Contractor Talk - Professional Construction and Remodeling Forum banner

Paying for profit

7K views 46 replies 19 participants last post by  Mike Finley 
#1 ·
paying for profit....

Paying employees hourly mean there is no incentive for employee A to work harder than employee B. No matter how hard either of them work, their pay is governed by how long they spend on the clock. This type of traditional pay system encourages mediocrity. There is a disconnect between the job that is being done and the pay they are receiving.

Employees behind an employers back say things like "Hey, buddy I'm sorry we are holding you up here... " the reply is "No problem, I'm paid by the hour."

Paying for profit means the company only pays a bonus when the company reaches a certain profit level. The workers at jobsite A and B are working for the companies goals and not their own, the degree of production is only dependent on the loyalty of each individual employee and has nothing to do with what they could achieve for themselves.

Two jobsites both $25,000 jobs. Job A is profitable, Job B is not profitable due to circumstances that have nothing to do with the workers. The men work hard at jobsite A, but there is no profit and there will be no reward. The men at jobsite B work at a relaxed pace, and there will be a reward because there is profit. The men from both jobsites talk about their work, the men from jobsite A tell stories of how they are working their tales off because management wants to get off the job as quickly as possible to reduce the bleeding. The men at jobsite B tell how they are working at a relaxed pace and are still going to get a $500 bonus.

With pay for profit if the bonus is not tied to the amount of work the employee accomplishes there is no incentive to work harder. Pay for profit makes little logical sense to a common worker.
 
#2 ·
When ever I can I pay piece work, sometimes the whole crew, sometimes just the lead man. This seems to keep things moving. Of course it also leads to a lot more whining when someone is in the way or materials are missing, but if there is a problem I want to know about it and fix it.
 
#4 ·
I feel it is next to impossible to keep someone motivated over a long period of time.
If a person is making twice the pay that is normal for that position over time they will become lethargic. I suspect it is human nature and something we can all be guilty of?
The grass is always greener on the other side.
That is why we have the right as employers to talk to them and explain the situation. If that doesn't work they get to try the unemployment line:thumbsup:
 
#5 ·
Pay per job is an EXCELLENT approach if you can make it work.

Here's how I've seen it set up....

The foreman gets X percent of the gross sale of the job. Out of that , he pays the laborers.

There are a couple reasons for this being affective:

1) It cuts down on the amount of laborers the foreman wants on the job - since it's coming out of his pocket.
2) No more slacking on the job
3) The smart foreman will incentivise his crew for getting the job done right and on time.
4) Service calls become the responsibility of the foreman.

Obviously, there are downfalls...

1) You'll need a grace period to figure out what a good percentage is for your crew.
2) You're assuming that each job you do has the same level of difficulty in getting completed.
3) You need a foreman with a bit of business sense.. or one that is teachable to this.
 
#6 ·
I'm not trying to be negative as I know some guys that implement this type of comepensation program versus set salary or pph but here is something that I see recurring and have experienced. When your crews know what the job pays, they get sour grapes. I made the mistake of letting my guys pick up checks from homeowners when a job was completed. Well of course when the homeonwer handed them the check unenclosed in an envelope they look at the amount paid. Regardless of my expenses, regardless of their pph they would get in the truck with each other and comment. "Damn, Ken just made $600 and we were only there for four hours." Of course they weigh that against the fact they each of them was paid $60 for that same period. That is where the resentments start. Words like workmen's comp, liability, marketing and taxes have no meaning to them. They used $30 in materials so in their minds I just pocketed $450 on their backs and now they have to drive to a second job so Ken can make another $450? Again, it doesn't matter if I paid double the industry wage and offered bonus incentives (which I do), its never enough.

This has cost me more than one employee to either disgruntled slacking (to the point I fire them) or for the smart ones they just open up shop down the street. I have vowed that no employee will ever again know what a jobs pays. Bonuses and incentives are performance based and static. Percentages only come into play on my end, not theirs.
 
#19 ·
Absolutely impossible to have a sub do what I want an employee to do. I don't care how good they are, I've yet to find a sub on the same level we are on, and the amount of control I need to achieve what I want to do would disqualify them as a sub.
One thing no incentive plan figures in is the employee's ambition or desire to achieve. How well any of these ideas work depends on how much they want them.
Actually, you've got it all backwards and upside down, the given for anything to work is to hire correctly. Having guys who don't fit your plan isn't a problem with the plan, it a problem with the guy who hired the guys who don't fit your plan. Fire them , get their sickness out of your organization as fast as possible before they infect your good staff, then hire better.
 
#9 · (Edited)
two days ago I had two tinners working/slacking on the job (employees of a sub). They stretched the job out an extra day (three instead of two for a metal rough-in) because (and they told me this) they didn't have another job to go to so Scott (the owner) would send them home and they would miss a days pay. Later they were talking about it being impossible to get "rich" with the standard line "it takes money to make money". I explained the fallacy of that statement.

I explained that if they became the hardest working, most productive men in the company, they would be the last to be laid off. If they dedicated themselves to learning how to do everything in the business and being the most productive, they would make themselves far more valuable to the boss who would give them a raise to make sure they stick around. If they didn't get the raise, they would be much more employable elsewhere and could and would earn more money.

