 34% of survey respondents who hold the title of buyer.
Bonuses received by higher-level purchasing pros also comprise significantly more of overall compensation than bonuses received by lower-level purchasers. The average bonus for VPs of purchasing is 26.9% of total compensation; average bonus for buyers comprised only 7.4% of total compensation.
Effect of job title
The most common job title among survey respondents is "purchasing manager;" 27% of purchasers report they hold the PM title. Seventeen percent of all respondents hold titles that are considered upper management positions: VP purchasing (2%), materials director (1%), purchasing director (6%), and materials manager (8%).
The average salary by job title spans a range of $79,400 in this year's results. Average salary for a buyer is $37,900; average salary for a purchasing VP is $117,300.
Responsibility equals pay
Logically, the amount of dollar-volume spend for which a purchasing professional is responsible has a direct and dramatic effect on compensation level. This year, the "break point" for higher compensation is $26-$50 million in annual purchasing responsibility. Purchasing pros responsible for less than this amount of annual spending typically report compensation close to average or less than average for the profession as a whole. Those who purchase at this level or above report better-than-average compensation.
Similarly, as a purchasing pro's supervisory duties increase, so does his or her compensation. Survey respondents with no supervisory responsibility report earning less than average salaries for their individual titles.
Age and experience
As we've seen in past surveys, the threshold age for better-than-average compensation coincides with the average age of the profession. This year, the average age of survey respondents is 44; the average salary among respondents 41 to 50 years of age is $57,100, a level that is $2,400 higher than the profession's overall average compensation level of $54,700.
As logic dictates, and as results from past surveys have shown, longevity is a very positive factor in compensation for purchasing professionals. Average salaries increase in step with length of employment.
Also: Purchasing professionals must accumulate ten years of experience before they begin to earn higher-than-average salaries. This "ten-year rule" has held true for the past several annual salary surveys.
Bigger companies pay more
Salaries for purchasing professionals increase in direct proportion to company size. The threshold level for salaries that are average and above-average compensation is $126 million or more in annual sales volume. Purchasing pros working at companies of this size or larger report that they receive average or better-than-average compensation. Those working at smaller companies are more likely to receive less-than-average salaries.
Overall, a difference of $30,600 separates the average salaries of purchasing professionals who work at the largest and smallest companies this year. Last year, the difference was only $27,600. This significant increase--10.9%--from last year to this year may be further circumstantial evidence that purchasing is being shifted toward more of a strategic role.
Service buyers earn most
When results of our survey are analyzed according to type of commodity purchased, the buying of services tops the list at an average salary of $68,400. In last year's survey, services ranked second on the list of commodities, with an annual average salary of $64,700.
Following services are last year's leaders, construction/capital equipment, at $65,500; chemicals, at $59,500; and transportation/freight, at $58,900.
Chemical industry pays best
Industries that pay the highest average salaries to purchasing professionals this year are chemicals, at $65,100; stone, clay, and glass, at $64,000; petroleum, at $63,900; paper, at $61,900; public utilities, at $61,800; transportation, at $61,100; and energy, at $60,800.
Last year the chemical industry only ranked third on the list of industries paying the highest average annual salaries, at $62,200. The average annual salary paid in the chemical industry rose 4.7% from last year.
Last year purchasing pros in the energy industry reported the highest average annual salary--$66,700. This year the average salary dropped to $60,800, a decline of nearly 10%.
The industry reporting the lowest average salary is furniture, at $45,500, a full 30% lower than the leader-of-the-pack chemical industry.
Ten years ago purchasers in the petroleum industry reported the highest average annual salary, at $53,800.
Salary by organizational unit
Purchasing professionals working at divisional offices report the highest average annual salary, followed by those in corporate offices and then plant locations.
This is the same order as was reported last year. What's interesting, however, is that average salaries are increasing at a faster pace at the higher-paying organization units than at the lower-paying units. This finding further reaffirms the trend of the highest-paid purchasing professionals being rewarded more than lower-level buyers.
Average pay for purchasing execs at divisional offices this year is $61,100, an 8.1% increase over last year. Average pay for purchasers located at corporate headquarters is $58,400, a 4.5% increase over last year. And the average salary this year at plant locations is $46,200, only a 1.8% increase over last year.
Although, on average, purchasing pros at divisional offices report higher salaries, most of the top-earning survey respondents--those earning $100,000 and up--work at corporate headquarters.
Number of CPMs is falling
As has been noted in the past, purchasing pros who are CPMs have higher average salaries than those who aren't certified. Average salary for a CPM was 26% higher than for a non-certified purchasing professional this year, $65,900 versus $52,200.
But only 18% of survey respondents report that they are certified purchasing managers (CPMs), a slight drop from last year's results. In fact, the percentage of survey respondents that are CPMs has been falling consistently--from 23% in 1995, to 21% in 1996, to 19% in 1997, to 18% this year.
These two findings stand in contrast to one another: CPMs make more money, but fewer and fewer purchasing professionals are earning certification. Possible explanations are that purchasers don't have available time to earn certification or that purchasers themselves see less value in certification than they used to. We're not sure how to read these conflicting results, but we will be watching these trends closely next year and in subsequent salary surveys.
Education pays off
Sixty-seven percent of survey respondents are college graduates, and the benefits of graduating from college span every aspect of purchasing. College graduates fill the highest-ranking positions, have the greatest purchasing responsibilities, work for the largest companies, and generally earn the highest average annual compensation.
The average annual salary among college graduates is $59,400; this is $14,200 greater--31%--than the average salary of purchasing professionals who lack college degrees ($45,200). Executives with MBA degrees have the highest average annual salary of all respondents to the survey: $77,700.
