The subject of bonuses came up and we spent hours debating the subject. He believes a bonus system should reward and motivate. I explained to him that I believe a bonus is a reward, given to highly motivated people. Keep in mind that KHS&S has a clearly defined bonus system that has worked successfully over the years. However, there are many business owners who give bonuses for undefined reasons.
Who and whyWe must have people who get work and those who do work. Those who get work are considered overhead and those who do work are labor.
Office and field people agree to perform specific duties for a predetermined amount of compensation. Although both categories of people are being paid to do a specific job, some people do their jobs better than others.
No matter what system is used, the owner or supervisor will make the final decision as to how much of a bonus or if any bonus will be given to an employee. Consider the field employee who works hanging drywall everyday.
Not all journeymen are equal when it comes to production. If a drywall installer meets budget by hanging 20 sheets per day, he might be considered a good or average employee. Meeting the budget is much better than not, however, hanging more board than what is budgeted clearly identifies the exceptional worker.
Giving a bonus to average drywall installers sets the standard at average. The same applies to office workers. If we give bonuses to office workers for being average then the standard is set at average. A worker doesn't have to have a master's degree to figure out that average is acceptable.
Why would you give an office or field worker a bonus? Most employees expect a bonus each year, no matter how they performed and no matter how the company did overall. Bonuses have become a standard operating procedure for most companies because it's just easier to give them than not. When bonus time nears, some employees go out and buy that car or other expensive toy because they know they will get their bonus just like they did last year and the year before.
Am I a selfish, rotten, low-down cheap skate for not giving a bonus to an office person who spent the last year just doing the job? Will the field look at me as self serving and uncaring if I choose not to give a bonus to a foremen whose crew consistently met budget but never bettered it?
Does not giving out bonuses reflect poorly on me? Is it better to give out bonuses for average performance? Think for a moment: If your company had a terrible year and there was no money for bonuses, what would you do? Would your pride cause you to take out a loan to pay out some bonuses anyway?
Employers must decide why they give bonuses. Platon believes that a bonus should reward and motivate. At what point do you reward someone? Do you reward them for being average or above average? Will a bonus make an average worker become more motivated and therefore more productive the following year?
Will giving a bonus to a selected few employees who exceed our expectations every year cause average workers to feel defeated and not part of the team? Have you clearly defined the bonus rules to your employees? Do you really have specific requirements or are they arbitrary?
It's pretty easy for us to determine if a job made money or not. There can be many reasons why a job didn't make money. The reasons can range from an estimating error to low productivity. It's important to determine why a job lost money but more important is to realize that construction companies must make money on jobs. We have no other way of making money.
Let's say you lost $10,000 on a $100,000 contract. You budgeted the job and determined that you should have a gross profit of $20,000 once the job was done over a 60-day period. Let's look at what you really lost. You lost your profit of $20,000, as well as the $10,000 you took out of your pocket plus interest. Also, you most likely won't get your retention of $10,000 for six months. At minimum, you are down $40,000.
Would you give a bonus to the average drywall hangers you had on this job? Would you bonus them if it were an estimating error and not a productivity issue? Do you know if you will make money on a job before you do it? Do you want average workers on all your jobs? If you do, then just keep giving them bonuses for being average.
Who sets the standard?If I hire an average general superintendent, he will most likely hire average field superintendents. Those average field superintendents will most likely hire average foremen, who will in turn hire average workers.
On the other hand, if I hire a highly motivated general superintendent, he will most likely do his best to hire highly motivated field superintendents and they in turn will do their best to hire highly motivated foremen and so on down the line.
The same theory applies to the office. If I hire an average project manager, he will most likely hire average workers to support him. In other words, people hire people who are a reflection of themselves in many cases. As well, people hire people who don't pose a threat to their position or authority.
My wise old boss once told me that it was more important to make the right hire than anything else in this business. He also told me that we must always be on the look out for the right hire because we never know where that hire may come from. Today it's called top grading. Top grading is basically replacing average people with exceptional people. The wrong hire can destroy everything the owner hoped to accomplish in a very short period of time.
Who then is really responsible for contaminating a company with average workers who expect a bonus every year? Think back to the day you started your business? You made money because you were highly motivated and you most likely hired a core group of people who were of the same mind. At that time, you were the estimator, project manager and general superintendent and you set the standard and gave bonuses to those who really deserved them.
As your company grew, you had to hire people to do the things you were doing and for awhile, the people you hired were motivated until you grew more and had to hire more people who were average. The motivated and the average workers were now working together and the spiral towards average began. Compensation and bonuses were given to the average, as well as the motivated. The best of the best became diluted and average was the result.
What impact do you want a bonus to have on the people working for your company? Can we create a company of exceptional workers? What role does leadership play in building a company of exceptional workers?
LeadershipI've given much thought to Platon's comment that, "A bonus should reward and motivate." KHS&S Contractors has been very successful and has obviously done a lot of things right. I agree that a bonus should reward a worker but I don't believe a bonus will motivate the average worker. Platon is highly motivated and extremely competitive and I don't believe a bonus made him that way. However, he is a leader who sets standards everyday.
I believe the leadership of a company sets the standard and no amount of money will motivate the average worker to become the exceptional worker. Employees closely watch and listen to their leaders. Highly motivated employees want to be led by someone who consistently makes sense and good business decisions. Average employees don't really care if their leaders make sense.
Again, after much thought, I've come to the conclusion that bonuses can do more harm than good. The leader is responsible for hiring the right people and setting the standard, as well as giving bonuses to the right people. If the leader fails in either of these cases the outcome will be average.
As this year ends, accountants will begin preparing financial statements that will clearly determine the financial success of your company. Once these statements are in your hands, you will begin the mental gyrations associated with bonus giving.
Leadership will once again consider the consequences of not giving a bonus; however, leadership will most likely not consider the consequences for giving a bonus. There are consequences for both. Perhaps next year the average worker will become the exceptional worker. Perhaps next year the average leader will become the exceptional leader. Perhaps next year the average worker will be setting the standard for your company. Perhaps I may hear from the average worker?
Remember: Teamwork begins with a fair contract and more than average work.