Profit Sharing With Your Crew?

WNYcarpenter

What are some pros and cons if offering profit sharing per project, per crew as motivation?

Say you have a budget of $100,000 which would earn you 20%. Then you offered 1% of the profit to be split with the crew if they came in BELOW $100,000.

MKamis

I used to have a job that offered profit sharing in the form of an IRA contribution. It was a good idea, because it was only contributed to at the end of the year. If eployee retention is a goal for you, it is extra incentive to stick with your company, while at the same time being a reward for hard work.

I also found that when I worked for someone else, a little thank you like a gift card for dinner with my wife went a long way. Appreciation dosen't have to cost a lot, but it should be shown often.

Murphy

I am a big fan of profit sharing. I want my employees to want to be there and feel like they are part of the organization. If they go beyond they should be compensated.
As long as they are making me money and helping my reputation they should be rewarded. Not like some tenured guy that doesn't have to do anything to keep his job.
I want my guys to stay on the job untill the phase of the job we set out to complet on that day is done. If that is 3 then fine go home if that is 9pm so be it. We are new so there are a lot more late nights then early ones.
My two guys have been with me since the start and some weeks they make more in bonuses then they do in payroll. But there are days where we have to spend a saturday fixing or finishing what should have been done friday and they know they aren't getting paid for it, and believe it or not they dont complain too too much about it.

Employee empowerment and ownership is a powerfull thing. When things are good and they are doing everthing they can to help the business succeed they should be rewarded.
I think we all got into this business because sitting at a desk for long hours pretending to work did not appeal to us. I don't want my guys to feel like they are working at a per hour job.

Mike Finley

There are a couple of threads started by me here about this subject. I have come full circle on this topic, originally I was intrigued by profit sharing, but after getting edumicated on the whole think I've come to the conclusion that profit sharing in it's form you are describing isn't really that great of an idea. If you can tie it into production, safety, quality and customer satisfaction I think you have a much better scenario. If you find the threads it might all make more sense.

PipeGuy

Cons:
1. The lag time between the date upon which the job is finished and the date upon which you have a firm handle on profitability can often serve to negate the extent to which employees perceive a benefit.
2. The first time some factor beyond the crew's control severely impacts, or otherwise eliminates, a job's profitability (thereby eliminating bonus potential) they will label the program 'bogus'.
3. Having access to profitability information can lead employees to draw misinformed conclusions.

I'm not a fan of profit based bonuses for employees that don't have a diect hand in cost estimating or job pricing. I say if you want to include a bonus incentive for "crew" guys tie it to material conservation (efficient use), timely completion of the job, and warranty work (or more appropriately, the lack there-of). How long it should take to do a job is something relatively easy to agree upon before starting the work. Material waste and sloppy work is easy to spot.

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WNYcarpenter

I think what you said is the whole idea...if your employees know that if they increase their production they have more to gain and will be more receptive to ideas that may improve production. Perhaps, they'll even suprise you with better and faster ways. It's dull working hard for someone and being pushed to your limits when a promise is made that you have no say in and have nothing to gain or lose. If you make 5% more than you expected because you had a great crew that worked hard to earn that money, don't you feel like you owe them a little more than a $40 gift certificate to Applebees and the opportunity to work for you. Piece work, working for tips, same idea...the more efficient you work, the more you make.

john elliott

The theory of employee incentivisation is well understood- work harder, faster, better --get more money. If you come up with a system that takes full account of human nature I would be very interested to hear about it

John

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Ed the Roofer said "John too, in his crass and blunt demeanor.............."

Boogga

All i'd say to the original question/s is this:

Be careful, Offer incentives that are small at the beginning because one year an employee of yours receives 500 dollars and then next year he/she will expect the same or better (ie more money). It's human nature, tey want more and more so watch out. They will be hungry, especially if you are open to telling them how much your company makes, some people become crazy.

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Mike Finley

That's a valid concern if you don't structure it right. However, if it is structured correctly the more money the employee makes the more money the company is making so there is little danger of what you fear. Theoretically the employee could make a million dollars a year and you would be happy to pay it. Tie it to production not profits. This sounds like the opposite of what you should do, because you think how can I pay him more and ensure I am making more if it is only tied to production? The system is a two parter, you have to also connect the back end of your company to it and make sure as production goes up profits increase with it.

As long as production and profits are tied together in your back end you can just forget about profits all together when dealing with the employee and focus on production, knowing that more production = more profits.

Vermaraj

My boss has everyone in the company working off a bonus system, including our subs. Everybody loves it so far because he lays out in advance what constitutes baseline performance and what earns a bonus.

The incentive breaks down a little different for each employee. There are 3 main areas:
Personal performance
Reducing costs and overhead
Customer service and upselling

For instance if I come up with a new way of framing that saves the company $200k/yr at equal quality (shoddy work will get you fired in a heartbeat). I would probably end up with 20% of the total in my pocket. Guys show up early and leave late trying to come up with ways to make more money.

The only con is that some guys get pissed when their ideas are not adopted. He spends a lot of time explaining why he's not using an idea. At bonus time he usually gives them something extra for the effort.

john elliott

The problem with that is that the employee can easily increase production if the quality is allowed to slip, and the only way that can be prevented is with frequent inspections. Frequent inspections take time and therefore cost money. Is the employee likely to be able to increase production enough so that it will be able to cover the cost of his incentives AND the cost of the inspection? The answer is usually no.

John

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Ed the Roofer said "John too, in his crass and blunt demeanor.............."

George Z

I don't find that true for us.
No bonus money is being paid until:
the questionaire in the completion certificate is completed.
a nice testimonial has been collected.
and there is a phone call three days later to check with the customer.

