How to design a Bonus Plan for contracting


You’ve probably heard it many times: Incentive Plans in the construction industry (this includes all sub-contractors) may actually be counterproductive. Employees find out how the system and what began as an attempt to motivate and reward employees blows up in the face of management. Not only that, ill-defined incentive programs can be very effective in motivation than being insensitive to the company’s profits.

A good example is to use a bonus system for rewarding hours of work under the budget. Indeed, assessing work is the most difficult of bidding variables-especially when crews are new or capabilities are largely unknown. What can happen is the job gets done quickly and rework costs addressing quality issues can eat up the benefits of the effort. Employees enjoy but not the company. Remember, rework has a triple cost: the first attempt, the rework and the opportunity cost of using workers dedicated to rework on new profit work

Most contractors have a weak understanding of their own economic .. They are not sure what their total labor costs are. They are not sure what the cost is, in fact, nor how it should be allocated. They do not understand how to properly engineer profit jobs. They have little idea of ​​what the load neither their nor how to use it to their advantage. Even worse, most contractors do not really know what profits they make actually the work of

To build an effective incentive system, contractors must understand the financial position of !; something they should know in any case. For workers in the field (Direct Labor) it involves the use of proceeds over the amount of six months, and shoed annual administrative employees (Overhead labor).

Here is an example of incentivizing direct labor. Each job is predicted profit in the budget. Whenever a job is more profitable to predict, a certain percentage of the excess goes into the bonus account. Job foremen get a certain percentage of the pot and each employee receives a certain percentage depending on the longevity of the company. For the administration, the company reaches breakeven for the year, a certain percentage of the profits will be divided between employees. Exactly how bonuses are distributed can decide on such items as a percentage of salary, longevity or importance as defined by the Board.

Bonus incentive programs must be clearly understood by all employees and monitored aggressively. Consideration must be taken to avoid untreated rework for each job. Also incentive plan must be based on objective criteria as much as possible. Bottom-line, properly designed and measurable bonus system should be applied consistently and without notice. But get this :. A conceptual based bonus plan should be strictly avoided


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