To attract new hires it’s important to offer a healthy salary and benefits package, but when it comes to retaining current employees, a well-thought-out bonus program can give you the most bang for your buck.
Bonus programs that contain both team and individual incentives provide the most motivation for employees. The team incentive gets the entire company working together on specific company goals and objectives and the individual incentive enables your best performers to get rewarded for doing a superior job.
Following are the key components to both types of incentive-based compensation:
- Company benchmarks are established for measurable company or individual goals.
- Quantity measurements are compared to benchmarked performance standards.
- Reporting systems are developed to provide consistent feedback on performance as compared to benchmark.
- Performance is measured on a quarterly basis.
- Growth reviews are part of the measurement process.
- Rewards are earned on a sliding scale; the better the performance the higher the incentive. They should not be an all-or-nothing proposition.
Benchmarks are quantifiable measures of performance that can be reduced to an easily understood and easily measured number or percentage. There are four concepts that can be measured and used as part of the benchmarking process: time, quantity, cost, and quality.
Of these, time and quality are the easiest to measure, cost is the most volatile, and quality is the most difficult to quantify. Quality measurements are rated against a performance benchmark as judged by the customer, manager, or general public.
Some positions, like sales and construction, lend themselves to easier and more plentiful performance benchmarks. Other jobs like receptionist have fewer opportunities to measure quantifiable performance. Following are some examples of benchmarks for different positions within a custom building company.
Superintendent
- Time of construction
- Variance percentage from budget
- Customer satisfaction
- Jobsite quality
Salesperson
- Number of sales
- Percentage of traffic units registered
- Closing ratio
- Customer satisfaction ratings
- Number of follow-up appointments scheduled during the period
- Projected profit percentage of sales
Estimator/Purchaser
- Improvement on direct costs as a percentage of sales price
- Reduction in direct costs as a square footage dollar amount
Receptionist /Administrative Employee
- Number of times management calls in and gets the proper phone greeting
- Number of transactions handled during the period
- Number of closings or selections coordinated
- Customer satisfaction ratings
Who are the customers for the administrative staff? Often they are the home buyers, sometimes they are fellow employees, and sometimes they are vendors and trade contractors. Each of these groups can give you measurable feedback if you develop a system to gather the measurements.
Keeping Track
Some benchmarking data are gathered through home-building accounting software systems, such as the profit and dollar figures from the operational results measured by those systems. Other data is measured by surveys or special management reporting systems usually tracked in spreadsheets or internal databases. These systems are developed internally for the specific performance benchmarks established by the custom builder.
Benchmarks should be measured on a consistent basis and in consistent frequency. They should be mentioned regularly in management team meetings to remind employees in the field, sales, and back office of their progress. If employees understand the ground rules and have easily understood measures of success they will know if they are on track for a bonus. They will be more apt to recognize unacceptable behavior and be motivated to do something about it. Finally, they will know their roles and the roles of their teammates and be more willing to sacrifice when there are mutual goals—and victories.
Averages and trends are better applied to incentive compensation systems than single-event or single-job measures. To reward an employee on the performance of one home may motivate him to spend more time on that home while potentially ignoring another. This is not productive.
Keeping an overall employee performance average keeps him or her doing the best job on each home or measurable event. Rewards should be based on a sliding scale with better performance results yielding a higher incentive. All-or-nothing programs can be very demotivating once the reward falls into doubt. It is much better to pay on a sliding scale allowing as many employees as possible to gain from the incentive program and to find the motivation to improve performance during the ensuing measurement periods. When in doubt, the incentive program and its measurements should err on the side of the employee.
To be successful, incentive programs must be well designed and simple to administer. They should also be simple to understand. Remember that employees who know the rules of the game are motivated to participate to the fullest extent possible.
For further information and samples of incentive compensation systems please visit www.builderbt.com.
Steve Maltzman, CPA, is president of SMA Consulting in Colton, Calif.
