Here’s the situation, we currently have 5 Lead carpenters, a sometimes painter helper/ sometimes carpenters helper, a full time painter, and two pure laborers.
I’m trying to develop a bonus program that will help the guys take a more serious interest in job cost and profitability. They’re not horrible at this point however I would guess on 50% of the jobs some sort of stupid mistake happens which ends up costing money.
So instead of just bitching and moaning to no end, I thought making the job cost important to everyone will help.
I’m stuck on how to design and implement the program. So I’m interested in everyone’s thoughts and what sort of plans you may have at your company?
My initial thoughts are to set either a nominal or percentage of job cost aside as a bonus, Maybe 1%?. If the job comes in on budget the Lead on the job gets the bonus and it is up to him to split it as he sees fit among those who helped him or we come up with some sort of formula based on hours on the job. The painting would be left out and the painter would have a similar program based on his performance.
If the they hit or beat the budget they get the bonus, maybe something extra for a certain amount below budget. If they are over job cost by even $1 they do not get it. If one particular employee consistently misses his budgets while others make them he looks for a new job…
Replies
Sounds like a very good plan but give the bonus based on hours worked without lost time for errors. Take the percentage/total bonus dollars and divide by the total hours worked by everyone who qualifies. The amount should represent at least fifteen-twenty percent of the average wage to make it work effectively as an incentive.
Sounds like a very good plan but give the bonus based on hours worked without lost time for errors.
I'm not following what you mean by "without lost time for errors" Are you suggesting that if there is an error the hours to fix the problem are not taken into account?
I'm not following what you mean by "without lost time for errors" Are you suggesting that if there is an error the hours to fix the problem are not taken into account?
O.K. Here's one method: Any paid time taken to fix errors is automatically deducted from the bonus, both the hours and the pay. So if a person earning $25/hr has worked two hundred hours on a house and needed four hours to fix errors you would first deduct four hours from his total bonus hours, then deduct $100 from his bonus. That money would still be in the bonus pool, raising the hourly bonus rate for all.
You could also give your employees the option of fixing their errors on their own time, so as not to lose any bonus money. That might work really well as a reminder to be careful, also to ask for and follow instructions.
I don't have a lot of employees, but I like the sound of your suggestions.
Walter
I don't have a lot of employees, but I like the sound of your suggestions.
Having an incentive to be more attentive and skillful, particularly when working away from supervision, is a very useful tool for a contractor to have when considering the net profit. That incentive will teach more directly than any foreman can, harping about paying attention and movin' it along.
I remember a discussion I had with an apprentice about picking up nails, as soon as he dropped them. He said, "why not sweep them up later, then shovel them back into the box?"
I told him that it wasn't about doing it the most efficient way, it was about teaching his off hand to be more skillful by paying attention to it. Having to bend over and pick up every dropped nail, with the off hand, will teach a person to be more aware, which rapidly leads to increased skill.
Not the same as giving a bonus but I'm sure you get my point.
Just thinking out loud...... is it legal to have employees do work for no money?
Or can we justify this by showing that they all still make way above minimum wage.
Hypothetically, if you have someone being paid $8 per hour and they need to work 15 hours without pay to fix a mistake you might catch a cold. They receive $320 for 40 hours, then spend 15 at zero. They have worked 55 hours for $320 which puts them below minimum wage.
Hypothetically, if you have someone being paid $8 per hour and they need to work 15 hours without pay to fix a mistake you might catch a cold.
Workin' for me, his hypothetical azz would be down the road if he needed more than a half hour to fix anything he'd screwed up. ;-)
Yeah, I thought about the potential liabilities of that working without pay thing but to me it's mostly an incentive to work safely and skillfully.
An alternate idea might be to make guys work for minimum wage when they have to fix their own errors, then not include those hours in the bonus hours. Does that sound better?
Edited 8/1/2007 11:50 am ET by Hudson Valley Carpenter
I think trying to track all that over the course of a job when I have 6-8 jobs going at any given point would create to many headaches for me, additionally people would simply try to hide their mistakes.
I do not want either, mistakes are going to happen from time to time, it's part of our business and part of human nature, I don't mind the mistakes in and of themselves or paying someone to fix them, I just want to reduce them to a minimum.
My goal is to as simply as possible develop a system that encourages people to take on accountability and responsibility for their jobs and reward them for a well done job.
