Incentive compensation programs for construction personnel allow home builders to keep base salaries at a manageable level given the cyclical nature of the industry. During the inevitable downturn, if base salaries are too high, builders could be forced to cut high-performing staff to stay in business.
Although supplementing base salaries with bonuses is common in the housing industry, developing effective incentive programs is a struggle for most home builders. Poorly conceived, arbitrary incentive programs can demotivate staff and drive good talent away to the competition.
Well-conceived, well-executed incentive programs offer home building companies significant benefits. They can help a builder retain top talent. When bonuses are tied directly to results achieved, they can have positive motivational effects for personnel, resulting in higher productivity and improved performance.
The goal of an incentive program for construction personnel should be improved performance in delivering homes on time, on budget and that meet the quality standard. Everyone wins when there is improved performance in these areas, as they have a direct impact on the success of the company.
Incentive compensation should be linked directly to the results personnel achieve using quantifiable measurements that are easy to understand and communicated to the personnel being measured. Performance measurements should be reported through the scheduling system, accounting system and quality control system, and these systems must be structured to provide the appropriate information.
Flawed incentive programs can backfire, resulting in demotivated personnel and high turnover. Overly complex programs make it difficult for personnel to relate their compensation to their performance, causing confusion and frustration.
Incentive programs that measure only one aspect of the job have the potential to cause performance problems in other areas. Many incentive programs for construction personnel are based on production timeliness and fail to include two other important parts of the performance equation: cost and quality.
Some poorly-executed incentive programs are not performance based. They reward personnel for simply doing the job they were hired to do. When the focus is placed solely on the individual, it can take the focus away from what’s best for the entire organization. This encourages a short-sighted approach that ultimately benefits no one.
Unintentionally incentivizing misbehavior is one of the biggest mistakes home builders make when developing incentive programs. An example of this is when construction personnel add extras onto homes to earn good reviews from buyers to qualify for incentives based on customer satisfaction. Essentially, the good review is being purchased with company money. In addition to paying out a bonus that rewards misbehavior, the home builder is also paying for the cost of the extras that were surreptitiously added to the homes.
At their worst, incentive compensation programs cause unethical behavior. They can also have a negative impact on performance and trigger unfair competition among personnel. It’s important to avoid the pitfalls and watch out for the unintended consequences of poorly-executed programs.
At their best, incentive compensation programs incentivize improved performance which ultimately contributes to the success and profitability of the company. They should serve as a reward for superior work performance that is instrumental in helping the company meet its goals.
Keep in mind that bonuses are just one piece of the puzzle when it comes to motivators and satisfiers for personnel. You build motivation toward greater productivity and performance by placing emphasis on education, recognition, achievement and accomplishment of goals. Direct and timely feedback on the superior accomplishment of goals is a major satisfier for people.
If your incentive programs aren’t delivering the desired results, Shinn Consulting is here to help. Contact us at 303-972-7666 or email@example.com to learn how we can help you structure your incentive programs for success.
Emma Shinn’s Annual Financial and Operations Study is a great source of compensation information for the home building industry. The 2022 edition includes benefits and compensation packages for 42 positions and cumulative compensation changes from 2008 to 2022.
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