Why not compensate each employee differently?

How a flexible compensation plan might benefit you and your employees.

Last month we looked at three "considerations" about how and why workers are paid: They wouldn't work for you if they weren't paid, they'll work for whomever pays them the most, and how they get paid is important. The gist of last month's article was to lay out some of the reasons you might consider setting up a flexible compensation process that can be adjusted for each employee.

This month we'll look at how such a flexible process could work and why it might be an advantage to your company.

First, you're right in thinking that using a flexible compensation process will require extra attention and extra work. Being flexible with your pay methods, providing a different compensation system for each employee, will initially require a little more flexibility and paperwork for you and your bookkeeper. However, tailoring more of how you pay your employees may help you to use money in a more motivational manner.

It would be nice if we could simply say that everyone in the company is going to be paid by the hourly rate ... period! And while many contractors continue to pay their employees all off of the same method, why not consider matching how you pay to the needs and desires of your employees?

Let me briefly share another method of payment that is gaining some attention in the construction industry. It is one that pavement maintenance contractors should seriously consider.

If you have attended one of my classes at the National Pavement Expo before you may have heard me introduce the term "gain-sharing." Gain-sharing is a method of pay that is based on performance results. Let me briefly share the concept.

For our purposes here let's assume that you are a pavement maintenance contractor that specializes in pavement restoration. Your average size job is $5,000. On this sales amount your average gross profit is 35%, roughly $1,750. You put a challenge to your crew that for every job that exceeded the 35% gross profit (or gross margin) you were going to give a percentage of the money back to the workers in the form of a bonus.

So, let's consider the same crew completing the average $5,000 but now they completed the job at a 40% gross profit, or about $2,000. This reflects a $250 "gain." Let's also assume that you agreed to pay a 50% gain-sharing bonus. On this same job you would then redistribute $125 back to the workers in an equal distribution.

If you had a five-person crew, then each worker would get an additional $25 bonus. I would recommend using the following formula for distribution:

  • 50% payout in monthly bonus check,
  • 50% payout at end of season as bonus.

My reasons for the split payout is that it encourages workers to stay with your company longer. If your crews are really putting out the work with great quality, efficiency, and safety, then a worker would be stupid to leave money on the table. Therefore, if any worker doesn't stay for the period of time that the gain-sharing program is in place then they don't get that end of the season payout.

There are many ways to set up a gain-sharing program. You can always e-mail me or call our offices to receive assistance on setting up your own gain-sharing program.

Remember that when it comes down to meeting some of the more basic needs of employees, money is the main tool that can satisfy their needs. How that money is paid should be closely evaluated and provided in such a way that each employee believes that their pay is meeting their needs.

Brad Humphrey, president of Pinnacle Performance Group, and partner Jeff Stokes recently created the Next Level Contractor. This firm specializes in assisting contractors of all sizes in their quest to be the best. Contact him at www.nextlevelcontractor.com.