2005 Salary Survey: Applause, please

Thanks in part to huge bonuses, purchasing compensation takes big jump

By Susan Avery -- Purchasing, 12/8/2005

UPDATE: Click here to access the 2007 salary report , including salary by job title, sertification, organizational unit, experience, company size and other criteria.

At long last, top management is recognizing the value of purchasing—by rewarding buyer performance with big fat bonuses.

Results of Purchasing magazine's 25th annual salary survey show purchasing compensation—compensation and bonuses—soared 12% in 2005 to an average of $78,500. That jump comes in a year in which paychecks for most other professionals rose a mere 3% to 4%, if at all.

Bonuses for meeting company financial and profitability goals helped boost purchasing salaries in 2005: More than 60% of purchasing professionals responding to the survey received bonuses amounting to more than 10% of their base pay for the year.

These figures fly in the face of raises other professionals are receiving which generally are keeping pace with inflation. An increase of 0.9% in the Consumer Price Index for the third quarter is expected to result in the annual inflation rate coming in at around 3% for 2005.

Purchasing's higher salaries are a strong indicator of the growing number of companies that place value on the profession's contribution to the organization at keeping competitors at bay. A survey of chief procurement officers (CPO) conducted earlier this year by IBM Business Consulting Services demonstrates the importance of purchasing to corporate performance in today's intensely competitive marketplace. According to the study, businesses now view buyers as industry-experienced, qualified professionals. 

And everyone seems to want a piece of the action. Purchasing professionals who think strategically are in short supply nationwide. From his vantage point, Kevin Rohan, director of procurement recruiting for J.P. Canon Associates in New York, N.Y., has seen placement activity for skilled purchasing professionals increase by 66% in the past 18 months. Six years ago, his firm placed a director of purchasing with a starting salary of $115,000 plus incentives in the New York area. Today, a similar post pays $170,000, plus incentives. (For more stories on purchasing recruitment, please go to www.purchasing.com.)

25 years of data

The average annual compensation of purchasing professionals responding to the 2005 salary survey is $78,500 a 12% increase ($8,400) over last year's average ($70,100). This year's median salary—that point at which half the survey respondents receive more compensation and half receive less—is $69,000. That's $6,000 greater than last year's median ($63,000), a 10% increase.

Results of the 25th annual salary survey reflect the range of purchasing professionals who make up the readership of Purchasing Magazine. Annual compensation of this year's respondents range from $20,000 to $400,000. Purchasing received responses from men and women filling all job titles from buyer to purchasing vice president. Respondents represent every region of the country, every commodity, and every industry. Additional highlights of this year's report are:

• Purchasing professionals' average compensation has increased 134% since the magazine first conducted the survey in 1985, and 58% over the past 10 years. Average compensation in the 1995 salary survey was $49,700. The change in median compensation over time is consistent with the change in average compensation—60% over 10 years, 126% over 20 years.

• Three of five of survey participants (60%) receive bonuses as part of their annual compensation, higher than ever before. Average bonus is 11.9% of base pay.

• Senior executives—including purchasing vice presidents and directors, materials managers, commodity managers, and purchasing and supply chain managers—are the most likely to receive bonuses. More than half of respondents filling these titles received a bonus as part of their compensation package.

Senior executives generally receive bonuses that represent a greater proportion of their overall compensation than bonuses received by less senior employees. Purchasing and supply vice presidents and chief purchasing officers (CPO) typically receive a bonus that averages 26% of base pay while buyers and senior buyers typically get bonuses equal to 7%. Consistent with seniority, bonuses are most common among purchasing executives with the greatest supervisory and dollar volume responsibilities.

Sixteen percent of salary survey respondents receive stock options, a drop from last year and more consistent with previous years' data. The average value of these options is $53,300, including the 7% of respondents having stock options with no or negative worth. Last year stock options appeared to be offered more among the younger population and least prevalent among the oldest purchasing professionals, although their value is related more to other factors than age. This was not the case this year; with the exception of the youngest and oldest respondents, stock options were fairly evenly offered between respondents aged 25-60 years.

