Setting the Right Goals for Pay-for-Performance

When done right, pay-per-performance models consistently work.

Sounds like a bold statement, we know, but there are some powerful reasons. We wont go into all of them here, but let’s tackle the critical impact of goal setting.

As you might expect, a key element in a performance pay culture is to create alignment between objectives - those of your company and those of the workers.  

This starts with setting accurate, realistic, project budgets, which become the basis of worker production goals. If your estimates consistently bear no resemblance to execution reality, you are not in a position to measure against those targets.  Frankly, you probably have other issues too.

But here at Protiv, we’ve been in your shoes. We’ve run successful construction companies and understand those challenges. Since we built this platform, we’ve seen tens of thousands of jobs run on performance pay and goal setting is one key.

So as you start your pay-per-performance model with us, here are some ways to be successful at this critical task:

Understand Your Numbers

Seems simple, but before a company can be successful with Protiv’s pay-per-performance model, leaders really need to understand their numbers.

A good place to start is to check your historical performance data. Many times you can get this from your accounting system, or wherever you do job costing.  If your workers are historically hitting your forecasted labor budget, then it’s pretty safe to say that you understand how to estimate your labor.  However, we know that only about 30% of construction jobs complete on-time and on budget, so there is usually room to improve.

So if you not consistently on budget, you might have bigger issues to tackle like:

• Appropriately estimating your labor hours. Are you allocating enough hours to get the job done right, with the team you have on that job?
• Having the right equipment/materials, at the right time. Are your workers behind because they have to wait for deliveries, or dont have good tools?
• Strategizing on how to approach each job efficiently. Is the job being started in the wrong area, or staged incorrectly, leading to inefficient work?

If your budgets are unrealistic, pay-per-performance is not going to work. As you get your goals dialed in, you are setting up for success, so keep reading!

Set a Benchmark Based on Historical Performance

Let’s go back to your historical performance data. Say you are now hitting 70% of your budgets and you’re spending 35% of it on labor.

That 35% will become your baseline.  

Maybe that 35% represents 100 hours of labor. If your team can beat their time and bring it down to between 80-99 hours, the saved labor costs is what we used to fund the worker bonus pool.

Some companies share in the profit, giving maybe 80% of the bonus to the employees and keeping 20%. Others give it all to the employees. We recommend considering giving a major chunk to the workers, as it shows good faith for a job well done.  Also, your profit margins were supposed to be good if you had spent 100%, so do not get greedy on this step.

Set a Benchmark Based on Historical Performance

Let’s go back to your historical performance data. Say you are now hitting 70% of your budgets and you’re spending 35% of it on labor.

That 35% will become your baseline.  

Maybe that 35% represents 100 hours of labor. If your team can beat their time and bring it down to between 80-99 hours, the saved labor costs is what we used to fund the worker bonus pool.

Some companies share in the profit, giving maybe 80% of the bonus to the employees and keeping 20%. Others give it all to the employees. We recommend considering giving a major chunk to the workers, as it shows good faith for a job well done.  Also, your profit margins were supposed to be good if you had spent 100%, so do not get greedy on this step.

Communicate the Goal and Progress

You tend to see a behavioral shift when workers are incentivized to beat their deadlines, but to get that shift, they have to know what your goals are in the first place.  Those goals have to become theirs.  

Start by getting comfortable with sharing numbers. Some companies have a little twinge at the idea of putting financial details out there to crews.  We have found it is a positive move and necessary for performance pay to work.  Share your target labor budget and hours, in detail, by phase, cost code, etc.  However you bid the work.

You should also expect some new type of communication to begin. We think these are positive things, but be ready for them.

• Workers Keep Each Other in Check

Before a pay-per-performance model is introduced, workers may have been okay with their fellow team members wasting time, talking on the phone, or taking longer breaks. But when everyone’s bonus is riding on team performance, there’s a reason to call out inefficient behavior. So, you might have some workers communicate to you about the performance of others.

• Workers Are More Proactive About Equipment and Materials

If you send the wrong paint to the job site, or ordered 50 square feet of insulation on a job that needs 100, your workers are going to be unhappy (just like you are). Again, these inefficiencies may reduce their bonus potential. So workers often become more proactive about making sure they have the right materials, before they start a job.

Both of these scenarios might be a bit uncomfortable at first, but ultimately, they will help improve future processes as everyone works to be continuously productive. Listen to your team and build a two-way dialogue with them on how to improve. Again, since everyone has a stake in the savings, everyone has a vested interest in getting the team working like a well-oiled machine.

For an even more advanced approach, we encourage you to debrief after every job.

• How did the project manager do? How could they improve?
• Were there communication or supply issues?
• How accurate was the estimate?
• How did the team execute? Who were the all-stars? Who needs to improve?

Remember to Celebrate

Everyone likes recognition. So when a job is completed successfully, point out individuals on your team who made a difference. We like contests with meaningful prizes. Some companies like team lunches, others silly gag gifts, trophies, etc. This all contributes to a company culture of communication, quality and teamwork. So get creative about what that looks like for your team!

The team at Protiv is always here to help. So if you need any assistance setting your goals and benchmarks, please reach out to us at [email protected].