Carpenters and other field employees tend to think in terms of the quality of their work, and good remodelers wouldn't have it any other way. The downside is that carpenters' quest for excellence sometimes distracts them from the company's bottom-line goals and needs, and their attention to detail — to plumb walls and picture-perfect trim — can take more time than the budget allows.

An effective bonus system can help field employees achieve quality and profits alike. I generally recommend awarding bonuses directly to lead carpenters or project managers. If they want to share the wealth, that's fine, but I believe that the best way to motivate others is to let them see how well the leads are doing — so they'll want to become leads themselves.

There are many ways to structure bonus systems, but all follow these basic guidelines:

  • Your bonus system should be designed to reward good behavior, not necessarily to change or punish poor behavior.
  • Your bonus system should be as simple as possible to measure and track.

DEFINE THE OBJECTIVE

With these guidelines in mind, ask yourself what you want to reward: for instance, profitability, customer satisfaction, or timeliness? Depending on your answer, you should be able to determine the best way to bonus your production people.

Profitability. This is fairly simple to establish, typically using job costs and/or net profit as a basis. For instance:

For a full-service remodeling company, you could give the lead 50% of the savings on the job cost, to share at his or her discretion. For example, if the job cost is budgeted at $65,000, and the lead brings it in for $62,000, the lead gets half of the difference, or $1,500. If there's a salesperson other than the owner, the two could each get 33% of the savings, or some other distribution.

For a kitchen and bath company, the lead probably has far greater control over labor than over materials. His bonus might be 50% of money saved on the labor budget only.

Using net profit as a basis, the lead could get 50% of the net profit over the company's minimum requirement. If you need a 10% net profit, and a job nets 15%, the lead gets 2.5%.

Note that these percentages are provided as illustrations only. Your distribution of bonuses should reflect your own financial and staffing situation.

Customer satisfaction. This requires a good feedback mechanism for clients to evaluate the production team. Companies such as Guild Quality (www.guildquality.com) can help you establish criteria and conduct surveys. You might assign a simple monetary award to “grades” of a certain level — for instance, for every job that gets a top rating in 80% or more categories, the lead gets $100.

Timeliness. If you tie bonuses to schedules, it's essential that you map out an accurate schedule before the job begins, and update the schedule (and notify the lead) as changes occur. As with customer satisfaction, this bonus system would attach a financial reward to finishing the job on schedule.

NOT ALL OR NOTHING

The most common bonus system is a combination of the three outlined above, with each benchmark being 33% of the whole.

For instance, your overall potential bonus might be 1% of budgeted job costs. Say a job sells for $100,000, and job costs are budgeted for $65,000. If the job comes in at $65,000, and the customer is satisfied, and the job meets schedule, the lead carpenter gets a bonus of $650. This would allow for an additional $3,250 in the lead's annual income, assuming he or she does five such jobs each year.

Profit isn't everything, of course, so structure your program to reward effort. For instance, if job costs are slightly over the $65,000 budgeted, but the job is finished on time and the client is satisfied, your lead would get 66% of the total potential bonus, or $429.

You can structure your bonus system in many ways. Just remember: keep it simple! —Tim Faller is author of the Lead Carpenter Handbook and president of Field Training Services, www.leadcarpenter.com.