Click here for detailed charts of survey results for the following criteria: Average salary of job title, by industry (thousand $) Average salary by job title, commodity managed (thousand $) Salary by industry Salary by job title Salary by experience Salary by commodity Salary, by company size (annual sales) Salary by purchasing responsibility Cities with the highest average salaries Cities with the lowest average salaries

Benchmarks

Purchasing magazine's analysis of salary according to job title spans a range of $112,500 from lowest to highest. Average compensation for buyers is $47,100; average for purchasing or supply vice presidents is $159,600. The highest paid respondent is a vice president in miscellaneous manufacturing who earned $400,000. (Please see the $100,000 Club sidebar below.)

A purchasing executive's professional responsibilities serve as a benchmark of his or her compensation. As dollar-volume and supervisory duties increase, so does income. The break point for higher than average earnings in this year's study is more than $25 million in annual purchasing responsibility. Survey respondents responsible for less than this typically report compensation close to average or less than the average for the profession as a whole; those who purchase at this level and above enjoy better-than-average salaries.

Similarly, as supervisory duties increase, so does average pay. Salary survey respondents without supervisory responsibility earn less than average salaries; the percentage of employees with managerial responsibility increased over last year (57% in 2005 versus 52% in 2004).

The best-compensated commodities for purchasing executives, according to survey results, are information technology ($100,300), services ($96,500) and transportation/freight ($92,200).

Industries reporting the highest average purchasing salaries are: computers and related equipment ($94,500), communications equipment ($88,700), energy/mining/utilities ($88,300), financial and services ($87,800) and electronics ($84,200).

As always, the age threshold for better-than-average compensation coincides with the average age of the profession. Average age of survey respondents is 46.2 years; the average salary among respondents 41-50 years-old is $81,700.  

Also consistent with previous salary survey results, longevity bolsters average compensation in the purchasing profession. Average purchasing salaries increase in step with length of employment. Moreover, purchasing executives don't begin earning higher-than-average salaries until they've been in the profession for more than 10 years. Prior to this milestone, average compensation is less than the average for the profession. The average tenure in the field is 16 years.

Stepping stones

Click here for a detailed chart of survey results on "Salary by Education." Click here for a detailed chart of survey results on "Certification's Impact on Salary."

Seventy-three percent of all respondents to this year's survey have a college degree or certificate. College graduates fill the highest ranking purchasing positions, have the greatest purchasing responsibilities, work for the largest companies and generally earn the highest average annual compensation. Business degrees and graduate MBA programs are stepping-stones to higher salaries. However, the change in average annual salary among college and non-college was close to even (13% to 11%, respectively). 

Twenty-four percent of respondents are Certified Purchasing Managers (CPM). As in the past, CPMs have higher average compensation than purchasing professionals not certified. This year's average compensation for purchasing executives with certification is $88,600; the average for those without certification is $75,300. Commodity managers, supply chain managers and purchasing/materials directors are more likely to be certified than other purchasing professionals. CPMs, on average, have four more years of experience than those who are not certified.

The American Production and Inventory Control Society (APICS) granted CPIM certification-certification in production and inventory management—to 6% of the purchasing professionals responding to this year's salary survey. The greatest incidence of CPIM is among materials managers; 18% of materials managers hold this certification. Vice presidents of purchasing/supply (12%), commodity managers (12%) and supply chain managers (10%) are also more likely to have this certification than other titles. The average compensation of CPIM-certified professionals is $97,100; for those who are not certified, it is $77,200.

Bigger is better

Salary survey respondents who work for bigger companies tend to earn higher compensation. The threshold for average and above compensation is $126 million to $250 million in annual sales: Purchasing professionals employed by companies having more than $125 million in annual sales report better than average compensation; those working at smaller firms are more likely to receive less than average pay. Overall, a difference of $48,000 separates average compensation of purchasing executives employed at the largest and smallest companies.

