Articles Written by Charles Vander Kooi
How to set up a good bonus plan
By Charles Vander Kooi
How do you reward employees with money in a fair and honest way that truly motivates them to do their best work?First, avoid sharing specifics that allow employees to do their own calculations. Their calculations will tend to be different from yours – and always in the employee’s favor. This leads to arguments about who's right, which leads to dissension and produces the opposite effect from what you want from a bonus plan.
Also, I'd stay steer clear of most systems strongly tied into profit. When staff receive a certain percentage of profit based on sales, everyone is rewarded equally regardless of the value of their contribution. If bonuses are based on the profit levels of individual jobs, the profitability (or lack thereof) may be due to site conditions or the accuracy of the estimate.
It may seem like a good idea to reward field people with a percentage of money saved on the estimated costs of projects they run, but let’s look at what can happen. Let's say an average field foremen “beats” the budget on a project and gets a bonus. Later he's in a bar buying everyone drinks including the contractor’s best foremen who he tells about the bonus. The best foreman seldom gets bonuses because he's often put on problem projects to keep them from becoming worse than they already are. He feels he's being treated unfairly and quits.
A good, fair reward system
The system I recommend rewards people for their individual efforts. But employees cannot figure it out or blame someone for being biased. You evaluate your key employees on a scale of 1 to 10 (10 being the highest) for the categories below. A larger company might form a committee of 3 to 5 people to do evaluations, and then average them out.1. Customer satisfaction
Do you get letters telling you how wonderful your foreman is? Do clients say they will recommend your company so long as you put that foreman on the job for their friends? Or, do clients complain that every time they asked a question, the foreman acted bothered; that the foreman never wore a shirt and used their backyard as a toilet?2. Cost performance
Do your employees beat the budgets that are “beatable” due to their personal effort? Or, do they allow good jobs to go bad and to cost more than they should?Have you ever had an employee who thought your company’s checkbook was a bottomless pit, and that their role in life was to drain it? Their goal is to get jobs done the easiest, fastest way with the least effort from them. I have figured out why that happens. Such employees get the contract price stuck in their mind, and they think all the money is yours. They don’t realize how little is going to be left for the company (especially with them running the job).
I once had someone like that running a $3 million job for me. He needed a backhoe for 3 days so we rented one for him. On the 4th day, do you know what was still on the job? The backhoe. I said, “I thought you only needed it for 3 days?”
He said, “I did. I haven’t had time to get it back to the rental center.”
I asked, “Exactly when will you have time to get it back to the rental center?”
He said, “Maybe tomorrow.” After I came unglued on the job, he never said a thing, but he was thinking, "What is he bitching about? I am out here in the hot sun trying to get this job done. Get off my back." No cost awareness.
On the other hand, I have had people working for me who were always thinking about saving money, our money. They would find new ways to do things that cost less than the original estimate. And when they made a mistake that cost us money, they would come in and apologize. They had their checkbook out like they were going to pay us back! Cost awareness.
3. Equipment
Do employees treat equipment with respect, ensure that it is serviced at the proper times and not abused?I have had foremen who took pickups home, washed and waxed them, and brought them back looking like they came off a used car lot. Before they started equipment they checked the fluids, and when the equipment needed servicing, they got it in to be serviced. And, they operated our equipment like they owned it.
I have also had the opposite. We hired a superintendent to do a big job years ago. He was a budget beater. We were on the job for just 2 months and he had saved over $21,000 in labor. However, he was a 1-man demolition derby. Every time he got on a 3-cubic-yard loader, scratches appeared on cars in the parking lot. Whenever he got near a light pole, it fell over. He liked to fill the loader bucket through inertia; he would hit the pile so hard he would bounce up in the seat. 3 months into the project we got rid of him. He saved us money on labor but we were spending it to repair scratched cars, reinstall light poles and fix loaders.
4. Paperwork
Do they fill out paperwork properly and turn it in on time? Do they turn in time cards daily and keep up a job diary? Do they turn in delivery slips before or after they go through the laundry twice?Those who go out into the heat, mud and rain and build projects are Marlboro men – and women. And, what do they think about people who sit in an air-conditioned office and do paperwork? They're sissies! So, when you ask them to do paperwork, they think, "Real men and women don’t do paperwork, sissies do." Convince your field people to be an SFAM – a sissy for a moment – and do their paperwork.
5. Attitudes
Do they have a good attitude towards the company, their job, and their bosses? Do they help build up or destroy company morale?6. Quality
How long are the punch lists on their projects and how much work do you need to do over?7. Safety
How many accidents happen on their jobs and what is happening to your insurance because of them?With all employees rated for the categories above, you establish how much reward money to distribute, based on how much money the company has made in a given period of time. In the example below $18,000 was set aside as reward money. Use the calculations below to distribute employee bonuses based on a fair, unbiased evaluation.
Since 1980, Vander Kooi & Associates has been helping business owners add more to the bottom line of their company’s financial performance. We would be proud to help you with budgeting, estimating, high-performance management, marketing, sales, productivity and field training. Visit vanderkooi.com or call (303) 697-6467.