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john elliott

So in your case the customer is the inspector? Your guys wouldn't ask the customer for a good review, would they?

Do they always get a good review? Do they always get bonus? How do they feel when they don't? Does that ever happen?

Genuinely interested in your answers

John

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Ed the Roofer said "John too, in his crass and blunt demeanor.............."

George Z

Because most of customers go in the customer retention program,
an unhappy customer will be found sooner or later.
They always get a good review, because our employees are told
to make it right if a customer has a concern.
John, they have to be the right people to make it work.
For example: there wasn't any sanding between coats and a wall needs to be redone.
Half an hour here and there won't kill their bonus and everyone makes mistakes anyway.
As long as they are taken care of in a timely and obliging way,
I am willing to not let it affect their bonus much.

It works for painting anyway and I go after the simpler jobs anyway.

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Murphy

What I see you guys missing is that your employees need to feel that they are part of the business they are in. If they don't feel they have something to gain from doing the job right and well, they wont plain and simple.

If they feel like they are getting rewarded for good customer service and great work they will go the extra mile every time.

What I don't understand is why so many of you guys will pay some salesman shmuck 20% when he knows nothing about what goes into what you do or how you do it. But you wont go the extra mile for your employees. I feel these employees are all representations of the business and all of them are salespeople. If they are talking up the kind of work they do no matter what the crowd you will get leads and sell jobs.

Every employee has a network of friends family and aquantences use them to your advantage. People respond to some one that has pride in the company they work for and enjoyment for what they do.

Use your workforce.

Mike Finley

If I can create an incentive based program I can surely create what is relatively a tiny thing such as a quality control program to go with it.

You're mentality is like saying we can't go to the moon because you won't be able to take get a really good picture in focus once we are there. It's totally miniscule compared to the main project. Quality control is simple, it's done each and every day in everyone of our businesses, and incentive program doesn't change that.

WNYcarpenter

What's the back end? I can't see how better production doesn't lead directly to profit....or atleast my crew is always pushed for more efficient production. Should we slow down to justify inflated rates?

How do most of you contract?....Time and Materials, or Contracted price.

Luke

I struggled with a profit sharing system that would be fair and meaningful for years. I finally settled on a system, and hang in with me on this one, that works like this: I do this quarterly. I decide the amount that goes into the pot, purely subjective but my goal is to be fair and attempt to reward everyone as much as possible and of course it depends on the quarterly profits generated by the company. Then, we set up a grid system with points. There are values placed on a variety of items. One point for every year with the company, 10 points for a foreman, 5 for a carpenter, 3 for a laborer, etc. Additional points for running jobs over a certain dollar amount since those guys are taking on more of the responsibility. Points deducted for being late but I've never had to assign these since we have an older, stable crew. There are maybe 8 different items that award points. You then add up all the points everyone earned, divide the total number of points into the dollar amount in the pot and that will give you the value for each point. Then multiply each person's points by that number and that is their bonus. This system rewards people for added responsibilites, long-term employment with the company, and company-wide profitibility. I tried working with per-job profits but if I generated a bad estimate or we needed work and I took a job at a less than my ususal profit, then they wouldn't be compensated for it even if they did a good job with running the project. I also tried using just basic company profits divided up, but then guys running jobs received the same as laborers and that didn't work either. I found this system to work great for us. We have 5 guys in the field, one office manager and myself and we are all included in this system.

Mike Finley

The "back end" is the office, your accounting systems, your estimating systems, the systems that run the front end - the front end is production.

Ever hear how a guy is losing money on every job, when asked what is plan is for making money by the end of the year, he replys "I'll make up for it in volume!"

If you are losing money, doing more and more, just means you will lose money faster. Before you do anything you have to have at least established the proper foundations for being profitable.

As far as connecting incentives to profits, that's a waste of time in most cases because profits don't have much to do with a lot of businesses and even less to do with the employees. Employees have little control over profits, an estimator has more control then a production employee everwill, one line item on a job can wipe out all the profit and nothing a production employee can do will fix that.

Mike Finley

Luke, basically your system is a reward system to promote longevity with the company and try to stem turn-over or at least give guys enough pause before they decide to leave. It isn't an incentive program, there is no reward for production. What you have is really just a program that becomes part of their paycheck every time it is issued. Nothing wrong with that as long as that system is addressing a problem you have and helping you deal with it, such as employee turnover.

A simple incentive program could be something with a 1:1 ratio of return for an employee.

For every window you install you get $100.00. Install 50 windows you get $5000. Want to make more money, get better at what you do and install windows faster and install 60 windows and make $6000 this month.

A better version my be a tiered system

1-10 windows = $40 a window
20-40 windows = $90 a window
40-50 windows = $100 a window
50-60 windows = $120 a window
60 or above = $140 a window

Window installer #1 said he was the best thing since sliced bread when you hired him, he installs 9 windows and makes $360 that month. He won't be around long, he will fire himself.

Window installer #2 is getting better and better, right now he is installing 35 windows and making-$3000 a month, but he sees other guys making way more and knows it can be done and is working at getting better and better, he is getting rewarded in a way no hourly employee can ever be, and it is allowing him to become a super star one day for you. He doesn't have to work hard first and hope to be recognized by his employer one day and given a raise, to get his raise all he has to do is get better at his job, he makes more money and you make more money.

Window installer #3 is a superstar he does 80 windows a month and is making $11,000 a month. He would have a hard time making that kind of money on his own and especially without having to deal with all the headaches of running his own business. He's making great money and loving it. He can't go anywhere else and do better, you've got a super star making you a ton of money.