There is also an employment gap between men and women with respect to company size. A higher percentage of women are employed at smaller firms than men (52% women vs. 39% men); 43% percent of men are employed at firms with sales over $500 million, whereas 28% of women work in companies of that size.

When pay is examined according to organizational unit, the average compensation for purchasing professionals working at the divisional level is close to those at the corporate level. The average compensation for purchasing executives working at their company's divisional offices is $86,800, whereas the average pay for purchasing professionals assigned to corporate headquarters is $83,900. A higher percentage of those working at the corporate level are working for smaller companies than those working at the division level. Plant locations offer purchasing men and women the lowest average compensation of the three organizational assignments ($61,100).

Regionally, with the disclaimer that the sample was small (25), Canadian purchasing professionals had the highest average compensation, $83,400; provinces within Canada were not compared. However, variation among regions is not high. Range of average pay varies by less than $10,000 between the lowest and highest-paying continental U.S. areas. The Mid-Atlantic, West, noncontinental areas and the Southwest are within a few hundred dollars of each other (i.e., Mid-Atlantic,  $80,900; Alaska, Hawaii, and Puerto Rico,  $80,500; the West, $80,400 and the Southwest, $80,000). Lowest average salaries are seen in the Plains states ($74,300).

Men continue to report higher average compensation than women ($85,900 versus $62,200).  This year there is a greater increase in compensation for men than for women (18% vs. 12%).

How Purchasing conducts its survey

Purchasing’s 2005 salary survey is based on questionnaires completed by 1,839 magazine readers and Website visitors. 

Eight hundred fifty-four subscribers filled in the magazine insert or printed the survey off the Internet and mailed it in; the remaining 985 respondents completed the survey on www.purchasing.com. Those who responded to the survey on the Web came to the site: 1) as subscribers to the magazine asked to go to the site to fill in the survey, 2) through a news brief that ran in one of the magazine issues or 3) a mention in one of Purchasing’s online newsletters such as SupplyAlert.  

The magazine received responses from purchasing professionals representing a wide spectrum of buying responsibilities, industries and personal backgrounds. 

The sample includes a large enough number of respondents in many subgroups and categories to allow meaningful comparisons between different segments of the purchasing profession.  The margin of error is plus or minus approximately 2.3%.

Note should be taken that the reliability of survey findings diminishes with sample size.  This is particularly important to keep in mind when examining some of the smaller "cells" of the tables included in this narrative summary. (Percentages and averages based on a small number of respondents are identified by the symbols * and # in this report when the actual number of respondents is not shown with the percent.)

Purchasing conducted the survey sample this year by collecting mail and Internet responses due to a declining number of mail respondents over the past few years. There are some demographic differences between the groups. Average age and experience are statistically higher among those responding by mail than among those filling it out on the Internet (47 vs. 45 years of age, 17 vs. 15 years of experience).

The editors of Purchasing Magazine developed the salary survey, but an independent research firm not affiliated with Reed Business Information tabulated the responses. Not all the data collected is reported in this article.

Changes to the survey this year

For classification and comparison purposes, Purchasing Magazine segments survey respondents into their levels of rank-senior management, middle management and junior staff. Senior management, making up 16% of the sample, includes purchasing and materials directors as well as vice presidents and chief purchasing officers (CPO). Middle management makes up nearly half of the sample and holds titles such as purchasing manager (29%), commodity manager (7%), materials manager (6%), and supply chain manager (3%). Those who wrote in other (4%) on their survey forms are included here too. Junior positions, those best described as buyer, senior buyer and purchasing agent (written in) constitute 31% of the respondents; 15% are buyers or planners, 14% are senior buyers and 3% are purchasing or senior purchasing managers.

The most frequently named job title is purchasing manager: Twenty-nine percent of the respondents are employed as purchasing managers.

