FOR DECADES, MOST companies that employ project managers have made percent-of-earned-extra-job-profit a key part of those PMs’ compensation packages. Such pay-for-excellent-performance incentives have traditionally been good for the companies and for the PMs as well, helping to ensure those who produce profits for their company are justly rewarded.
With the changing structure of the workforce and of the economy, some companies are considering options to expand the concept of percentage of variable pay from project managers and other salaried employees to field employees as well.
Attempting to create a variable pay component for hourly field workers such as plumbers, HVAC mechanics and pipefitters whose production isn’t easily measured poses a unique set of problems, opportunities and just plain unknowns in many cases.
A reader of my column, Chad Cummings, E.I.T., of Scottco Mechanical Contractors in Amarillo, Texas, sent me an e-mail that raised many relevant issues concerning creation and implementation of variable pay allowance policies his company was considering.
Among the questions and concerns Chad raised about possibly trying out a variable pay component was how to determine what to pay to whom.
“The problem is that we are struggling with the details of the payout structure,” Chad wrote. “We have thought that we would use the gross labor estimate, on a project-by-project basis, as the base of the additional pay. Oftentimes when we finish a job, we have ‘left over’ money in the form of labor dollars. This is when we finish the job without expending the entire labor dollar estimate. What we are proposing is to offer a percentage of that savings back to the employees. But at what rate do we pay whom?”
In my response I mentioned some details about the only mechanical contracting company I’ve ever seen successfully execute such a plan. I worked for this company as a PM and senior estimator a couple of decades back.
The bonus structure for field employees was based on a 50/50 split, half for the company, half for the field guys, based on total net savings. Each member of a crew who earned the savings was entitled to a “share,” with the foreman getting a double share and a non-working superintendent, if there was one, getting a half-share. (I usually performed that function as well, so this often didn’t apply.)
A job where 1,000 man-hours were budgeted would have a selling labor price of $40,000 ($40/hour), with an actual labor buy cost of $20,000 ($20/hour). If the crew of one lead working foreman, a mechanic and two helpers brought the job in at 700 man-hours, that would be a net labor cost to the company of $14,000 with a net selling cost per hard bid price of $28,000, for a net difference of $14,000, which the company kept and would not be included in the bonus calculation.
Subtracting the $28,000 actual gross sell price of the labor from the estimated and hard bid price of $40,000 to the GC or customer leaves $12,000 to be split 50/50 between the company and the crew that did the work, or $6,000 for the crew’s bonus pool money. With the foreman getting two shares and the other field guys getting one share each for a total of five shares to be divided into the $6,000, that would leave a share value of $1,200, or $2,400 for the foreman and $1,200 for the other guys. Not bad at all, considering the small size of this hypothetical job. My bonus money as project manager and estimator for the job would come out of the company’s share.
A $1,200 per man bonus for a job on which the crew spent a little more than a month always put a smile on their faces, and it kept their morale and motivation high to keep efficient production up for the next jobs down the line.
Regarding accountability and traceability for failed inspections and warranty work of a given job, the company grinned and bore it and took the few instances of quality control failure in stride. It never threatened to “adjust” the bonuses when the odd mistakes were made.
I think the way described above is fair to all parties concerned and is just one example that works among many other models. Foolproof? Nothing in life, let alone the mechanical construction trade, is foolproof.
But as long as management runs the business according to “Golden Rule” principles and you have people in the field that can and do produce on a consistent basis, then yes, shared job profits via shared savings earned by their highly productive field work can work in the company’s best interest.
H. Kent Craig is a second-generation mechanical contractor and project manager with unlimited Master’s licenses in boilers, air conditioning, heating and plumbing. He can be reached by calling 919/851-9550, or via e-mail at [email protected].