construction team on site

Motivate with Money

05/15/24

Questions often arise about employee incentive and profit-sharing programs. 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 incentive 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 neither earned nor required. It is 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 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 is 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

If 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 reach the early completion target. Without a financial incentive, the target is a nice idea, but there is no benefit to the crew to finish early or work harder.

One company had a poor workers’ compensation insurance rating due to field employee claims for jobsite injuries. They implemented a ‘Safety Bucks’ program to motivate the crews to work closely together and watch out for unsafe workers or conditions. Each worker received some extra cash each day that the entire crew had no accidents. If anyone on the crew had an accident, no one received the safety bucks for the entire project. The cash bonus was paid out quarterly. This measurable incentive system instantly focused everyone on all of the field crews to make safety a priority and make sure there were no unsafe conditions on the jobsites. The program really worked as it kept everyone focused on the target. Plus, the company owner felt good about giving out bucks to 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 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
  • 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.

Business - Commercial Construction Industry

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This article contains general information only. Sunflower Bank is not, by means of this article, rendering accounting, financial, investment, legal, tax, or other professional advice or services. This article is not a substitute for such professional advice or services, before making any decisions related to these matters, you should consult a qualified professional advisor.