I need the system to be fair and easy to manage. The last thing I need is a complex system that is going to take a huge investment in my, the owner's, or my assistants time to administer. I realize it is going to take time and effort especially in the beginning but it needs to flow smoothly if you know what I mean.
I was advising based on what I thought you meant about the size of your company and number of jobs. I agree that my suggestions wouldn't work under the conditions you're describing.
Back to your original proposal, a percentage of the profits based on hours worked or maybe better, total dollars earned. It seems more equitable to base the bonus on dollars earned so that the higher paid guys get the same percentage bonus as the lower paid guys, based on pay scale, not hours worked.
Carp. #1 works 100 hrs on Job A and earns $2500.
Laborer #1 works 100 hrs on Job A and earns $1500.
Bonus money to be paid to those two on Job A: $500.
Is it more equitable and a better incentive for each to get $250, or is it more equitable to divide the $500 by the total wages and then multiply by $2500 and $1500? Based on wages, Carp #1 would get a $312.50 and Laborer #1 would get $187.50.
Personally I like the second split better. It's based on marketable skills and responsibility taken. It should also work as an incentive for the laborer to gain more skills and leave the heavy work behind...before he gets too old to do it.
Another point worth considering; fixing the bonus percentage. First, I wouldn't tell anyone what the actual percentage is because no one will think it's enough. That kills the incentive. So either keep the percentage to yourself or inflate it to make it look like your share isn't much more than theirs.
Also, when you have a job with outstanding profits or losses, don't give or take as much as those figures would suggest.
I'd also suggest that you start with a modest overall percentage and see how it works. You can always increase it but you can't reduce it without, again, killing the incentive.
We send the survey out with a thank you card at the time we are processing the final billing. In other words the secretary does it when she is filing the paperwork from the job.
I think DanH is right. I think no matter what the system certain employees will figure it out and exploit it. I read an article in INC. magazine once that showed how no matter what method of sales compensation you used the same people would make the most. There are folks that are simply good at figuring out systems and using them to their best advantage. I am like that.
I am going to base my system on whether or not we get called back and the job finished on time. I don't think you can incorporate all the factors you wish to and still have a level playing field. I think you will end up with what you don't want, a management nightmare. When you base it on all the factor you have stated I think you will be inundated with "well, the subs ran slow and long and caused a delay, you picked the sub why am I responsible?" or one of the thousand other issues we deal with.
By focusing on the two critical areas I see that I need to work at I believe that I can manage most factors involved and minimize the "someone elses fault" issues. But as we both know, its all theory till we try it, then one of us will be right, or maybe wrong lol. DanT
I own a residential cleaning business. My handbook states that "Re-do work may be paid at minimum wage" but I have never done this.
Our bonus scheme is simple. Labor percentage less 35% of sales, no customer complaints and no call outs. The girls get an extra $25 per week if they meet those criteria.
If they break something in a customer's home they do not loose their bonus. We want to encourage they to own up to breakages.
Edited 8/1/2007 12:13 pm ET by Womble
Sounds like you've got a good system and a happy crew. Congratulations.
I would suggest you include some other details for the bonus.
I thinking along the lines of "quality of the work" , amount of call backs/problems. How clean the site was left, comments by the customer etc.
Don't just rate by time taken.
I was thinking both time, material, and sub cost, so total job cost would be on the line. I can see an argument from them saying sub-cost is not under their control, but on the other hand, the whole job is their responsibilty, so unless I make a gross error I think I'll keep it in, the only real variable is electrical and I'm usually within 2-5% one way or another.
I see where you are going though, rushing the job in order to get it done fast at the cost of qualityand some sort of metric should be in there for customer satisfaction.
On the other hand, if it's not done to our standards they will re-do it and that would be part of the final job cost. To be honest I do not think we have anyone now that would rush it at the expence of their quality.
This is the second time in the last few months when you have brought up a subject that I am working on in my company. Great minds must think alike lol.
The methods that I have heard of from other companies is they based the bonus entirely on the labor dollars as they believed the job needs the same material no matter what. The idea was to keep the staff from cutting back on needed material just to beat budget. I suppose a modifed version would be to meet material and beat labor budget. Anyway they paid bonus of half of the labor dollars saved. 50% to the lead and the rest split by the laborers. Sub costs were included I believe.
