2025 NCM: Don’t Let the Escalation Factor Fool You
The American Association of State Highway and Transportation Officials (AASHTO) has released its 2025 National Compensation Matrix (NCM). This update has significant implications for all Architecture & Engineering (AE) firms subject to FY24 FAR audits, as the NCM plays a key factor in determining allowable executive compensation (the most consistent disallowance at AE firms). With this early release, you have an opportunity to analyze the updated NCM, adjust year-end compensation plans and/or bonus planning decisions, and ensure compliance, potentially saving your firm significant money down the line.
What is the NCM?
The National Compensation Matrix (NCM) is a valuable resource for the AE industry, helping firms demonstrate compliance with the Federal Acquisition Regulation (FAR) in their submissions to State Departments of Transportation (DOT’s).
Compliance Requirements
State DOTs must ensure that all executive compensation costs claimed by engineering consultants are reasonable and allowable. To meet these requirements, AE firms have two options:
- Conduct thorough analyses using multiple national compensation surveys to calculate and justify reasonable compensation.
- Utilize the NCM as a streamlined and readily accepted alternative.
Why the 2025 NCM Matters: Escalation Factor vs. Bottom-up Analysis
The 2025 NCM applies a 4.1% escalation factor to the previous year’s model, marking the second consecutive year of utilizing an escalation factor without a deeper “bottom-up” analysis. However, this trend may not continue. The NCM Team is likely to conduct a detailed, “bottom-up” analysis for the 2026 model, incorporating national compensation survey data.
Why is this significant?
During the last detailed, “bottom-up” analysis, executive compensation across several positions and revenue ranges declined compared to the previous model.
Don’t Miss Out: Take Action Now!
Now is the time to take action and ensure your firm is prepared for potential changes to the NCM.
Here’s what you can do:
Participate in National Compensation Surveys
This is your most powerful tool! By contributing your firm’s data, you help create a more accurate picture of industry compensation trends. This reduces the likelihood of disallowances and ensures your firm’s voice is heard. If your firm has been negatively impacted by disallowed executive compensation in the past, participating in these surveys is even more critical to ensure fair representation and avoid future issues.
Deep Dive into the 2025 NCM
Familiarize yourself with the updated matrix and analyze how the escalation factor applies to your firm’s specific situation. You may even be able to utilize it to more fully understand bonus considerations for FY ’24.
Seek Expert Advice
If you have any questions about the NCM or FAR compliance, don’t hesitate to reach out to our experts at Stambaugh Ness, who can provide guidance and support.
Ready to Take Action?
The 2025 NCM presents both opportunities and potential challenges. By taking a proactive approach, understanding the nuances of the matrix, and actively participating in shaping industry data, your firm can confidently approach the year ahead and beyond.
Stambaugh Ness offers expert guidance on NCM compliance, compensation planning, and FAR regulations. Contact us today to ensure your firm is prepared for whatever lies ahead.
