I get asked about employee incentive and profit sharing programs at every convention I speak at. Construction business owners seem to be looking for the magic bullet that will motivate their people to work harder and produce more. Some hope that providing a financial inventive will improve their bottom-line. Others hope more money will make people work harder or faster. And other business owners feel they should give away some of their profit to earn employee loyalty and respect. Whatever your decision regarding incentive compensation, the results will vary based on how your program is designed, implemented and managed.
Incentive compensation, profit sharing or bonuses can be broken down into two types: earned or arbitrary. Earned incentive compensation is based on a specific formula that rewards for actual results based on tasks, accomplishments or milestones you want to measure. Arbitrary compensation bonuses are based on what the boss feels is the right amount to pay for good work, reward for a positive attitude or a thank you for a job well done. It is often based on what the boss thinks is expected to keep employees happy.
Which type of bonus works best
Arbitrary compensation does not encourage employees to do their jobs faster or better. Often it is expected as a part of the overall employee compensation package because other companies do it or employees feel entitled to something at year end. Arbitrary extra pay is no more than a gift of generosity from the employer as it is not earned or required. It’s a nice gesture and will keep some employees from looking for jobs elsewhere until after they get their year-end bonus. But these type of bonuses won’t make your company any more bottom-line profit.
Extra compensation based on earned and tracked measurable results will produce positive bottom-line results. If employees know what’s expected and are compensated for hitting their targets, they will hit them. For example, sales people who get paid on a sliding scale for increasing profit margins typically sell higher price contracts than those with the same commission percentage regardless of the estimated margins. Field tradesmen who are paid by the piece of work they install usually work faster than hourly workers who don’t have clear goals or production targets to shoot for. And project managers who get a percentage of the profit on jobs they manage, generally try harder to save more money and negotiate harder with subcontractors and suppliers.
Motivation without measurement doesn’t work
When employees don’t know the exact results expected and don’t have a reason to achieve them, why should they want to go the extra mile? When the boss sets clear milestones for managers and employees to hit, your company will make more money. For example, if you want an eight month project finished in seven months, a generous bonus for the crew or superintendent will keep the team focused on achieving the goal and motivate them to hit the early completion target. Without a financial incentive, the target is a nice idea but of no benefit to the crew to finish early or work harder.
Our workers compensation insurance rating was suffering due to field employee claims for jobsite injuries. We implemented a ‘Safety Bucks’ program to motivate the crews to work closely together and watch out for unsafe workers or conditions. Each worker received $1 per day if the entire crew had no accidents. If anyone on the crew had an accident, no one received the safety bucks for the entire project. We paid this cash bonus out quarterly. This measurable incentive system instantly focused everyone on all of our field crews to make safety a priority and make sure there were no unsafe conditions on the jobsites. This program really worked as it kept everyone focused on the target. Plus, I always enjoy giving out bags of bucks to my field crews for no accidents!
Examples of measurable clear targets can include:
- Total man-hours to complete a job
- Hours without an accident
- Project milestones completed by a certain date
- Customer referrals
- Project punch-list or close-out completion
- Improving your bid-hit ratio
- Customer satisfaction
- Project profit
- Project completion and sign-off by customer
- Change order profit
- Estimating accuracy
- New customers signed-up
- Average job size increase
Bonuses and incentives without targets are like playing a football without end zones or scoreboards. By setting the exact results you want your employees to achieve and measuring results, you can design an incentive compensation program that will reap rewards. And making the most money you can is fun if you make it a measurable priority. Too often managers get so busy they don’t have time to do the little things like setting and tracking productivity to boost their bottom-line.
George Hedley works with contractors to build profitable growing companies. He is a professional business coach, popular speaker and best-selling author of “Get Your Construction Business To Grow & Profit!” available online at www.HardhatPresentations.com. To sign-up for his free e-newsletter, attend a BIZ-Builder boot camp, be part of a coaching program, or get a discount coupon for online classes at www.HardhatBizSchool.com, e-mail GH@HardhatPresentations.com