Bonuses are a pleasure to give when they improve profitability and productivity. Develop guidelines for when and how you'll distribute bonuses, but be flexible to account for variables such as weather, and to encourage team-work on all jobs — not just those that are clear moneymakers.

At House of Hanbury Builders, Newington, Conn., bonuses have been distributed for 24 years. About the only certainty is that “all will get something,” and probably several times a year, says Alan Hanbury, treasurer and co-owner.

Ideally, Hanbury gives bonuses four times a year; in reality, he usually gives three: in the third and fourth quarters and at the holidays. The goal is to keep morale strong year-round, says David Beers, production manager. “When you have that end-of-the-year bonus looming at Christmas, it's a distant memory by the middle of January.”

First-quarter bonuses are rare because the quarter usually isn't profitable, given “winter and all, and cash flow is always an issue,” Hanbury says. By June, “It's usually a case of not knowing where we will be at the end of the year.”

Each Hanbury job has target goals for minimum gross profit, in-house hours, and labor burden costs. When a goal is met, the extra profits and/or savings are divided proportionately among the company and the individuals who worked on the job, including office staff who make up change orders, do ordering, handle warranty, and otherwise act as “mini profit centers,” Hanbury says.

He cautions, however, that calculations are used as a guideline, not as a formula, for rewarding better use of time, resources, or materials. “The strict formula system caused workers to give up on jobs that were dogs,” and tempted them to cut corners or manipulate time sheets to meet targets. “If the system rewards bad behavior,” he says, “it must be abandoned.”

“By using guidelines, I can fudge the actual results to reward good behavior even if financial goals are not met,” Hanbury says. After all, it's often in these situations —when the client is difficult, the estimate was flawed, or the job was sold at a smaller margin — that teamwork and attitude matter most.