August 2016: Business Building

Words: George Hedley

Motivate With Money

George-HedleyBy George Hedley

I get asked about employee incentive and profit sharing programs by every contractor I coach. 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.

Which type of bonus works best?

Incentive compensation, profit sharing or bonuses can be broken down into two types:
  • Arbitrary compensation bonuses are gifts 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.
  • 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 does not encourage employees to do their jobs faster or better. Often it’s expected as 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 check. While gifts might build a small amount of employee loyalty, they won’t have much effect on finishing jobs faster, ahead of budget, or improving your bottom-line profit. Earned incentive compensation, based on achieving specific targets and measurable results, will produce positive bottom-line improvement from employees. If people know what’s expected, see regular weekly results, get feedback as to their ongoing performance, and are compensated for hitting their targets, they will hit them on a more regular basis. For example, salespeople 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 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. Field crew foremen who (1) know crew hour targets before they start work, (2) are responsible for hitting total crew hours, (3) receive weekly feedback, and (4) are compensated for achieving or improving crew hours, typically spend fewer crew hours than those who are told to try and do their best without any knowledge or feedback as to their results. And project managers who get a percentage of the gross or net profit on jobs they manage will push their foremen and superintendents harder, and 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 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 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 it is of no benefit to the crew to finish early or work harder. Years ago, my company’s workers’ compensation insurance rating was suffering due to field employee claims for careless 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 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 jobsites. This program really worked, as it kept everyone focused on the target. Plus, I always enjoyed giving out bags of bucks to my field crews for no accidents!

What can you measure to improve results?

Examples of measurable clear targets 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.
  • Increase in average job size.
Giving bonuses and incentives without targets is like playing football without end zones or scoreboards. By setting the results you want your employees to achieve and measuring results, you can design an incentive compensation program that will reap rewards. 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. To get started, email get your free copy of the first chapter of George’s new book.
As a professional construction BIZCOACH and popular industry speaker, George Hedley helps contractors increase profits, grow and get their companies to work! He is the best-selling author of “Get Your Construction Business to Grow & Profit!” available at his online bookstore at E-mail to sign-up for his free e-newsletter, join a peer mastermind BIZGROUP, implement the BIZ-BUILDER BLUEPRINT, or get a discount for online courses at George Hedley HARDHAT Presentations, 800-851-8553
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