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Incentive compensation is currently a hot issue in the construction industry. The reason? Money motivates employees to perform well.
Unfortunately, many contractors spend a lot of money on incentives for their employees and receive little value in return. In fact, the worst-case scenario occurs when employees become angry with the company because their own expectations for bonuses are not met. Morale is hurt when employees work hard all year, yet the profits of the company still lag because employees are working inefficiently. Contractors who are genuinely trying to reward hard-working employees are frustrated when they realize that they have just created a negative company atmosphere. Unfortunately, this is what many companies face when they incorrectly design and implement incentive compensation plans. We are often asked, "What is the ideal incentive compensation program?" Contractors are disappointed when they hear our answer: "It depends." There is no standard incentive program and no perfect system that everyone can use. The answer to what will work in a particular organization depends on the organization's goals, desired behaviors, and culture.
Key to success
A successful incentive plan must focus on achieving company goals by driving the right behaviors in employees. For instance, if your business aims to secure repeat business and work safely, the bonus system should compensate employees for good customer service and safe work practices as well as profitability. Bonuses based solely on project and/or company profitability do not drive important behaviors (such as safety, customer service and satisfaction, following "best practices," and inter-company teamwork) that lead to long-term company success. Long-term success is the end result of doing the right things consistently.
While, it may seem counterproductive to focus on items besides profits, focusing solely on profits can be dangerous to a company's viability. The following is a real example from a client who focused on the wrong things in his business. A few years ago, a regional manager for a national construction firm drove profitability severely at the monthly work-in-process (WIP) meetings for a struggling division. In fact, these meetings became known as "whip meetings" because if employees did not produce the profit numbers each month, they were verbally berated. At every WIP meeting, the message was loud and clear: "Production, production, production." This...