Under pressure
Manufacturing executives feel compensation, cost-reduction squeeze, but remain optimistic
By Roberto Michel, editor -- Manufacturing Business Technology, 12/1/2003 7:00:00 AM
The U.S. economy is picking up steam, but the preceding downturn hit manufacturers hard, so perhaps it's no surprise that manufacturing executives experienced compensation setbacks. MSI's recently concluded salary & opinion survey found some negative trends in compensation—namely bonuses—though it also found a modest increase in base salaries.
At the same time, the survey—the first of its kind by MSI—found signs of optimism, as might be expected with the economy on the mend. For one, executives predict an increase in total compensation for the coming year, even while they help steer their companies through a tangle of industry challenges.
Those industry issues range from manufacturing outsourcing to the adoption of lean manufacturing approaches, with the continuing pressure to reduce costs cited as the No. 1 challenge. Again on an optimistic note, there are some areas—such as the flexibility of business management systems—where most agree that advancements have been made.
The survey was sent to three sets of titles: VPs of operations and VPs of manufacturing, as well as operations and manufacturing managers; IT directors and IT managers; and plant managers. Included in the "IT" titles were variants such as information services (IS) and management information systems (MIS) directors and managers. The methodology is further explained at the close of the article.
Compensation trends
For all titles, the average increase in annual base salary for the past year was 2.86 percent (see Figure 1). The manufacturing operations executive titles fared best, with VPs of operations and manufacturing enjoying an average increase in salary of 3.83 percent. IT directors fared the worst, with an average increase of just 1.58 percent, but IT managers, generally a rung below the director title, fared better, gaining an average of 2.59 percent.
Although averaged across all titles annual base pay did go up, one-third of all respondents saw no increase in base pay. More than half of IS/IT/MIS directors had no increase in base salary.
Bonuses were another area for setbacks. Across all titles, 74 percent said bonus pay "stayed the same," while 14 percent said it decreased, and only 12 percent indicated an increase in bonus pay. This proportion was fairly level across all titles, although more plant managers (18 percent) indicated an increase in bonuses.
Not surprisingly, VPs earn the highest in both annual base salary and total compensation. The survey also found that when averaged across all titles, respondents at large companies (1,000 or more employees) made the most, with an average annual salary of $95,500.
Respondents are more optimistic about compensation in the coming year (see Figure 2). Although 19 percent expect no increase in base pay, of those that do expect an increase, the average increase predicted is 3.7 percent.
More often than not, respondents contacted for further comment say compensation ultimately ties back to how well your industry or even industry function is doing. Brad Moszkiewicz, manager of operations with Panasonic Services Co., Kent, Wash., says that while the vertical he is in—electronics—has slowed down compared to the boom years of the 1990s, the function he concentrates on has been busy. "In a down market, there is typically an increased need for services, because people tend to hang on to products longer," he says.
Moszkiewicz says his company moved to a new, more "performance-based" compensation program this past year. "At first, I wasn't so sure about [the new program], but as it turns out, we had a great year last year, so the change was beneficial to me," he says.
Kevin Berger, manager of IT for Champion Laboratories, a West Salem, Ill.-based manufacturer of automotive filters, is perhaps more typical of respondents MSI followed up with. He says his compensation has experienced some "flattening out" last year compared to previous annual increases, but he adds that overall, he's not concerned about a downward trend. "I'm able to get adjustments made over time," says Berger. "As long as my compensation stays in line with the market for my peers, and with the economy, I don't give much thought to [one year's trend]."
Industry issues
"Pressure to cut operating costs" is by far the industry issue of greatest concern to respondents (see Figure 3). Seventy-two percent of respondents indicated cost containment as the No. 1 issue, with "lead-time/cycle-time reduction" a distant second at 46 percent.
Among plant managers, the cost containment issue was most keenly felt, with 81 percent of plant managers indicating "pressure to cut operating costs" as the top concern. By contrast, 58 percent of IT managers identified cost containment as the No. 1 issue.
Among IT managers, data security/computer viruses was listed as an issue of great concern by 32 percent of respondents, and 36 percent of IT directors listed data security as a top issue. Data security was a key concern for only 7 percent for VPs of operations/manufacturing. But overall, IT managers were in line with their counterparts in manufacturing operations on most issues.
Wendy Sharenbroch, IT manager with Sheboygan Paper Box Co., a Sheboygan, Wis.-based manufacturer of cartons for the food & beverage, retail, and toy industries, was one respondent who provided comments to MSI. She agrees that lead-time reduction is a key issue.
"I've been here since 1986, and the biggest change I've seen is on lead times," Sharenbroch says. "Fifteen years ago, if you told a customer an order would take six to eight weeks, more often than not, it wouldn't concern them. But today, customers are insisting on much tighter lead times, and we've had to deliver on that."
The means to greater efficiencies in many cases appears to be lean manufacturing, which was easily the top initiative (58 percent indicating involvement) that respondents said their companies were involved in. Only 16 percent of respondents said their companies were involved in virtual manufacturing, and only 15 percent said they were involved in an enterprise performance management initiative.
Even though few respondents see their companies as virtual manufacturers, many say they are doing more outsourcing that five years ago. This belief was most strongly held by VPs of operations/manufacturing, with 59 percent saying their companies were outsourcing more (see Figure 4). The top reason given for the increase in outsourcing was to reduce costs (69 percent), though greater agility (31 percent) also was cited by VPs.
Across all titles, only 5 percent see outsourcing as a threat to their position, with 71 percent saying it wasn't a threat, and 21 percent calling outsourcing a "possible but not likely" threat. A slightly higher percentage (10 percent) of IT managers see outsourcing as a threat to their positions.
"Updating of process control/plant-floor execution systems" ranked as the most common IT initiative cited across all titles, with 42 percent indicating such an initiative. However, 32 percent of respondents said they currently were involved in "ERP system upgrades or migrations" and 24 percent said they were involved in ERP system implementations, so combined, ERP-related projects were the most frequently cited.
While only 15 percent of respondents called enterprise performance management a major initiative at their companies, 25 percent said they were involved in "enterprise performance management or business intelligence" IT deployments.
One positive note is that most respondents believe that IT systems are more flexible compared to five years ago (see Figure 5). However, 44 percent said systems "still require significantly more agility."
Sharenbroch, the IT manager at Sheboygan Paper Box, says greater visibility into production status and the greater responsiveness that comes from that are key goals. To that end, she says, the next phase of the company's ERP rollout will include deployment of a graphical factory-scheduling module. "This is going to help us get an instant picture of what's happening on the shop floor, without having to call someone to manually check on the status," she says. "It's hard to say whether it will cut cycle times, but it should make our planning more efficient."
Most respondents would likely agree with Sharenbroch's focus on making systems more responsive. As she puts it, "Anything we can do with our systems to make them more responsive to customer needs is going to become a priority."
