Boston architect Maryann Thompson, FAIA, does something that fewer and fewer small firms do in this economy: She offers to pay 100 percent of the health care premiums for her 10 employees, plus their families if they choose. Thompson shells out $5,500 a month for staff coverage in a $500 deductible HMO plan. On the flip side, there is no retirement-fund matching. And since the recession she’s suspended perks such as education reimbursement and travel.
Thompson is among a large and growing number of firms snipping employee benefits to offset falling revenues and rising health insurance premiums, which have ticked up 13 percent a year on average since 1999. (In recent years, though, the increase has been more moderate—5 percent in 2009, according to the Kaiser Family Foundation.) As they near the end of another financially challenging year, many architects are reigning in the perks and benefits they handed out in happier times. Cost-of-living salary increases, bonuses, 401(k) contributions, and tuition reimbursement are all on the chopping block.
In boom times, architects could raise their fees to help counteract cost creep. But the effect of Wall Street’s crash on employee benefits was immediate and deep. John Carney, FAIA, was in Europe when Lehman Brothers went down in 2008. When he returned to the office in Jackson, Wyo., his partners at Carney Logan Burke Architects already had come up with a list of belt-tightening moves—including a four-day work week, which was in effect for most of 2009, and a 20 percent pay cut for the partners.
What wasn’t touched: full coverage of health care premiums for 17 employees, and a retirement plan that matches 3 percent of their salary. He was determined to hang onto the benefits he’s offered since startup in 1992. “We felt we needed to keep our brain trust of talent,” Carney says, “and keeping those benefits was key.”
As they wait for revenues to recover, architects are squeezed between trying to hold down labor costs and keeping valued employees happy and productive. Health insurance, of course, is the holy grail of a compensation package. Employee wellness is critical to a firm’s operating success, and a generous policy helps it attract and retain the best talent. That has principals holding their breath when renewal time rolls around. “We always wonder, when it comes time to meet the Blue Cross guy, how much our rates will go up,” Carney says.
Faced with health insurance rate hikes of 20 percent or more, architects have several choices: shop around for more favorable rates, downgrade coverage, or ask employees to kick in a larger share of the premiums. A few years ago, TruexCullins of Burlington, Vt., switched to a high-deductible plan with a new insurer in order to keep footing the bill, while also paying for dental, long-term disability, and life insurance. Last year its health insurance costs crept up another 10 percent, just as revenues swooned. Billings are down about 50 percent from $8.5 million, and the staff roster shrank to 17 from 40.
Managing partner Robert Millican, AIA, is eager to find out whether the health care overhaul that became law in March will control costs, but he’s skeptical. “I favor the fact that it’s universal and can’t exclude existing conditions, but I wonder whether premiums will level off or keep on going up,” he says.
Although TruexCullins absorbed this year’s increase, the sour economy forced other cutbacks, including reductions in pay and professional development reimbursement. Reluctantly, retirement compensation also got the ax. “The only major benefit we’re no longer offering is 401(k) profit-sharing, and we want to,” Millican says. “Rewarding people with money and bonuses is a big part of our culture. If we make money, we want to give it back.”
To deflect rising health care costs and protect take-home pay, architects are tweaking their policy terms based on services employees value the most. Upon learning that its HMO premiums would jump 15 percent this past year, the principals at Philadelphia-based SMP Architects chose an option that included a slightly higher co-pay for doctor visits, and the firm continues to fund about 90 percent of the premiums for its 15 employees. By purchasing different options, “no more money was taken out of their paychecks under the new plan, and we absorbed a roughly 5 percent increase,” says principal Jane Rath, AIA. “We stuck with our health care provider because we knew changing it would be a problem for some in the office. One has a sick child. I think bobbing around and having to find new doctors is stressful to the staff.”
During the worst of the slump, SMP also devised a creative way to shrink labor costs by “loaning” three employees to a large office nearby for a short-term project. The employees remained on SMP’s payroll, and last summer they returned to the fold when the job ended and SMP’s worked picked up again. “It was a big struggle to make all the ends meet, but we’ve been really reluctant to mess with benefits,” Rath says. “I hope the economy is turning around and we won’t have to think about it anymore.”
SMP has plenty of company, though. A February 2009 AIA Architecture Billings Index survey showed that salary freezes and cuts were the most frequently cited changes to employee compensation packages. Fifty-four percent of the firms polled said they’d frozen salaries for all staff, while 19 percent cut salaries across the board. Twenty-nine percent reduced or eliminated the retirement contribution, and 11 percent reduced or eliminated contributions to medical and dental insurance. That said, these money-saving tactics occurred much more frequently at smaller firms—those with average annual billings of less than $250,000—than at larger ones.
With fundamental benefits eroding, other perks can boost morale without breaking the bank, and they send a much-needed message that employers appreciate the sacrifices being made. One example is Carney Logan Burke, where the staff shares a weekend ski pass good for any of three resorts in the area. Thompson offers comp time on an honor system at her firm. “They think of it as a benefit, and it’s not an economic hardship on us,” she explains. SMP provides a flexible spending account that covers day care, plus a transit benefit that lets staff members buy public transportation passes with pretax dollars.
Employees at Brininstool, Kerwin, & Lynch get free parking—an urban luxury—and fitness center privileges in their downtown Chicago building. Earlier this year, the former Brininstool & Lynch formed an LLC with the Magellon Development Group, one of Chicago’s largest real estate firms, and the architects rent space in the Magellon-backed Aqua skyscraper. “As part of our arrangement with Magellon, use of the fitness center is provided free of charge to the staff,” says partner Thomas Kerwin, FAIA, LEED AP. The new entity is still working on a benefits package. But now, “since we’re affiliated with a larger firm, we’re able to leverage the health care benefits across a larger body of people,” he says.