Their response, after thinking about it for a minute, "I don't think I want to work that hard".

The point is, pay your good men better than the others. The crew should know they get paid better. Give them positions of responsibility. Talk to them about the performance of the others. Pay attention to them. That will build their already good attitude. The slackers will be disgruntled. They will never understand that the higher paid guys are deserving of the extra money. Over time the slackers will quit (or you will fire them) and that's good for the company and everyone involved. Slackers are poision. They are an emotional drain on the rest of the crew. They hold you back.
 
#10 ·
We've been toying with an idea similar to this for a while now. On paper, it looks good.. we'll find out the reality in the next few months since we just started it as a trial on January 1st.

Service Calls or T&M work- Hourly Rate based on employee's classification. The wages are above going rate in this area.

Contract Work- Base hourly rate per class which is set well below their service call rate. (Ex. $25 hr Electrician drops to a $18hr rate) plus they receive a percentage of profit. How much they earn in addition to the hourly is based on the contract labor bid. If they go over or too slow to come in under the bid price, little or no bonus. If it's done early, and correctly, bigger bonus. They are given half of the bonus at the time of completion, the other half stays in an interest bearing account for 3 months. No call backs at the end of three months, the bonuses get distributed. If we do get a call back on the work, the cost to cover is deducted from the bonus account.

We're also subbing some of the work out to our employees, letting them have full control over that portion of a project, such as drywall or painting. It helps them have a little extra in their pocket and gives us piece of mind that the quality of work will still adhere to our standards.
 
#11 ·
I tried every incentive plan I could muster in the past.

If the customer was happy on completion you would get a bonus. The guys would beg the customer to give a good review so they would get their bonus.

Percentages of the profit. Their idea of profit and mine would differ. Try docking them for a call back on a job they had been paid for:eek:

Monthly bonuses? If they don't increase each month then they are stagnating.

I feel you can pay them well and remind them often they are being paid well.

When my guys tried to mutiny one time I went out and bought a new van. Fitted it with tools and parked it in the drive. When they asked me why I bought a van I told them when I get sick of the shyte I may just put the tools on again. Scared the crap out of them. Got a good month of hassle free employees.

If you have crews installing siding, roofing, even some paint you can work things. Remodelling is a different kettle of fish.
 
#13 ·
Copus, I think you are very right. One thing no incentive plan figures in is the employee's ambition or desire to achieve. How well any of these ideas work depends on how much they want them.

It also depends on the reason a company starts to use them.. for the employee's benefit or for the overall good of the company. It sounds as if you were using it to motivate employees. In our case, it reduces expenses. We let the employees vote on it before we started trying it out and there was only one "no" vote, so it empowered the guys to feel like they had a direct say in their pay.

Maybe it's all in how it's presented to them?
 
#17 ·
But you have only just begun:eek: Talk to me in a few months:whistling

Hope it works for you. I think most any plan is designed to motivate in one way or another. You say saving cost...what does the employee see? If they do not get a bigger share the morale will drop like a ton of bricks. We all no what happens when we get on Rotten apple?
On that note gotta go see a kids basketball game.. Good points :thumbsup:
 
#16 ·
Incentives are for workers who have no incentive to work for you! So what are they working for you then??!!

The only new incentive they should get from you is a new pair of work boots, so they can walk away. Forget wasting your time with these type of people. Spend you money on workers who want to be there. People on wages are slow and unproductive. Let them work on Contract, then you'll see them run!
 
#20 ·
Gee Mike it sounds like you have done some reading?
 
#21 ·
Ya think?:laughing:

Like a light bulb has gone on and another little piece of the puzzle has shown itself.:thumbsup:

What's funnier than hell is even quoting it right from the horses mouth you still have people who can't stop telling you how life is a big tub of sh!t and it ain't gonna change so stop trying.:no:
 
#27 ·
The right incentive plan directly takes into account an employee's ambitions and desires

Exactly!
Why can't the employees career and the company's goals co-exist?
The right incentive plan can take that into account.
Bonus pay is only one way.
Training, advancement, respecting them as professionals,
and even something as simple as a fun place to work are other benefits.
 
#31 ·
this is a great thread! and it speaks directly to why I am working for myself now...
way back I worked for an industrial supply company- boss was, well a sneak - he'd listen in on phone calls, set traps for you (he'd add goods to an order to see what you'd do) so at bonus time, it came down to this "the eastern division didn't make any money this year, so no bonus's for us out west" well you gotta know what that did to "loyalty" and dedication! that plus the bottom of the barrel morale. we couldn't keep anyone that was any good- I bailed about six months after that.

On a show a year or so back, xmen3 I had to do something with a guy- nice fella, but he does not want to work fast- frustrating! took 5 days to do the job instead of two...he kept saying, slow down we got to make this last... made the day drag on forever.

last fall I was workin on a high end house- 32 bucks an hour! pretty sweet- the guy I was teamed with is sssllloooowwwww does good work, and cannot stand anyone elses work, he'd take down stuff that I'd put up- drove me nuts! the foreman was all over him about that, so they got him doing a one person job- enough is damn well enough! I like working happy, whistling, accurate :):) so I'm on my own! I love it, all headaches notwithstanding...

what made the difference for me on some jobs, the boss would come around every couple of days and compliment the work - boy that really cheered me up! jobsite morale is a huge item...
 