Purchasing Magazine made changes in the categories of job title this year. Purchasing agent (12% last year) is not a listed category, but 3% of all respondents wrote it in under "other". Commodity manager is cited under "other" by 2% of the purchasing professionals last year. With the aid of it being a listed response, 7% describe themselves as such this year.  Three percent of respondents are supply chain managers—another "new" title this year. 

On the Internet

Fifty-four percent of purchasing professionals responding to Purchasing magazine’s 2005 salary survey completed the questionnaire on the Internet, generating data and sending it electronically to be merged with the mail data. Purchasing collected Internet data from July 20 through September 1, 2005, with the last several hundred responses coming in on August 30 and 31, after Hurricane Katrina hit, and possibly in time to impact respondents with the already rising gasoline and energy prices. Purchasing’s use of the Internet to collect survey responses allows for more immediate publicity to remind purchasing professionals to complete the survey, with the end effect of increasing the return rate. 

Forty-six percent mailed their questionnaires back to Purchasing; most of this group pulled the insert out of the magazine, but about 11% or 12% of these respondents printed the survey off the Internet (before respondents could complete it on the Internet., fill it out on paper and mail it back).

Overall, there are not many differences in the profiles of the people responding by the different methods. The most notable difference, also seen last year, was the slightly older age and experience of the "mail-back" respondents. They were on average about two years older, and with two additional years experience. There were more respondents in the 41- 50-year-old category that responded on the Internet; more purchasing professionals in the 51-60 and over 60 categories mailed back their responses.

In terms of purchasing experience, the Internet was heavier with people who had 7-10 years experience, while the over 15 years group, particularly those with more than 25 years of experience resorted to the older mail method. The other consistent feature was that the "no answer" percent was slightly higher on the Internet questionnaires. On the region question, this was significantly more pronounced because on paper questionnaires, the postmarked zip code was used if zip code was unanswered.

There are some other "statistically significant" differences. Five percent more of the Internet respondents do not have a college degree. And, as noted last year, more of the mail respondents with college degrees had a degree in business or an MBA than did the Internet respondents.

Metals commodity purchasing staffers were slightly more likely to respond by mail (29% vs. 24%). And since a third of the metals buyers are from the Great Lakes region, it makes sense that more of the mail respondents were from the Great Lakes area. There was also a bigger concentration of mail respondents from the magazine’s home base, New England. But the Internet took a lead in terms of respondents from the West and Canada.

Tale of the tape
 

	Average	Median
Salary	$78,500	$69,000
Age	46	47
Years experience	16	15
SOURCE: PURCHASING

