Bonus Plan: what is your company doing ?

[brantmacga]

Anyone care to share what your company is doing as far as a bonus plan for foreman, PM's and estimators ?

Curious what others are doing. We need to raise our pay on commercial construction, but want everyone to have skin in the game. Looking for ideas on a fair approach.


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[petersonra]

I have never seen a fair bonus plan. Most of them base the bonus on the profitability of the project at the end. They're just so many things that can go wrong that the estimator can't control but it kills his bonus and the project manager can't control that it kills his bonus and the foreman can't control but it kills his bonus too. If you can come up with a way to pay a bonus to people that did a good job on a project that sucked maybe you can come up with a fair plan. The problem is the best people tend to get sucked into the projects that are in trouble and probably aren't going to make any money but would be far worse if someone else was running it. It's very hard to come up with a metric for that kind of thing though where is gross profitability at the end of the job is pretty easy.

 

[hbiss]

If you can come up with a way to pay a bonus to people that did a good job on a project that sucked maybe you can come up with a fair plan.

A bonus for all employees at the end of the year based on total company profit. But then I've seen owners sucking the company dry and crying that there was little profit at the end of a year.

-Hal

 

[petersonra]

A bonus for all employees at the end of the year based on total company profit. But then I've seen owners sucking the company dry and crying that there was little profit at the end of a year.

-Hal

are those kind of owners going to offer a bonus plan anyway?

 

[GoldDigger]

are those kind of owners going to offer a bonus plan anyway?

They might want to offer the appearance of a bonus plan as a cheap way to motivate employees, at least for the first year.

 

[brantmacga]

Well this isn't really going in the direction I had hoped.

We do a very repetitive type job; we know how many hours it should take, we know how much material it takes.

We're pretty controlling of material from the office, so really looking for hours based performance incentives. Some like to drag their feet more than others, and performance based incentives seem like a good cure for that, but what's a fair divide for all involved ? Just looking for numbers to see if our ideas our comparable.


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[gadfly56]

Well this isn't really going in the direction I had hoped.

We do a very repetitive type job; we know how many hours it should take, we know how much material it takes.

We're pretty controlling of material from the office, so really looking for hours based performance incentives. Some like to drag their feet more than others, and performance based incentives seem like a good cure for that, but what's a fair divide for all involved ? Just looking for numbers to see if our ideas our comparable.


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Depending on the size of bonus you're considering and the frequency of payment, I'd worry that quality might start to suffer. Now you have to start rake-backs or penalties if someone's work generates a call back, and get dragged into arguments about material defect vs labor defect. No thanks.

 

[petersonra]

Bonus plans always sound great in theory but they rarely if ever work out all that well.

having said that, I ran across a small company once that had a really good bonus plan. The owner had two employees. When they had projects to work on all three of them worked as many hours as it took to get the job done doing whatever needed done. To save money they lived in flea bag type motels and stayed in the same room. They ate bologna sandwiches for meals most of the time. They were about the cheapest people I have ever run across.

the two employees got a stipend every two weeks. I don't think they ever told me how much it was but it was not very much.

after the project was done and the customer had paid for it, the two employees got a bonus. They never told me how much their bonuses were either but they did tell me that their yearly bonus and regular pay combined usually went into 6 figures around Labor Day.

no vacations but when they had no work they were free to do as they saw fit and sometimes there was a month or more between projects.

I don't think I would want to work that way, but it fit them well.

it worked because they trusted the owner to be fair with them.



I can also tell you my experience with a bonus plan where I used to work. the company that owned us (a fortune 500 company you would instantly recognize if I named it) instituted a bonus plan when they bought us. they did not call it a bonus plan but that is what it was. we were told all kinds of great things about it. there was a complex formula the guy from corporate that headed our group was fond of putting on white boards during his inspiring messages to us. the one and only time I got a bonus I had worked harder than I could ever remember working, many times 70 and 80 hour weeks with no OT pay. I did not expect all that much but when the bonus checks came out I was insulted to find that my bonus was under $100 for the year. It might have been under $20 for all I remember. I would have been less insulted if they had just said that due to financial conditions the bonus plan was cancelled for the year. You see the thing was that no matter what I did, how hard I worked, or how well I did, the bonus was never going to happen. So what was the point of having it if nothing you did changed it? The worst performing and best performing employees got about the same amount. How does that reward higher performing employees, which presumably is the point of such plans.

