Profit Sharing

kanadaeh

Does anyone have any ideas on profit sharing? Does it have to be an open book policy? What others rewards for growth could a small business offer its employees?

BT006

There are two schools of thought here. The first is to pretty much show them the books (a simplified P&L works best). This will get you the best long term buy in but it can backfire, especially at first, if the owner is making lots of money. The workers can get resentful. I like this approach myself - I just take out every expense possible so that you make your cut look smaller.

I also make the bonuses large and based on if the company hits certain metrics. I prefer to pay an average wage with big bonuses. It isn't cheap but the company runs so much smoother it is worth it for the peace of mind. I never use the term profit sharing. After a while the employees just start to expect it. I pay bonuses based on growth, profitablity, and customer satisfaction. This is for a cleaning company but the principle is the same.

You could also just get the employees together every 3 months, tell them you (they) did well and pay them a bonus or tell them you did not and give them a smaller one on none. But you get much less buy in that way. I found it much harder to create an owners mind set. There are no metrics they can control, no bar chart on the wall showing weekly progress. Their destiny isn't in their own hands.

Everyone wants to be free but most people are too risk adverse to start a business. Creating mini-owners makes for happy employees who are looking out for your interests because they are now their interests.

Also - don't forget non-monetary rewards i.e., recognition. Most tough guys will act like they don't care but deep down we all like positive recognition. Just don't make it too soppy or hokey.

Some employees won't care at all about your new bonus program, will deride your efforts, and make fun of employees that want to buy in.

Fire them.

crb555

What we do, is to allow the foremen to pocket 20% of all labor saved on a job. At the start of each new job, we do a turnover meeting with the estimator, project manager, and the foreman. We will spend some time discussing the takeoff, and scheduling. We then issue a labor only budget sheet broken down into phases... pipe id, cores, excavation, domestic water, etc.... This gives ownership of a project to the foreman, provides a great incentive to look out for the company's best interests.

You might think "well thats great for the foremen, but what about everyone else".... You would be surprised at the types of attitudes that develop... the foremen typically pull a percentage of their labor savings money ( I always kept 65% split 35%), and distribute it among the key workers on a project. The owner also distributes a rather large bonus at Christmas using a portion of the 80% extra he makes to distribute to everyone..... according to their efforts. I typically receive 12-15% of my annual salary as a Christmas bonus.



Keep in mind that all overhead and profit are taken out of the labor budget. If they were to finish dead even, save no labor money, we have made our estimated profit percentage. Company wide, we very very rarely not save labor on the jobs.

Treating your men well has enabled us to acquire some of the best field men in this area...We pay a little more, and get a lot more for it.


Crb5

BT006

I like that approach. That would work well for the painting company I am looking at. I guess you haven't had much of a problem with material waste and theft then?

crb555

We don't have theft problems. But if someone needs something, they are welcome to it, as long as they aren't using it to make a profit.

We also have a very low turnover rate, the large majority (@80%) of our men have been there more than 5 years, about 1/3 of them 10 years or more.

The low turnover rate is key to keeping profit margins high. It very obviously costs a great deal of time / money to properly train an employee to your system, even if he has previous experience. Sometimes it costs more if he has previous experience. =/
In fact, we have gotten to where we will very rarely hire a leadman... we promote from within.. growing your own labor force is our only real option.

Look, the theory behind all of this is this.... Your competition is facing the same problems you have, with labor, getting paid, getting work, too much work, etc.. All you have to do is to figure out a system that is more efficient. A well planned out benefits program and satisfied employee's works towards that goal, imo.

Crb5

Luke

This is a shortened version of what we do....not perfect but here goes:
We create a grid....each employee (including office) gets points that are set by various factors. For example an employee gets one point for each year with the company, 15 pts. for being a job foreman, 10 pts. for carpenter, 5 for laborer and 5 for office help. Then, an additional 5 points for those foreman running jobs over $100,000 (or whatever figure you choose), additional points for bringing in jobs under budget and on-time and so on for various parameters set for productivity. Then, I decide what the pot will be, say $5,000.00. Add up the total points of all employees, divide into the $5,000 and that gives you the per-point value. Say Frank has been with the company 10 years and is a carpenter. If there were a total of 50 points earned by all of the employees then each point is worth $100 ($5,000 pot divided by the total of 50 points earned). His 10 years earned him $1,000 and he gets an addtional 10 points or $1,000 for being at the carpenter position. George, a foreman for five years gets $500 for the five years of service, $1500 for being a foreman and he's running a job with a contract of $125,000 so he gets an additional 5 pts. or $500 for a total of $2500. We do this quarterly. Some people argue, and I fo back and forth on this point, that the time with the company shouldn't be rewarded since that doesn't necessarily have anything to do with producing profit. I have looked at that but I still include it at this point in time. We have a fairly small company but we've been together a long time - I have one employee that has been with us 50 years, another 31, and another for 17 yrs. so it is tough not to reward their service. Of course, maybe I pay too much and that's why no one leaves!