More buyers get bonuses Payment is higher than last year too Sixty percent of purchasing professionals responding to Purchasing's 2005 salary survey report they receive bonuses as part of their compensation. This is an increase since last year (55%). For those who receive them, the bonus is 12% of base pay. Last year, this figure was 10%. More men (65%) receive bonuses than women (49%). What's more, the bonuses are bigger (13% compared to 9%). Salary survey respondents with supervisory roles receive higher bonuses—14% compared with 7% for those in nonmanagerial roles. Those in the smallest companies ($125 million in sales or less) receive an average 8% of their pay as bonus, while at larger companies their colleagues receive an average bonus of 13% to 14%.  Financial goals and profitability are the leading factors affecting bonuses, as 87% of those who get a bonus cite it as a reason. More than a third of those who receive a bonus indicate that cost targets and savings reductions play a role; cost targets for purchased parts and department cost targets are of near equal importance (22%, 21%, respectively). Ten percent say management considers quality, either in supplier quality improvements or product quality/customer satisfaction in determining bonus. Six percent say cycle time improvements are rated as a factor in their bonus. Five percent mention individual goals/performance as basis for a bonus. Top earners ($100,000+) more frequently cite this than their lower-paid counterparts (8 to 4%). Other factors impacting bonus payments include department goals, safety, company goals, inventory reduction and on-time delivery to customer and discretionary bonuses. Lower-paid purchasing staff claim the reason for bonuses is "discretionary" slightly more often than higher-paid professionals. Purchasing professionals in financial and service industries are more likely to be rewarded with bonuses for meeting department cost targets (37%) than in other industries. Those in the primary metals industry (perhaps in an acknowledgement of metal price volatility) are least likely to see bonuses based on cost targets for purchased parts or department cost targets. More than in other industries, purchasing professionals in the transportation/automotive (29%) and industrial controls/instruments sector (28%) attribute their bonus to meeting cost targets for purchased parts.    Those in the transportation/automotive industry (16%) are most likely to mention supplier quality improvements. With respect to commodity purchasers and their bonuses, packaging, services and machinery (95%) buyers cite financial goals more than other commodity buyers. More than half of the people who couldn't name just one commodity as their most important, but listed "multiple commodities" (this was only on mailed-in questionnaires) mention cost targets for purchased parts as a factor in their bonus. Other factors include quality and warranty claims, department goals (not limited to cost targets), inventory reduction, safety, on-time delivery to customer and back order rate, attendance and that the bonus was a standard or holiday bonus. Click here for a detailed chart of survey results for "Bonus, by job title." Women still earn less than men Fewer respond to this year's survey Thirty-percent of the respondents to Purchasing's 2005 salary survey are women. This is slightly lower than the proportion of women included in last year's survey. According to the U.S. Census Bureau, women earn 77 cents for every dollar men earn; purchasing women are no exception and do slightly worse than that. Based on average compensation for this survey— $62,200 (women), $85,900 (men) ratio—it would be 72 cents per dollar! The average salary of women increased $4,800 (8%) since the last annual survey. This year's results indicate a $23,700 gap between the average compensation earned by men ($85,900) and women. Survey results show that in percentage terms, women's average compensation increased more slowly than men's did over the past year. The highest salary earned by a female respondent to this year's survey is $350,000. She is one of 57 women who report annual earnings of $100,000 or more.  This executive is a vice president at a equipment and machinery manufacturing company.  She has a degree in business and another graduate degree, but not an MBA, is CPIM-certified and has been in purchasing for 28 years. Historically, women in the purchasing profession are younger and less experienced than men. As in previous years, women respondents have fewer supervisory responsibilities, are in charge of smaller dollar volumes, have less frequently been graduated from college, are younger than men, and do not as often hold senior level positions as men—all prerequisites for higher compensation. And, as reported repeatedly over the years, even when these factors are taken into account and men and women with comparable experience and responsibilities are compared, the average compensation among women generally appears to be less than the average compensation among men in the purchasing profession. Click here for a detailed chart of survey results for "Salary by Gender." $100,000 Club Membership grows 7% Four hundred thirteen purchasing professionals report annual compensation of $100,000 or more in response to Purchasing’s 2005 salary survey. This figure represents 22% of all respondents, a 7% increase over last year. The average compensation of the more than $100,000 earners is $137,900, a 7% increase. The highest salary this year is $400,000. One hundred eighteen individuals, 6% of purchasing professionals responding to the survey, earned $150,000 or more, a 75% increase over last year (3.5%). Again the $200,000 club is predominantly male (35 of 41 executives); they are the purchasing/materials directors and vice presidents at