Pay and Incentives: What Works Best?
In the construction industry, your most valuable assets aren’t the excavators or the cranes—they are the people operating them. That’s why keeping the best team members on board and highly motivated is worth attention, and investment. To truly align employee goals with your company’s bottom line, you need a structured incentive program that rewards success. Read on for practical pointers on well-designed compensation and retention strategies.
Tie Financial Incentives To Specific Goals
Unless the goal is simply to be liked by employees when you “surprise” them with a randomly determined bonus near the holidays, monetary incentives that are tied to specific performance goals are best practice. The hitch for many owners is that to tie compensation to actual metrics requires opening up about the numbers, and this can feel uncomfortable. Nonetheless, as business coach George Hedley points out at Construction Business Owner: “A winning incentive compensation program requires sharing some or all of your numbers with the team to achieve specific results …. Profit-sharing tied to performance gets everyone in your company focused on hitting targets you want to achieve.”
Underscoring that incentive compensation “must be based on measurable results beyond what’s expected or normal,” Hedley encourages keeping it simple, and offers specific examples of on-budget and under-budget completion incentives, such as these:
- On-budget completion — Upon project completion, share 2.5% of the total crew hours with the foreman and crew when jobs are completed on budget and without accidents. You may also include other project players, including the project manager, general superintendent, general foreman, job superintendent, estimator and project administrator in this type of plan.
- Under-budget completion — Share 20% of the total crew hours saved with the foreman, crew and other players when jobs are completed under budget and without accidents.
- On-budget and on-time completion — Share 2.5% of the general contractor fee (overhead and profit) with the project manager and job superintendent when jobs are completed on budget, on time and safely.
- Under-budget and on-time completion — Share 20% of the additional general contractor fee (overhead and profit) with the project manager and job superintendent when jobs are completed under budget, ahead of schedule and safely.
Profit sharing plans have also been gaining traction, and can either involve all employees, or designated employees based on positions and accountabilities. Profit sharing requires financial disclosures for those involved, and must be set so that the compensation at stake actually makes a difference. Profit sharing frameworks suggested by Hedley include:
- Minimum net profit goal — Share a percentage of company net profit earned yearly after the company achieves a minimum net profit goal. This plan requires the owner to open their books with all plan participants. Typical profit-sharing pools start at 10% of the pretax net profit earned.
- Net profit exceeds goals — When the company net profit exceeds the annual net profit goal, the profit-sharing pool can be increased to 20% or more of the additional net profit earned above the minimum net profit goal.
Investing In Employee Retention
While effective compensation practices are a must, it’s wise to compliment them with other commitments aimed at retaining strong employees. In fact, sustainable and successful construction businesses give employees plenty of good reasons to stay. Though that requires investment, employee turnover generally carries an even steeper price tag: “Research shows that hiring and training new construction staff can cost between 50 and 200% of each worker’s annual salary. High turnover also leads to knock-on effects, hindering your ability to build a reliable project pipeline.”
Toward retention, one thing that business owners can skimp on is gimmicks, like splashy seasonal events. Research shows that when executed consistently, practical steps can significantly improve employee retention. For example, at Well Built, Chad Prinkey focuses on these three actions to create a culture of loyalty: recognizing the contributions of workers, offering plenty of opportunities for growth and development, and taking safety concerns very seriously. As Prinkey underscores, commitment to this “people first” approach ultimately benefits the business: “You want your employees to be proud of themselves and where they work. This elevated goal raises the standard from simply meeting your people’s needs to inspiring them to think and say great things about their jobs and your organization.”
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