I don't like the idea of leaving it up to the lead to make the split. In my mind what will happen is some leads will be generous and some greedy and the laborers will develope a "I want to work for him" attitude based on the better spit.
For my own company, since we do small jobs, I am more concerned with quality and some on labor. I was thinking (got this from a copier company) a bonus based on simply meeting schedule and no call backs for 60-90 days. Haven't finalized it yet but I want to eliminate stupid mistakes like a sink drain drip etc. I also considered tieing it into a good customer feed back survey that we use but since only about half come back I might not use that. DanT
when do you send out your survey? I send ours out with the final bill with an envelope w/stamp on it. We probably get about 70-75% back.
I agree about leaving it up the lead to settle.
As for material, I need them to be accountable for the entire job cost, I'm off to a meeting so I'll get back to this then.
The argument that material should be the same no matter what only holds true if the job is being run efficiently.
Material could be the 2 lights we had to buy becuase someone decided the best place to store them was in an empty, yet clean, trash can, yep, a trash can, because no-one would throw them away.... that was a quote, or the extra siding we installed that was wrong becuase the yard delivered it wrong and the lead didn't read the job specs close enough to catch it. etc. etc.
So I want them to be held accountable for the material as well. I could leave sub-cost out of the budget BUT there are things they could do to drive up the cost of the sub-contractors...
I'm thinking it has to be total job cost that is looked at.
Edited 8/1/2007 12:08 pm ET by CAGIV
I like the idea of making the bonuses tied to each job, not annual company performance. This way they get to see immediate feedback. And I agree with someone else about not letting the lead decide who shares in the bonus ... too much opportunity for favortism. Or greed.
"Put your creed in your deed." Emerson
"When asked if you can do something, tell'em "Why certainly I can", then get busy and find a way to do it." T. Roosevelt
A general observation, based on decades of experience in industry: With any measurement system you have change the criteria every year or two, or else employees will learn how to "game" the system.
The problem with "per job" bonuses is that the company pays taxes on a profit/year basis. Let's say that one bad project cuts your Profit in half, you have been paying 1% of sales on profitable jobs, you make about 5% sales Net Profit, and you sell 5 $200K jobs/year.
Net Profit on 5 good jobs is ($1M x 5% =) $50K
Bonus = $10K
Bonus/Net Profit = 20%
Net Profit with 1 bad job = $25K (or one $25K boo-boo on one job)
Bonus on 4 good jobs = $8K
Bonus/Net Profit = 32%
With Annual Bonus on Net Profit Of 20% (Same as above):
Good year Bonus = $10K
Bad year Bonus = $5K
(Both) Bonus/Net Profit =20%
Note: If you base a bonus on % of Sales, the effect on your bottom line is expressed as (Bonus %)/(Net Profit as % of Sales).
Direct Labor is already 30% to 50% of gross sales, there is no sense in raising that. Research, and no, I don't remember where I read it, I devote several hours a week to business education. Anyway, research shows that Bonuses have little effect on production. They do, however, help build loyalty. If you're aim is to build loyalty, a "Winter Festival," (PC, doncha no,) works better.
"help the guys take a more serious interest in job cost and profitability"
Then tie the bonus to Net Profit, (Profit Sharing,) and educate the crew about the way Costs and Profit relate.
Education should be kept to the minimum because these are, after all, all about proprietary information. I would share the following reports, all shown as % of Sales and for each job and as YTD:
Material Costs and Variance from Projected
Direct Labor Costs " " "
Overhead " " "
Net Profit " " "
Call Backs
And I'd share a To Date list of:
Team Bonus Variance in Dollars Per Project
I would not share the Projected Bonus %. That way you can modify it at EOY if needed.
It doesn't take an Einstein to see that if he works better and conserves material, he's gonna get a bigger bonus. Showing Team Bonus Variance in Dollars gives him a real number to look at job to job.
A Year End bonus of $100 to $500 would cost your company around $3500. That would be 5% of $70K Net Profit. Leaving $65K in the company's bottom line.
This also lets you recognise that young business genious that you want to get on the Fast Track to management 'cuz he's gonna ask deep questions.