their companies. The average age of purchasing’s top earners is 48 years, statistically higher than the less than $100,000 group. The youngest respondent to reach the $100K club is 30 years old; the oldest is 69. Many of the highly compensated purchasing executives have senior job titles, including vice president of purchasing (12%) and purchasing director (36%). Most of the rest have "middle management" titles such as purchasing manager (24%), commodity manager (9%), supply chain manager (6%) and materials manager (4%). Of those earning $150,000 or more, 30% are purchasing vice presidents and 53% are purchasing directors. Of the top $100,000 earners, 87% have purchasing responsibility for $26 million or more in purchasing. Of those earning less than $100,000, only 31% do. Similarly, supervisory responsibility is higher among those earning top dollars. Forty six percent supervise more than five employees compared to only 6% of the less than $100,000 earners. Three billion-dollar-plus companies employ 40% of the high earners; more than two thirds of the highest earners work for companies with sales over $500 million. Seventeen percent work at $126 million-$500 million companies. Smaller firms employ 12%. One-fifth of this year’s top earners hail from the Great Lakes region. The Southeast and West boast 17% of the high earners and the Mid-Atlantic Region is home to 14%; 11% are from the Southwest, 9% from the Plains States and 5% are from New England. The typical top earner has been employed in purchasing for 18 years, versus 15 years for those earning less than $100,000. Sixty-eight percent of the $100,000 or more earners work at the corporate headquarters of their organizations. Twenty-three percent work at the division level. Eight percent are plant employees. Purchasing professionals managing the following commodities fare better than their colleagues buying other commodities in terms of concentration of $100,000 or more earners: services (43%),  information technology (37%), machinery (32%), transportation/freight (31%) and electronics (27%). Industry sectors producing more high earners than overall are communications equipment and financial services (35%); energy, mining and utilities (33%); computers and related equipment (31%); electronics (30%); process industries (29%) and transportation/automotive (23%). The vast majority (91%) of $100,000 or more earners have been graduated from college. Fifty-one percent hold undergraduate degrees (business, 60%; technical, 22%; liberal arts, 16%; dual undergraduate degrees, 1%) while 40% have graduate degrees (MBA, 77%; other graduate degree, 17% and dual graduate degrees, 6%). Thirty-two percent of those earning more than $100,000 have CPM certification, statistically higher than the 22% with certification among those earning less than $100,000. Nine percent of top earners report being certified in production and inventory management (CPIM) by APICS. The vast majority of $100,000 club members (87%) receive bonus payments as part of their annual compensation. The average bonus, of those who report bonuses at this compensation level, is 20% of base salary. Ninety-three percent of the $150,000 or more earners receive bonuses, with the average being 29% of base pay, 33% of base pay for those earning over $200,000. As the total compensation rises, the percentage that is bonus increases.  Club members are better able to articulate the basis for the bonus; although the relative order of factors is the same, those higher up on the compensation scale cite each of the reasons more frequently for their bonus. Company financial goals is the leading basis for bonus, with 93% of top earners reporting so, followed by department cost targets (30%) and cost targets for purchased parts (29%). Supplier quality improvements and individual performance followed with 16% and 8%, respectively. Forty-one percent of the $100,000 club is offered stock options; this compares with 9% of lower wage earners having the benefit. Thirty-eight percent of the $100,000 club members receive both bonuses and stock options; 9% are offered neither. Average value of stock options ($73,600) among top executives is nearly the same as in the past two years ($75,000 and $74,000); the median is $20,000 this year. This year’s highest paid executive ($400,000) is a 42-year old male who has 14 years of purchasing experience. Working in the miscellaneous manufacturing sector, he is a self-taught purchasing vice president at a company with sales over $500 million, and manages 24 people and $251-500 million of spending. His bonus represented 50% of his approximately $256K base salary. He does not receive stock options. Fifty-seven women are included in this year’s $100,000 Club. The group ranges in age from 33 to 61 years, with a range of 1-32 years of purchasing experience. They are on average younger (48 vs. 49 years old) and have slightly less purchasing experience (17 vs. 18 years) and supervisory responsibility (seven vs.13 subordinates) than their male counterparts, but the difference is not statistically significant.  Click here for a detailed chart of survey results for the "One hundred thousand dollars or more" category.

Complete results of the 2005 salary survey can be purchased for $500 in U.S. funds. Click here to order online or payment can be made to PURCHASING Magazine, 225 Wyman St., Waltham, MA 02451. Telephone: (781) 734-8203. Credit card orders are accepted.

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well ,reading all explicit analysis....
Arshad Mahmood - 08/25/06

yes.
cp - 07/27/06

Interesting article, but seams to s....
Jacques - 07/02/06

Looks like APICS CPIM is a must! Ha....
Dave Oxendine - 02/28/06

Editor, another great survey and th....
Jeffrey R. Modica - 02/06/06

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