As an employer, you want effective job managers who think on their feet. By the same token, your foremen want to please you because you’re the one who pays them each week.
At the crossroads of your needs and your supervisors’ desires is a project team performance bonus system, which can help insure your projects’ profitability and your workers’ motivation.
What Makes a Good Bonus System?
The primary element of a good performance pay system is a willingness to put your money where your mouth is. Job profits rule the game. Without them — if your jobs lose money — you have no office, no employees, and no wages! So make your intentions clear — reward workers if certain deliverables are met.
The motivational force at work is employees knowing that a bonus is coming for good work. So tell them… but be discreet. A bonus will not go to waste, because you decide how much to award and on what projects.
Who Should You Reward?
Not everyone on a good project should get a monetary bonus. That would be impossible. The top one or two people, say the project manager in charge and the main superintendent or foreman should be rewarded — especially if there are difficult jobsite logistics that can’t be controlled from the office.
Examples of difficult jobsite logistics that could warrant a second tier foreman’s bonus (in addition to the project manager) are:
- If there is a crane or specialized, high-cost piece of equipment onsite.
- If there is a scissor lift that requires timing and coordination because it must be moved frequently.
- If there is equipment that can only fit one or two men workers at a time.
- If equipment must be shared among different trades.
If none of these conditions apply, the project manager who is fully in charge of a particularly profitable project should be given a cash bonus in proportion to the amount of money you make. Remember that net income on projects is directly proportional to the skill and effort that is put in by the people running the jobs. What motivates them to watch your back? Money!
If the managers know they will be rewarded for better projects’ financial performance, the best of them will find ways to improve that very financial performance in order to bring home their bonuses.
What Should a Bonus Be Based On?
The classic conditioning model of famed psychoanalyst B.J. Skinner dictates that people will do whatever produces a reward for them — and they will keep doing it as long as it continues producing a reward.
In fact, your ability to control the entire financial outcome of your projects is limited only by your ability to measure the very financial performance you want to encourage. And what could be better for your firm than lower payroll cost, less material waste, and projects that end on time!
If you can measure the projects’ financial performance, then you can encourage improvement. Here are some metrics to help motivate your crews.
Some Sample Performance Metrics:
|Pure Profitability||equals||Revised Contract minus Total Costs|
|Average Net Cash Flows||equals||Sum of the Months’ Net Cash Flows|
Number of Months Span of Project
Just make sure to inform project managers along the way how they are faring, so they have time to do better. But all performance metrics used to calculate bonuses should be measured at the project’s substantial completion.
Consult with your accounting professional or tax adviser to better identify these and other performance metrics. This will help make your projects more profitable.
How Much Should You Award Key Players?
Think of the amount of cash to award your best job managers as having a “floor” and a “ceiling.” This chart can help you decide how much to reward managers for excellent work on a project.
|Bonus Floor||About two days’ pay is generally the smallest amount needed to recognize a project manager for significant performance.|
|Bonus Ceiling||Never award so much that you jeopardize a project’s overall profitability.|
The exact dollar amount for a bonus in any particular situation depends on factors such as:
- Available company cash flows;
- Proximity to the holidays;
- Shared or individual responsibility over the project; and
- History of bonuses given to the individual.
Contact us to stay on top of project performance trends and techniques. Our Certified Public Accountants and consultants can help you create a personalized plan to increase cash flow and reduce your costs and income tax liabilities.