Developing Bonus Programs For Your Best Workers

The last thing smart contractors want to do is to let good workers get away.

There are an ample number of methods that should always be employed to keep good workers working, from verbal recognition to gifts for a job well done. However, though such actions and communications are important, these will not always be enough to keep the best employees. A final strategy you may need to consider is incentive pay.

Incentive pay can come in many forms. Most commonly, there is the traditional cash bonus at the end of the year. For many top performers this is a nice way to end the year. For example, a worker who made $50,000 in wages for the year is given a $5,000 bonus (10 percent of his wages).

The cash bonus is a great form of incentive pay but is subjective. Most contractors simply pull a dollar figure out of the air, depending on the amount of profit made for the year.

While there is nothing necessarily wrong with this, it doesn't really offer any form of incentive that might inspire greater performance, quality workmanship and long-term loyalty. Here are three incentive plans that are simple to construct, easy to administer, and will reinforce your objective of gaining greater performance and loyalty from good performers.

Gain sharing has gained an increasing acceptance among contractors. Previously, gain sharing was most associated with companies in the manufacturing industries. Gain sharing is the money given (shared) to workers when they have surpassed some previously established productivity level. The positive difference between what was the predetermined level of profitability, say 5 percent, and what was achieved, say 7 percent, is recognized as a gain, in this case 2 percent. A portion of this gain would be paid out to the workers involved in the form of a bonus.

Consider a concrete flatwork company. The owner sets a target of 25 percent gross profit. This represents the percentage made after direct costs of construction have been subtracted from the gross revenue amount. Gross profit, or gross margin, is the proper number to use since employees can impact at least two of the items that are most associated with direct costs: equipment use and labor. To a great degree they also impact proper use of materials.

A gain sharing percentage now needs to be determined. This percentage should be established prior to commencing a project or season so workers cannot claim that the owner is changing the percentages to work in the owner's favor. Let's work on a gain sharing percentage of 40 percent. At the beginning of the year, the owner stated that he wanted to shoot for a 25 percent Gross Profit (Target).

Example:

Job Size ($) $20,000

Direct Costs $14,000

Gross Margin $ 6,000

(Gross Profit (%) 30% GP)

Gain Made: 30 - 25% (Target) = 5%

Gain Realized: 5% x $20,000 = $1,000

Now, the total gain sharing amount made on this particular job was $1,000. The owner had preset the gain sharing amount to be 40 percent. Therefore, the money due in a payout to the workers is $400 ($1,000 x 40 percent).

While this single amount doesn't look to be much, if this same contractor completed 150 jobs during the season, all averaging just $400 in gain sharing made, then the total bonus fund would be $60,000. If the contractor had 20 employees and the individual payout was to be divided equally among the employees, the individual payout would be $3,000 per employee.

What is the "WIIFM" (What's in it for me?) for both the owner and the employee? This is simple. First, the employee is rewarded for performing work with little to no waste, good communication, planning, etc. The more employees take care to perform their work the right way to begin with, the better their dollar payout will be per hour worked. The incentive for the worker is that they do not have to work hours and hours of overtime to make more money. By performing things right the first time on the job, they will make more money if gains are made.