SamT
as always very informative.
thanks
I have also given a bit of thought to a pay system based on proven ability and ongoing education. It's goal is to strongly encourage Self Inprovment in the areas of Quality and Production. The Constraint was that the increase in Profit due to the improvments in Quality and Production more than paid for the increase in Labor Burden.
SamT
Year end bonuses based on the entire company's profit is the way to go.
Everyone is accountable for the over all company profit, not just the employees in the field.
Field employees don't bid the jobs, or sell the jobs. Whether a particular job makes money is usually a matter of proper/realistic bids. Not individual production of the carpenters/painters.
If you have problems with production in the field you should look at your management structure, and then your employees.
It's not too late, it's never too late.
Field employees don't bid the jobs, or sell the jobs. Whether a particular job makes money is usually a matter of proper/realistic bids. Not individual production of the carpenters/painters.
I do not believe it is that simple. Am I going to miss an estimate from time to time, you betcha.... however I do not bid jobs super tight and I am realistic with the time and material and always add a margin of error.
The guys in the field are absolutely in control of the overall profitability of any given job providing that I have come up with a reasonable estimate of materials and labor costs.
What I am trying to get away from is the stream of BS mistakes as well as make each lead more efficient and knowledgeable when it comes to job management. In a sense every lead carpenter is a project manager.
The companies and my responsibility to them is to provide them with the tools and knowledge to get there. I need a motivator to help them see why this important, most will say they understand it but in reality it's lip service. We all learn by our mistakes and I'd like them learn on the first or second time they make them and learn from each others and my mistakes as well.
I do not believe the year end bonus will work for what I am trying to achieve because the pay off isn't instant and it won't force me or them to take a hard analytical look at each job as they finish. At the end of the year we will know how we performed in the aggregate +/- where we wanted to be but it will not force us to look at each individual reason for the end number.
By linking the bonus system to each jobs performance I hope to force us to complete a post job autopsy to see where we excelled and where we fell short, something we hardly do now and usually to late to make a difference. I'm hoping to get my assistant trained up on job cost reports and have her complete them at the end of each phase of each job, say, demo or framing or trim, and then we will know early on if a job is starting to slip and may be able to take action to get back on track. But that's all separate from the bonus system.
Everyone is accountable for the over all company profit, not just the employees in the field.
I fully agree, though a large portion of the accountability lies with the field employees, especially the lead carpenters and how effectively they do their job, with an incentive program I hope encourage them to work on being more efficient and knowledgeable. I do not believe we have anyone at this time, but it would also help flush out the guys which consistently perform poorly or are just there for a 8-5 paycheck. We do not people like that and I can find better. What I do not want is people who are simply comfortable in their job and see no reason to improve. If they're not being held accountable what's the motivation to improve?
Now if we start really looking close at job costing and find that no one is meeting their numbers then the problem lies higher up the food chain and changes will be made at that point.
with an incentive program I hope encourage them to work on being more efficient and knowledgeable
Your problem lies in that statement.
In a perfect world, leads shouldn't need an incentive to do their job. You and I both know that isn't the case in the real world. I think you are stuck in a common trap. Your leads became leads for their carpentry skills, more than their leadership skills. It's not too late, it's never too late.
True enough, but leadership can be taught, learned, and improved on...
Neil, I'm one of three foremen, and our company does two different bonus systems. Foreman get a per-job bonus based on job profitability. We do a lot of our own project management so the idea is to let us each operate as our own little company. The office handles sales, estimating, and billing, but we do our own scheduling, client management, ordering, etc.
The bonuses aren't enormous but significant enough to make us learn our own methods for working efficiently. Mistakes aren't dealt with on a one-by-one basis with so much deducted for this and that. Mistakes are made. Jobs can still be profitable.
At the end of the year everyone in the company gets a bonus, based on company profitability, of 1-3% of our pay. We can choose to have that bonus put into our Simple IRA's.
All in all it's a great system. I work as efficiently as I can. BUT, I'm not going to waste my time checking how many 2x4's I need against how many were estimated, or how many hours I have alloted for a certain task. It will get done as quickly as I can get it done (with 2 to 5 carpenters and helpers) and if it works out profitably, great for all of us. If it goes bad, that's why I'm a carpenter and not an office dweeb (anymore), because I want to built stuff and not spend all my time analyzing it.
Leaving it up to the Lead to distribute the bonus dollars may get him fragged in the porta-john.
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I agree and have abondoned that idea.