#33 ·
If you want to get big.....hire lots of employees and pay the price in the form of payroll, taxes, unemployment comp., etc.

If you want to make high net profits.....hire a loyal right hand man.....and sub all the rest to specialty contractors.

Assumption: Quality subs.

Remodeling empires (in this area) cannot exist.
 
#36 ·
I have also found sub-contractors to be a valuable tool for business growth, reliability (yes... I said reliability) and most importantly, the strengthening of our long term business relationships that allow the "systematic quality" that can be enjoyed by our customers.

There is no better experience than to see various win/win projects completed over and over again!

This business approach has proven that our customer's expectations are consistantly met or exceeded, independent contractor performs their speciality with precision accuracy and profits nicely from doing what it knows best and lastly, the contractor ensures the final product will be rendered as specified thus strengthening his business reputation!

If you place yourself "in the shoes" of the other party(employee, subcontractor and even clients for that matter) that you are doing business with, and if you would accept the opportunity that you present....... there is no limit to your success!

Joe
 
#39 · (Edited)
Pay for profit makes little logical sense to a common worker.
I've always thought that bonuses tied to anything beyond the direct control of those seeking the bonus are at best less than ideal and at worst dubious. Tradesmen are not in direct control of profit. What they are in control of is "work completed"; how much they get done each day - "sales" as it were. In my eyes, the bonus that makes the most sense for "hourly" guys is a cut of the price of the job. Such a bonus is also easily managed because sharing billing information is straightforward. The benefit is also easily grasped; everyone understands that getting $30K worth of work done per month will pay a bigger bonus than getting $25K worth of work per month. It goes without saying that this kind of bonus requires corresponding quality control mechanisms that insure the work is getting done properly.
In my mind, it's not the employees role to "share the pain" with the company when a job loses money. It's the company's role to afford the employee the greatest benefit possible for accomplishing the assigned task. If the task is accomplished in accordance with expectations (or better) then bonuses should be paid - regardless of the extent to which the company may or may not earn a profit. If a job loses money because of employee performance issues, then it's management's role to correct those issues, either through additional training or replacement of non-performers.
 
#40 ·
Interesting thoughts floating around here.

Am I sensing that there is a sense that subs are cheaper than employees?

I'd really have to see that laid out to be convinced of that. Our plumbing subs charge 80-90 an hour, our elec subs charge about 65, I don't even want to know what the true hourly of our tile subs would be!:eek:

If I could pay an 65-90 an hour plus material mark ups instead of me getting them wholesale goes a long way toward paying an empolyee. One sub on the job for a day seems to me like the cost of 3 employees.

I've always thought that one day it would be awesome to have a plumber and electrician on staff.
 
#43 ·
Mike doing a bathroom around here is a pain. You have to have a licensed electrician and a lisenced plumber to get the permit. I dont know if its like that by you? I take it its not. Aquiring a electrical license is not that hard but getting the plumbing lisence is a bit trickier I think. I am not trying to take anything away from you and George you guys obviously have been around longer then me and are more established. I would think you could sell another job while somone was doing the tile if you subbed it out. I would say tile is easy and reasonable to sub out. You are probably getting done a hell of a lot faster doing them in house.
 
#41 · (Edited)
Mike,

The whole concept is hard to understand when you give just a piece of it out at a time. Why don't you buy everyone a copy and have a book study group?

I already have a copy.

I think Pipeguy would appreciate the concept in the book.
 
#44 ·
We do sub out tile.

I'm not sure what you are saying as far as not being able to permit bathroom jobs?

I pull the general building permit for any job, bathroom, kitchen, basement... if it has electrical or plumbing work - depending on the municipality I either fill in the name of the plumber or electrician to do that work on the building permit and the municipality verifies they have that contractors licensing information of file and it is current, or I have the sub send in the individual elec or plumbing permit itself, which I fill out for them and fax to them and they just sign it and fax it in.

It doesn't sound like we have to do anything much different then you are.
 
#47 ·
Dirt your thoughts are right on the money. I have my doubts I could get a master plumber or electrician for 50K a year around here, but your logic is sound. Since on a 3 week job, the electrician and plumbers put in maybe 1 day apiece out of those 15. So I would need a crap load of jobs going all at once in order to keep them busy. Unless they wanted to do work outside thier trade on other days.:laughing:

Ultimate - plumbers, electricians and some other tradesman are independent contractors, I hire them as subs. Plumbers and electricians because we have to becaues of the rules, and other tradesman such as tile setters, glass companies and others because of economy of scale. We do not do electrical or plumbing in house, in Colorado like most places those trades require a master license. There are some other posts on here I made that describe all the tasks we do in house, which are alot.
 
This is an older thread, you may not receive a response, and could be reviving an old thread. Please consider creating a new thread.
Top