I get asked about employee incentive and profit sharing and 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 that 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?
I don’t think arbitrary compensation encourages 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 yearend. 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 types of bonuses usually won’t make the 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 the jobs they manage, generally try harder to save more money and negotiate harder with their 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, the company will 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 job sites. 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! What can you measure to improve results?
Examples of measurable clear targets can include:
• Total man-hours to complete a job
• Hours without an accident
• Project milestones completed by a date certain
• 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 or incentives without targets and scoreboards is like playing a football game without end zones. By setting out the exact results you want your employees to achieve and measuring the 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 is a licensed professional business coach, popular professional speaker and author of “Get Your Business to Work!” available at his online bookstore. He works with contractors to build profitable growing companies. To request your free copy of “Profit 101 For Contractors,” sign up for his free monthly e-newsletter, hire Hedley to speak, be part of his ongoing BIZCOACH program, or take a class at Hardhat BIZSCHOOL online university, visit www.hardhatpresentations.com or email firstname.lastname@example.org.