By Jim Cory Last year, Novak Construction in Cedar Rapids, Iowa, initiated an incentive program for its 12 field employees. If the company exceeds its gross margin target for a given job, the additional profit is divided between the company and the project's lead carpenter. For example, on a recent $93,000 job bid at 40% gross margin, the produced gross profit was 58.2%. Novak Construction and its lead carpenters split the $16,000 difference. Lead carpenters decide how to divide the money among those company employees who assisted them on the job.
Larry Leftwich, vice president of the company, says the idea of the program was threefold: to get jobs closed out on schedule, to reduce gross margin slippage, and to reward the company's most productive employees.
"It seemed like the peak performers were the ones bringing the projects in on time and on budget," Leftwich says. "We determined that how well a project is planned and scheduled is closely related to how well it comes in."
By sharing extra gross profit with lead carpenters, company managers hoped to reduce time wasted chasing supply items, and also to persuade leads to do a better job writing up and collecting change orders. In the first fiscal year after instituting the program, revenue from change orders went from $121,000 to $138,000. The company also eliminated its annual 5% pay raise for field employees, reasoning that carpenters who earned incentive pay by completing a profitable project on time would make at least that much.
"It's a way to reward those who are working hard and doing things right," Leftwich says.