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Managing Incentives for Better Performance

BY GERALD VOGL, PROJECT DIRECTOR, COGENT ANALYTICS
A CAROLINAS AGC MEMBER

Incentives are meant to motivate employees and encourage desired behavior. However, implementation is key, and sometimes even the most well-meaning programs struggle.

Here’s an example: A construction company that wanted to improve accountability, morale and labor utilization implemented a system of goal setting and created an incentive plan to help achieve those goals.

In an attempt to improve the company’s overall performance, management and supervisors worked to make critical changes throughout the organization. Some of these changes included implementing job descriptions, establishing daily standard operating procedures (SOPs), improving motivational leadership skills and creating an incentive plan to help achieve company goals.

From the outset, the foremen received training on how to motivate their crews by establishing daily goals. They participated in morning meetings to determine objectives with their team while also comparing the previous day’s performance against company targets. Additionally, upper management worked to improve communications with the foremen while also linking their compensation and the crew’s compensation to the results achieved. With this established, the company would experience higher productivity and increased commitment to achieving company objectives. Moreover, establishing an incentive plan would bring even more benefits and efficiency to the company, or so one might think.

A FLAWED INCENTIVE PLAN BREEDS MEDIOCRITY

  • The foremen create an advanced report, providing insight for the following two weeks, which they will present to management. Management and the foremen discuss the report while also making changes and establishing bonus milestone targets. The foremen then use the milestones from the report to create daily and weekly productions goals for the crews.
  • The incentive plan funding is determined based on achieving a milestone or completing a project. At the company’s discretion, the financing is subject to postponement until the company receives payment for the work completed.
  • The foremen hold daily morning meetings, where they provide insight into how the crews are performing against the overall company vision as well as setting or reconfirming new daily goals.
  • Should the forecasted project completion date or milestone accomplished date change, the foremen must notify management, and they must agree to the changes for the incentive to be funded.
  • Upon achieving a milestone, the foremen make recommendations to management regarding each crew member’s bonus as well as defending their request for a percentage of the pool, which is maxed out at 50 percent. Lastly, the foremen and management review the recommendation together, as the foremen are obliged to defend their recommendation.

This process may seem straightforward and, for the first few months, the company will experience success. Safety, quality, morale and labor utilization all improves, but it won’t last. Here’s how it is flawed:

  • A significant component of the incentive plan involved the foremen receiving up to 50 percent of the incentive pool for a specific job. At the end of a job or identified milestone, the foremen submit a bonus payout recommendation to the owner. For example, higher payouts for the crew members who demonstrate better performance, and a more significant percentage of the pool, up to 50 percent, for the foreman who is effectively using the incentive plan.
  • During management’s review of the incentive recommendations with the foremen, they need to hold the foremen accountable for the evaluations of their team members’ performance. If they don’t, the foremen’s recommendations could mean that every crew member receives the same bonus, with the foremen always taking 50 percent. It is essential to understand that equally rewarding everyone promotes mediocrity.
  • Those that worked harder, smarter and safer received the same bonus as those who only accomplished the minimum. The foremen received their bonus if the crew met the milestones, which were set to be more manageable.

Why would this happen, and how can it be avoided?

There are several common reasons as to why incentive programs become an “across-the-board” raise and are thereby disassociated from the actual performance.

  1. Do the foremen associate themselves more with the crew rather than as part of the management team?
  2. Is the company culture conflict-adverse?
  3. Do the foremen spend most of their day with the crew (including non-working travel time) and so the crew is also considered the foremen’s work family?

If any of the answers were yes, then it’s easy to understand the emphasis that the foremen placed on getting along with the crew rather than managing the crew’s performance. Therefore, the foremen were inclined to avoid any conflict that might have derived from evaluating a crew member’s performance. To instill the desire for the foremen to manage productivity, it is crucial that they realize how doing so will benefit them. For example, associating a foreman’s bonus to his or her observable performance may accomplish this. It also follows that if the company is experiencing declining productivity while continuing to pay incentives, then there is a flaw in setting the milestones. If the desired levels of productivity, quality and safety are poorly established, then the benchmarks, quality and safety standards are not being set high enough.

Management is promoting mediocrity by mismanaging the payments of incentive-based performance.

If management agrees with this analysis, then they should set more aggressive targets when establishing milestones while also adjusting the foremen’s incentive payments based on their performance in motivating the crew. Management must directly associate the bonuses earned with the performance of the foremen. To transform the company, management must educate and set goals that meet the company’s objectives and ensure exemplary behaviors are acknowledged, while also addressing lackluster performance.

TRAINING FOREMEN ON CREW EVALUATION

What sort of training would be sufficient to improve the foremen’s ability to evaluate their crew members and promote the use of performance evaluations as a motivational tool?

One approach is to create an incentive program that provides a more substantial payment for a crew member who best exemplifies a particular behavior that the company is looking to improve. For example, perhaps a company is looking to improve safety. Thus, the company would announce to the crews that, for February, the employee across all teams who best exemplifies safe working, and who has done the most to encourage other workers to be safety conscious, would receive a $300 award (which would be deducted from the existing bonus pool to avoid any increased expense to the company). At the award announcement, specific, observable behaviors are identified. A few examples of these observations might be appropriate clothes for the weather, neatness of the work area, using the right tool in the right way, condition and use of personal safety equipment, actively assisting others to remedy potential hazards, etc. The foremen would be required to select an individual from the crews who will receive the award. This meeting provides an opportunity to coach the foremen on how to evaluate behaviors while also developing a culture where differentiating between, and rewarding, certain behaviors becomes the standard. Individual discussions with the foremen should occur weekly concerning who on their crew is exemplifying the best practices that the company is looking for, as a team, and discussing potential candidates for the award.

Likewise, a company should also implement an annual review process where the foremen and management are collectively involved in providing performance evaluations for the crew members. This review process should stimulate an environment for coaching the foremen on evaluating performance. While this is a much bigger effort than implementing an employee-of-the-month incentive plan, it will provide significant benefits.

Gerald Vogl is a project director with Cogent Analytics, a business management consulting firm and a Carolinas AGC member. He has helped many businesses in construction and across a variety of sectors achieve sustained profitability by implementing solutions specifically tailored to the situation.