Why You Should Consider Performance-Based Bonuses

To ensure the continued success of your construction business, it’s imperative to keep your employees motivated. One way to accomplish that is to offer performance-based bonuses. But, be forewarned: developing an effective performance-based plan can be a challenge.

The problem with “one-size-fits-all” plans

Traditional one-size-fits-all bonuses are predictable, readily understandable and easy to administer. Everyone gets the same amount or percentage, from the staffer who always goes the extra mile to the one who coasts through every day.

Because such bonuses really are nothing more than gifts, they’re likely to do little to boost productivity or build loyalty. Plus, many construction companies have done away with them to save money, leaving little to no financial incentive for workers to go the extra mile to, say, push business growth up 15%.

How to motivate employees

If you want to motivate your employees and align their efforts more closely with company goals, consider changing your year end bonus plan (assuming it still exists) to a performance-based bonus plan — or adding such a plan if you don’t currently offer bonuses. After all, most employees will be extremely interested in doing what they can to help the company post that aforementioned 15% growth if it will mean reaping some of the rewards in the form of bonuses for themselves.

For your performance-based plan to produce the intended results, you should tie bonuses to specific activities that will lead to company success. The areas you target for improvement will depend on your situation, but they could include faster time to completion, decreased overtime, increased customer satisfaction and reduced expenses or labor hours.

It’s critical to communicate with your employees about their eligibility for the bonus pool and indicate that bonuses are discretionary. You don’t want to commit yourself to bonuses on a couple of jobs if you have multiple problem projects or a lack of backlog.

Paying for the bonus program

While you’re selecting your goals, you’ll also need to decide how to pay for the program. Some rewards pay for themselves. If a crew brings a job in with 10% fewer hours than you had bid, for instance, that savings goes straight to your bottom line, and you can give some of it back in the form of bonuses.

Unfortunately, improvements such as a reduction in return-to-work percentage or heightened customer satisfaction don’t show up on the balance sheet immediately or directly. Thus, you’ll need to set threshold profit levels for the company to meet before bonuses are paid.

Knowing your break-even margin will make it easier to establish thresholds. You reach the break-even margin when your projects generate enough gross profit to cover fixed expenses. Armed with that information, you can determine how much extra margin is available for incentive pay.

Timing and quality                          

Two other important considerations in developing performance-based reward systems are timing and quality.

If you wait until the end of the year to give bonuses earned in June, the connection between the improvement and the reward could be lost. Instead, consider making your bonus plan pay out quarterly — as long as you make it clear that no bonuses will be awarded unless goals are met each quarter. Alternatively, you might consider a job-based system that awards bonuses on criteria specific to each project.

Emphasize, too, that you won’t sacrifice quality or safety. It’s all well and good to reward people for doing a job quickly, but if they’re cutting hours by cutting corners, they’re actually hurting your bottom line. Be sure your bonus plan doesn’t encourage savings at the cost of quality or safety. Perhaps the bonus calculation could include some elements tied to safety goals.

A good deal for everyone

Keeping your workforce motivated is key to your bottom line. That’s why you should seriously consider developing a performance-based bonus plan. It can be good both for your workers and for you!

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