The other thing is that it appears to me that your bonus plan only covers office employees and supervisors. while they are important, they aren't the guys actually doing any of the work. You should seriously consider including them if there is some kind of bonus plan.

Personally, my bonuses these days don't amount to much. I don't expect much and that is what I get. to me an impromptu pizza party sponsored by the company to celebrate something good that happened is worth more.

 

[oldsparky52]

I'm in Bob's camp, bonus plans rarely work well. Best guys get the shitty jobs, the not so good guys get the fat jobs (easy to hide their lethargy) hard to figure the bonus fairly.

I've always believed that job based bonus plans are an attempt to reduce supervision and responsibility of the employer (pushing it down to not qualified employees).

If you are identifying an employee that is out performing the rest, why not just pay them more?

Now, in the spirit of the OP, the only bonus plan I was involved in was a department bonus, 10% of the bottom line profit of that department was mine. Every year I did well, they just raised my share of "overhead" effectively cutting my bonus next year. Later they went to some complicated formula trying to get different departments and branches to work better together but it basically cut the bonus to 3-5 % instead of 10%.

I've thought about this over the years, and I believe an employee bonus should be based on overall profits for the year, with management and labor voting (don't have a plan for how) on who had the best performance for the year.

It seems one thing leads to another and the bonus plan becomes more of a pain than it's worth.

 

[Barbqranch]

Where I work, there is usually a quarterly bonus. Works out to less than 1 percent, maybe 25 cents per hour. I cash the check, but it is no incentive. We also have a quarterly company lunch, pretty good, it is better than the bonus (although I am sure it costs them less). I say, skip the bonus.

 

[luckylerado]

Anyone care to share what your company is doing as far as a bonus plan for foreman, PM's and estimators ?

Curious what others are doing. We need to raise our pay on commercial construction, but want everyone to have skin in the game. Looking for ideas on a fair approach.


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I have seen several posts from you that have made me think that you are a good employer. Truly that has occurred to me on more than one occasion. I don't have much to offer this thread but I am compelled to let you know. I think if you treat your people well they will generally treat you well in return.

As for incentives, do you offer salary for your lead men? This may encourage some of the less skilled guys to step up their game and be more responsible in order to achieve salary status. That security and freedom goes a long way if it is deserved and they can be trusted not to abuse it.

I worked with a company that tracked re-work. The idea was to record re-work and un-recoverable lost time. We had a stack of small forms near the gang boxes and were encouraged to fill them out and turn them in like a suggestion box if we found ourselves re-doing something for any reason whether our own mistakes, design errors, coordination issues with other trades or change orders. It was anonymous in that you were not to name names and throw co-workers under the bus. At the end of the month some number of those cards were pulled and a reward was given to the person that submitted the form. Sometimes gift cards and sometimes tools or bigboy toys. This was not so much a bonus but a good way to spread around the profits and get people thinking about what is costing the company time and money. The issues were all logged and used by management to decide where to put their training dollars and keep an eye on productivity. Similarly safety issues were tracked this way but that seemed to be less effective. This was a big shop with large crews.

Praise and recognition go a long way.

Something that I always wished my employer would do as a reward for good work was specialized training. Send me to a class in the big city for a week and pay me while I was there to get certified in this or that. Nicet, NETA, ASHE, ASHRAE, LEED, NACE, QCM, CAD, OSHA, LEAN all have bottcamps and certification workshops. I am always asking for that type of thing but I am kind of an odd duck. I want to be a Six Sigma Black belt like Jack Donaghy. :thumbsup:

 

[brantmacga]

Bonus Plan: what is your company doing ?

I appreciate all of the input. I know there isn't a perfect solution so we're trying to keep it as simple as possible.

What we've been discussing are flat bonus fees for simply bringing a job in on budget for the labor hours only. The foreman aren't responsible for materials on a job, so I don't think we should include that right now. I'd like to just figure out something on the labor hours first and see how it goes.

We do a pretty specific type of job; each job averages 5-6/wks, so the bonus we have in mind equates to about an extra week pay for the foreman for simply completing the job with the labor hours allotted to the project. Each foreman can do about 8 jobs per year, so that would be about two months additional pay in bonuses.

I think there should be some sort of incentive also to bring it it significantly ahead of allotted hours, but obviously there has to be a limit to that for us to keep profits where they need to be.

