One benefit of a recession can be that as business slows, you let go of underperforming or overpaid employees. Then, as the economy improves, you should avoid hiring underperforming employees by rethinking your compensation methods. During boom times, many remodelers, needing field labor to keep up with volume, overpaid their field workers. Many also increased employee wages for fear of losing staff or because another business offered more money. Additionally, many employees received pay increases based on longevity, perhaps with little or no consideration for performance or productivity.
At one point, unemployed field workers in construction reached 27%. Now the story is different. There are plenty of viable candidates. As a result, wages have somewhat declined. This is a great opportunity for remodeling company owners to match compensation and future wage increases with performance.
As a business owner, you know that working hard doesn’t always equate with productivity or performance. The same should be obvious for employees. If wages are increased through accurate, measured, and improved performance, employees will know when they earned a raise. Conversely, they realize that underperforming might result in a pay cut or the loss of their job.
Tracking Labor Costs
To create this type of plan, owners should track employee performance against actual goals. The auto industry uses a flat rate manual to determine labor costs for auto repair. The idea is not to estimate the number of hours to do a certain task but rather the typical cost of labor to perform the task. A repair shop that uses flat rates pays staff for what they accomplish not how long it took them to do the task.
For fairness, the flat rates need to be backed up with evidence. A remodeler could do this using job costing. For example, say the labor cost to install one patio door unit, including wages and all burdens, is flat rated at $120. If it costs the business $40 per hour, including wages and all burdens, to use a highly skilled carpenter for the task, he would have three hours to complete the task to meet the labor budget. Completing the job in three hours means his wages are in line with his performance.
If a semi-skilled carpenter who costs $30 per hour performs the same task, that carpenter would have four hours to complete the installation to meet the labor budget. Using the flat-rate logic, if the second carpenter consistently and properly installs patio doors in three hours, he would be eligible for a raise.
The patio door installation is just one example. Overall performance that includes a combination of all tasks is a better way to measure employee performance. Proper use of time cards and job costing will also identify where employees are performing against budget on all tasks. This helps identify the best place to invest in training to improve performance.
Benefits of Objectivity
Developing this kind of structure has several benefits. It would help match employee wages to actual performance, eliminating concerns about favoritism. Job review discussions about raises would be based on facts not emotions. Discussions between scheduled reviews could help employees improve faster or help owners realize the employee isn’t working out. If the owner or manager knows each employee’s actual performance in hours against established estimated rates for specific tasks, he would be able to assign the most qualified employee to each task, leading to more accurate project schedules for each phase.
If remodelers use purely subjective methods to determine compensation for field employees, they set an example for staff to use subjective methods to assess their own performance. Before hiring, think about and document compensation plans based on merit. Telling job candidates about this plan could even act as a filter: Top-performing employees would be attracted to such a plan, but those who can’t or won’t perform will find work elsewhere.
—Shawn McCadden founded, operated, and sold a successful design/build company. A co-founder of the Residential Design/Build Institute and former director of education for a national K&B remodeling franchise, Shawn speaks at industry events and consults with remodeling companies. email@example.com.