Over the past 6 years, I’ve had the opportunity to examine the various types of bonus/incentive programs that are being used by contractors today. And, I have to say that there is not one perfect plan that I know of. But, there is one type of plan, commonly used, that I feel does more harm than good – the per job bonus plan. As a matter of fact, of all the general plans that I have seen, the per job type plan is by far, hands-down, no close seconds, the least effective in my book.
Let me define what I mean by per job bonus plans. This type of plan basically rewards the people who worked on a specific job for any labor savings (sometimes all costs savings) compared to a benchmark (usually the estimate) generated by their performance. There are many different variations of calculating the bonus amounts for this type of plan, such as, a dollar amount per hour for each manhour saved. Or, sharing a certain percentage of all the saved costs with the crew. The methods of distribution are not what disturbs me, it is the simple fact that these type of plans are based on the performance of one job.
Now, just what attracts contractors to this type of plan? In the beginning, these plans seem to be easy to administer, easy to understand, and are positively received by the employees. In the beginning. And, then problems begin to crop up. Fairness becomes an issue. Any sense of team spirit is eroded. It may be easier to explain by comparing the “Pros” and “Cons” of the per job bonus plan.
1. Employees seem to like the fact that this plan type rewards individual efforts. If your job does well, so will you.
2. Direct relationship between effort and reward. If we beat the estimated time and/or costs, we will know what the reward is.
3. May result in quicker payout. Our need for immediate gratification is more easily met for short term jobs.
4. Simple philosophy and seems to be easy to administer.
1. Who gets what job becomes an issue. Is it fair if we put our most talented people on the most difficult jobs?
2. The chasm between estimating and the field will broaden. Estimators will be blamed if the job doesn’t qualify for bonus.
3. On site supervisor becomes territorial and will only be concerned with his job. The supervisor will try to hoard the best equipment and people and will resist sharing resources.
4. Workers will complain when being transferred from a good job to one that is not going well. Is it fair to them?
5. Workers will tend to favor one superintendent/foreman over another.
6. Morale will be divided and any team spirit will erode when some workers receive bonuses and others don’t because of the job(s) they were assigned to.
7. How are those that work on T&M jobs rewarded?
8. How do you reward the office support staff? They could be part of the reason for the job’s success or its failure.
9. Labor savings only jobs are the worst. Who is managing the costs of materials, rental equipment, and indirect costs?
10. The company shares all the excess profits (savings) while absorbing all the cost overruns itself. Is that fair or wise to the financial health of the company?
11. The company’s profitability is not protected. Companies should not pay out bonuses when it is not affordable. One or two bad jobs, or a lack of sufficient sales volume, can really drag down a company’s financial well-being.
Admittedly, the per job bonus plan can offer some positive short-term results. But, the long-term effects are detrimental to the lasting success of a construction company. Successful construction companies develop a culture that builds a team spirit, which encourages the sharing of resources and knowledge to benefit all. Be careful of the per job bonus program or other types of compensation plans that will ultimately breakdown any team spirit and put the company’s overall financial health at risk.
There is a viable alternative. Management Consultants for Contractors designs team-based bonus programs that protect the profitability of the company and establish common team goals for EVERYONE in the company. Our bonus programs are based on the SMART goal’s concept—Specific, Measurable, Attainable, Results Focused, and Time Specific. Customized distribution methods reward team efforts as well as allowing for individual recognition of contributions.
Build a better bottom line NOW. Create exceptional team spirit NOW. It’s painless and extremely cost- effective.
Call Doug Phelps at 215-882-2963 or email him at dphelps@TheJustRewardsPlan.com. Why would you wait any longer?