I'm thinking too of many having multiple levels because some jobs have many more hours. You can break our projects down into three categories.... 200-500/hrs, 501-800/hrs, and 801-1200/hrs. So if a foreman is doing one 1200/hr job instead of two 600/hr jobs, the bonus would need to be equal.

As for the helpers on the job, I'm not sure what to do there. If the foreman is getting what is basically an extra week, maybe add an extra couple of days worth of pay for them? Everyone isn't equally skilled though so it's hard to say what is fair. We have plenty of room for expansion, and I think we'd all like to see people motivated to work their way up to job foreman.

The main thing right now though is concentrating on the foreman getting the job done within budget.

Since the PM is responsible for material, i'm thinking there should be a correlation between the material budget and bonus. As of now, material budgets are pretty dead-on; we'd have to keep a sharp eye on that to make sure things stay that way. Some of you may have seen my posts on pre-fab work; we've been doing it for a few months now and that has exponentially helped with material waste and on-site labor hours.

It's such a slippery slope with every position being interconnected that one screw up and cost everyone. But this is a team effort, right ?

I've always liked performance based incentives. I loved it as a service tech because it really raises the limits on your earning potential along with keeping you invested in the work.


And as for tracking the hours, I can give each foreman a print-out of how many hours they are allotted, and since we use ExakTime, we can show every day or week where they stand. We usually have several change-orders, and I'll give them a print out of how many hours will be added for it.

So anyway, that's what I've come up with so far.


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[stevenje]

I appreciate all of the input. I know there isn't a perfect solution so we're trying to keep it as simple as possible.

What we've been discussing are flat bonus fees for simply bringing a job in on budget for the labor hours only. The foreman aren't responsible for materials on a job, so I don't think we should include that right now. I'd like to just figure out something on the labor hours first and see how it goes.

We do a pretty specific type of job; each job averages 5-6/wks, so the bonus we have in mind equates to about an extra week pay for the foreman for simply completing the job with the labor hours allotted to the project. Each foreman can do about 8 jobs per year, so that would be about two months additional pay in bonuses.

I think there should be some sort of incentive also to bring it it significantly ahead of allotted hours, but obviously there has to be a limit to that for us to keep profits where they need to be.

I'm thinking too of many having multiple levels because some jobs have many more hours. You can break our projects down into three categories.... 200-500/hrs, 501-800/hrs, and 801-1200/hrs. So if a foreman is doing one 1200/hr job instead of two 600/hr jobs, the bonus would need to be equal.

As for the helpers on the job, I'm not sure what to do there. If the foreman is getting what is basically an extra week, maybe add an extra couple of days worth of pay for them? Everyone isn't equally skilled though so it's hard to say what is fair. We have plenty of room for expansion, and I think we'd all like to see people motivated to work their way up to job foreman.

The main thing right now though is concentrating on the foreman getting the job done within budget.

Since the PM is responsible for material, i'm thinking there should be a correlation between the material budget and bonus. As of now, material budgets are pretty dead-on; we'd have to keep a sharp eye on that to make sure things stay that way. Some of you may have seen my posts on pre-fab work; we've been doing it for a few months now and that has exponentially helped with material waste and on-site labor hours.

It's such a slippery slope with every position being interconnected that one screw up and cost everyone. But this is a team effort, right ?

I've always liked performance based incentives. I loved it as a service tech because it really raises the limits on your earning potential along with keeping you invested in the work.


And as for tracking the hours, I can give each foreman a print-out of how many hours they are allotted, and since we use ExakTime, we can show every day or week where they stand. We usually have several change-orders, and I'll give them a print out of how many hours will be added for it.

So anyway, that's what I've come up with so far.


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I have worked for companies in the past that had bonus plans and profit sharing plans. None of them worked. At some point everybody thought that they got the short end of the stick for one reason or another. Pay your employees more per hour and do more to help them out on their health insurance premiums. This would be is a fair bonus for everyone.

 

[brantmacga]

. This would be is a fair bonus for everyone.

No, I've never agreed with that.



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[hbiss]

I have worked for companies in the past that had bonus plans and profit sharing plans. None of them worked. At some point everybody thought that they got the short end of the stick for one reason or another. Pay your employees more per hour and do more to help them out on their health insurance premiums. This would be is a fair bonus for everyone.

