Compensation That Motivates

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Those who praised their company’s compensation plan wrote not of riches but of fair, perhaps above-average wages.

June 01, 2002

 

Lois Bishop, Cisney & O’Donnell. Photo: Michael Haritan

Those who praised their company’s compensation plan wrote not of riches but of fair, perhaps above-average wages. What they liked most: incentive programs that award per-project, quarterly or annual bonuses based on hitting or exceeding gross profit targets, meeting production schedules, and satisfying customers.

“The base pay scale may not be the highest, but the incentive brings it up,” says Lois Bishop, the marketing and public relations assistant for Cisney & O’Donnell Inc. in Huntingdon, Pa. Starting fresh each quarter, the incentive program provides rewards based on department (accounting, production, sales, marketing) performance and individual performance. There’s also an annual “Black Friday” bonus at the end of the fiscal year in September based on the company’s overall bottom line, which includes profit from its remodeling and pool retail divisions.

“It helps to reinforce the feeling that we’re all in this together and what you do affects everyone else,” Bishop says. “It gives you a vested interest in the company.”

President Denny Cisney Sr. started the incentive program about 13 years ago. “We all have monetary goals, but sometimes we aren’t willing to make the sacrifice,” he explains. “I didn’t want to lose people because they were under too much stress. If they want to go home every day at 5, they can, but they have to understand they won’t make as much money.”

In 2001, he says, the accrued bonuses for his 23-person company totaled more than $100,000. To make sure there’s enough money to reward high performers, Cisney & O’Donnell puts as many costs as possible into the price of each project and then aims for a 32% to 37% gross profit on top of that. Carpenters in this rural area average $10 to $16 an hour; Cisney & O’Donnell’s lead carpenters make $12 to $14 an hour, but with bonuses and incentives can get as high as $30,000 to $40,000 for the year.

Across the country in Santa Barbara, Calif., Allen Associates uses a different kind of incentive program: management by objectives (MBO). The president, vice president and the eight associates — managers who each run their own profit center — set individual goals based on the company’s objectives. Associates receive a base salary, plus bonuses (up to 60% of base salary) based on performance and realization of objectives such as volume, profitability, customer satisfaction and team building. Associates earn $65,000 to $80,000 annually.

Field employees don’t work under the MBO system. Average pay for their positions is $25 per hour for a project foreman, $24/hour for a journeyman carpenter, $15/hour for apprentices, $13/hour for skilled labor and $9/hour for unskilled labor.

At De Mattei Construction Inc., a 17-year-old remodeling and new construction firm in San Jose, Calif., the numbers for the field are fairly similar. Finish lead carpenters can make as much as $35 an hour, entry-level carpenters start at $18 per hour, and laborers earn $12 to $14 an hour.

“Others will pay over-market to get people,” says John Hinton, the chief financial officer of De Mattei, citing rates that go as high as $60 an hour. “The problem is, they let them go after just one job.” De Mattei, with $32 million in annual revenue, em-ploys Hinton, president Mark De Mattei, seven project managers, three project ad-ministrators, a receptionist, three people in accounting, a draftsman, a designer and about 30 field employees.

“You have to pay market to the employees to be competitive,” says Hinton. “But you can be different from the next guy by what you offer that they don’t have to pay taxes on.” At De Mattei, that includes health care and a 50-cents-on-the-dollar company match on the 401(k) plan for all employees.

Hinton says the cost of supporting so many full time-employees is justified by the quality control that having in-house carpenters provides. “We get more efficiency,” he says. “We have less turnover, and we feel we can get things right the first time.” In De Mattei’s high-end market (its average remodel is $400,000, and its average new home runs $800,000), having top-of-the-line finish carpenters is especially important.

Only the seven project managers, however, receive profit sharing based on each project’s success.

DreamMaker Bath & Kitchen by Worldwide in St. Louis Park, Minn., uses an incentive plan set up so that “if one person does well, all do,” says general manager A.J. Paron-Wildes. “We don’t want it to be so competitive that salespeople won’t help each other.” For instance, salespeople get a 10% commission, but only if they achieve a gross profit of 45%. Their “stretch” goal is 55%. Their incentive? For the first $300,000 of work sold above 45%, each salesperson gets a $1,000 bonus. For every $50,000 sold beyond that, each receives another $1,000 bonus. And everyone else in the eight-person office gets 10% of those bonuses.

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