During the 15 years that Greg Antonioli has run Out of the Woods Construction, in Arlington, Mass., he has wanted to provide a bonus program. “It attracts the right people who have the intelligence and drive to serve high-end clients. It encourages teamwork, and creates a culture that allows you to give better service,” he says.
A peer recommended the book Good to Great by Jim Collins, which encourages the use of bonuses. “The book's philosophy is that you are doing employees a disservice by expecting them to show up every day without knowing their impact on the bottom line or giving them power over it,” Antonioli says.
The remodeler implemented a bonus program in 2005, which also meshed well with the firm's open-book policy. “It is not necessary to have open-book, but it does make the bonus program more effective,” he says.
Annual bonuses are based on 7% of the employee's salary or hourly wage times 2,080 hours. An additional 0.1% is added for every anniversary year. For example:
Annual earnings ($12.00 hourly wage x 2,080 hours) = $24,960
Years with the company = 1
Bonus factor: .071
Total bonus for the year = $1,772.16
Total gross pay = $26,732.16
A percentage of the total annual bonus is awarded each quarter, graduating from 10%, to 20% to 30% to 40% through the year. If the company misses its goal for the quarter, no bonus is paid. If, during the next quarter, the company makes up for the previous quarter and hits the current quarter goal, both quarters' bonuses are awarded.
The firm did not meet goals for any quarter in the first year, but did so by the following year. “It forced guys to start asking good questions and it gave them incentive to track the numbers,” Antonioli says.
It is crucial to have an accurate financial picture. “You need to be confident in the numbers before setting metrics to measure your employees,” Antonioli says. He waited until he had a good bookkeeper and controller before putting the plan in place.
To ensure that the plan created an incentive for teamwork, Antonioli amended the program so warranty costs are considered job costs and will affect gross profit. “This prevents guys doing shoddy work to get the job banged out and billed so they can get their bonus,” he says.