CONSTRUCTION Accounting Article -
Building a Better Bonus Program
Target Audience: General Contractors, Construction Company Owners, Profit Analyzers
Recently, a general contractor realized she needed a better way to determine employee bonuses. Her current program was based directly on the company’s profit, so she was rewarding employees equally regardless of each one’s actual contribution.
For help, the contractor went to her financial advisor and, together, they developed a new bonus program. First, the owner formed a committee of three staff members (managers not eligible for the bonus program in question) to evaluate employees. She asked the committee to assess each worker based on five factors:
- Customer satisfaction. Has the employee received positive feedback from customers regarding his or her performance? Specifically, how did the worker contribute to not just meeting, but exceeding, customer needs?
- Cost awareness. Is the employee clearly aware of each job’s budget? Has a job come in under budget thanks to this individual’s efforts?
- Attitude. Does the worker display a good attitude toward the company and those in charge, as well as co-workers? How has he or she helped boost morale?
- Quality. How much of the employee’s work must be done over? Has the company received customer compliments — or complaints — regarding the employee’s work?
- Safety. How many accidents have occurred on the worker’s projects? Is he or she safety conscious?
Using these five factors, each committee member rated every employee on a scale of 1 to 10. Each committee member then added up the total and divided it by 5 (the number of factors), giving each worker an average score.
Next, for each employee, the owner totaled the three committee members’ average scores to give the worker an overall evaluation figure. She also added up workers’ overall evaluation figures to determine the total evaluation points to be awarded.
Last, the owner established a bonus pool based on company profits. She awarded bonuses based on each worker’s percentage of the total evaluation points.
With this plan in place, employees focused more on improving their own performances and less on letting others contribute to the company’s bottom line. In turn, that bottom line grew and the owner saw a noticeable boost in morale.
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