Despite the many benefits of having a college degree, the highest paid individual in this year's survey does not hold a college degree.
Geographic breakdown
Southwestern states lead among regions of the country in average annual compensation, at $58,000. Mid-Atlantic states follow at $56,600; then New England, $56,300; and Western states, at $55,700. The largest annual increase since last year was realized by purchasing pros in the Southwest, where the average annual salary increased by 8.6% since last year.
Outlook for women: Not much better
Thirty-one percent of respondents to this year's salary survey were women, about the same as last year but double the percentage reported in 1983 (15.5%).
Average annual compensation for women this year was $42,500, an increase of $1,900 (4.7%) from last year. This increase is nearly identical to the percentage increase of men. The gap between average salary paid to women and men stands at $17,600, a difference of 41%, the same percentage as last year.
The highest salary paid to a woman this year is $214,000, an increase of $54,000 (34%) over the highest salary last year. This is a much higher percentage increase than the 11% increase of the highest paid man, and appears to be further evidence that companies are recognizing--and richly rewarding--purchasing professionals involved with strategic aspects of the function.
The top-paid woman was one of twelve responding to this year's survey who reported earning $100,000 or more, the same number as last year. Thirty-five percent of this woman's compensation was a bonus.
As has been the case since we began breaking salary survey out by gender in 1983, women in purchasing are younger and less experienced than men, have fewer supervisory responsibilities, are in charge of lower dollar volume purchases, have less frequently graduated from college, and don't hold senior-level positions as often as men. All of these yardsticks for higher compensation work against women. However, even when these factors are taken into account, average compensation among women is less than average compensation among men in the purchasing profession.
The $100,000 club
Two-hundred sixteen purchasing professionals--6.1% of all respondents to the survey--will earn annual salaries of $100,000 or more this year. This compares with 181 survey respondents in last year's survey, which was 4.8% of the total.
Here's some additional information on the highest-earning purchasing professionals:
* Average salary is $130,900, $1,000 less than last year.
* Forty-four individuals--1% of purchasing professionals--will earn $150,000 or more this year.
* Average age of $100,000 club members is 48. The youngest member is 22 years of age.
* One-quarter--25%--of total $100,000 club members hold the title of purchasing director; 21% hold the title of VP of purchasing; 18% are purchasing managers.
* Fifteen percent of the highest earners work for companies with annual sales of more than $1 billion. Twelve percent are employed by companies with annual sales between $501 million and $1 billion; 8% work at companies with annual sales between $251 million and $500 million; and 10% are at firms with sales between $126 million and $250 million. Sixteen percent work at smaller firms.
* The typical top earner has worked in the purchasing profession for 17 years.
* Most $100,000+ earners work at corporate headquarters of their organizations. Twenty-four percent work at divisional offices, and just 6% work at plant locations. At the very highest levels--purchasing execs earning $150,000 or more annually--more than three-quarters (77%) are part of corporate purchasing.
* Commodities with the largest concentration of $100,000+ earners are metals (18%), chemicals (15%), and electronics (11%).
* Five industries account for a little more than one-half of the $100,000 club members: miscellaneous manufacturing (14%), chemicals (13%), electrical equipment (12%), transportation (9%), and food and tobacco (8%).
* Nearly all--90%--members of the $100,000 club hold college degrees. Forty-six percent hold undergraduate degrees, and 44% hold graduate degrees. Of those with graduate degrees, 81% have MBAs.
* Eighty-six percent of top earners receive bonuses as part of their annual compensation. Average bonus is 27% of base salary. Among those who earn $150,000 or more, 98% will receive bonuses, with the average being 39% of base pay.
* This year's highest paid purchasing exec, at $530,000, is a 65-year-old man who has been in purchasing for 14 years. His title is VP of purchasing, he works at the corporate level of an $11 million to $20 million New York electronics firm, where he is responsible for more than $5 million in electronics purchasing. He does not have a college degree, nor is he a CPM. His bonus of $170,000 is 47% of his base salary.
* Twelve women are members of this year's $100,000+ club. They range in age from 22 to 51, and have an average of 11 years in purchasing. They are, on average, younger than male members of the club--39 versus 49--have fewer years of purchasing experience (11 versus 18 years) and have less supervisory responsibility. Top salary among women: $214,000.
About the salary survey
Since 1981, Purchasing Magazine has surveyed its readers about their salary levels and other forms of compensation. This year 3,528 purchasing professionals filled out survey forms that were included in the July 16 issue of Purchasing. Responses were edited and tabulated by an independent outside organization. Represented in the responses were the entire broad spectrum of industries, titles, buying responsibilities, personal backgrounds, age, experience, and other information pertinent to compensation of purchasing professionals
The sample includes a large enough number of responses in nearly all subgroups and categories to allow meaningful comparisons between different segments of the purchasing profession. Statistical reliability of this size sample of plus or minus 0.85%.
In our survey analysis, salaries are broken down by age, geographical location, gender, experience, commodities purchased, company size, industry, supervisory responsibility, dollars spent, and certification status. In total, 11 different breakdowns of salaries are provided in our analysis, all in the interest of providing purchasing professionals with accurate yardsticks by which to measure their own compensation and, where appropriate, the compensation of the people they manage.
The complete 1998 salary survey can be purchased for $450. Inquiries should be addressed to Purchasing Magazine, P.O. Box 497, New Town Branch, Boston, Mass. 02456, telephone 617-558-4348, or by visiting Purchasing's Web site, www.purchasing.com.
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