The perception is that somebody will think they worked their a** off on a job while another person got a bonus (or bigger bonus) who didn't work as hard. There is just no way around one employee thinking that another is being unfairly compensated. That's why I am in favor of a yearly bonus or profit sharing that's based on a percentage of the employees pay or salary. That way there can be no arguing over who got more.

I agree that paying more per hour is a good idea also, probably better actually. That way the employee knows what they will be getting every week rather than wondering how much a bonus or profit sharing check will be.

-Hal

 

[petersonra]

One of the problems with bonus plans is they often force people to focus on things that are not important just to get a bonus. At a previous employer I was forced to work one time at Christmas week because I was told a project "had" to ship by the end of the year. So several of us spent most of that week we were supposed to have off getting it ready to ship, and it did. They put the thing on a truck and shipped it to a parking lot a few miles away. That way the VP of manufacturing could claim it was shipped so he would get a better bonus. It sat in the parking lot until after Easter.

You can also force people to work against each other. It always amazed me how many hours of engineering rework started showing up on project reports when the shop ran out of hours on a job. You see, the shop foreman's bonus was largely based on meeting the estimated hours quoted on the project and engineering rework did not count against him.

 

[gadfly56]

One of the problems with bonus plans is they often force people to focus on things that are not important just to get a bonus. At a previous employer I was forced to work one time at Christmas week because I was told a project "had" to ship by the end of the year. So several of us spent most of that week we were supposed to have off getting it ready to ship, and it did. They put the thing on a truck and shipped it to a parking lot a few miles away. That way the VP of manufacturing could claim it was shipped so he would get a better bonus. It sat in the parking lot until after Easter.

You can also force people to work against each other. It always amazed me how many hours of engineering rework started showing up on project reports when the shop ran out of hours on a job. You see, the shop foreman's bonus was largely based on meeting the estimated hours quoted on the project and engineering rework did not count against him.

You make some excellent points. In your first example, I'm wondering if you and the other worker bees got a bonus for your sacrifice; I'm going to guess, "no".

My previous employer had a tiered system that was based on:

company sales target
company revenue
company profitability target
department sales target
department revenue target
department profitability target
personal sales target
personal revenue target
personal profitability target.

It was, imaginatively, called the "Target System". Now this was when engineers wore the sales hat as well as PM'ing everything. The system was supposed to be set up so that you could hit your targets on average every month. Then there were bonus levels. Well, when you're selling, you're not PM'ing, and when you're PM'ing, you're not selling. Notice too that about 2/3 of the target input is based on things I have no control over. It was supposed to be a way to incentivize all departments to push themselves because that way everybody at every level had skin in the game. The targets were set high enough that on average I hit my targets 3 months out of 12. It was a major reason for my leaving. When I complained, my boss let me know that I was actually the high performer in the department. And because it was monthly, it was easier to miss your targets, especially sales. People would not book a sale and save it for next month, because the sale might not get you the next bonus level, but it might get you almost your full target for the next month.

I'd suggest quarterly or annual bonuses. Pick a few key metrics like hours planned/hours expended and post them every week or so, with cumulative quantities so people have an idea of how the company is doing and even if there will be a bonus.

 

[Barbqranch]

Many years ago, I drove a Pepsi delivery truck. It was a setup where I was an independent contractor, so I bought the product and then re-sold it at a set markup. At one point they set up a bonus system where if you hit last year's sales + 5 percent, you got an extra nickle per case (all the cases, not just the excess). My garage went from empty to hundreds of cases to empty in just over a few days. You either hit the bonus, or you were way down, which made next year better. It was just gamesmanship. Not a good system.

 

[petersonra]

Many years ago, I drove a Pepsi delivery truck. It was a setup where I was an independent contractor, so I bought the product and then re-sold it at a set markup. At one point they set up a bonus system where if you hit last year's sales + 5 percent, you got an extra nickle per case (all the cases, not just the excess). My garage went from empty to hundreds of cases to empty in just over a few days. You either hit the bonus, or you were way down, which made next year better. It was just gamesmanship. Not a good system.

where I used to work they would do stuff like that to push things from a poor year into the next year since they were not going to get a bonus this year.

I have never run across any bonus system that people did not continuously game.

it is just human nature for people to do what it takes to get the maximum incentive for themselves when it is available.