Category Archives: Employees

Slow and Steady Wins the Race!

My wife and I get up every morning around 6 am, start the coffee, and together we read the Los Angeles Times and USA Today. Last week I was traveling to the CONSTRUCT show in Indianapolis later that morning, so I didn’t have time to read every news section I wanted to. But I did read one newspaper article which made me think about the typical construction company trying to do business in today’s tough and slower economy.

In California, total unemployment is predicted to reach ten percent or more over the next few years. Construction unemployment is almost double that sad statistic. But the monthly statistics which got me thinking even more, were construction permits issued in the State. Commercial construction permit dollar volume was down 66% and residential permit dollar volume was down 75% since the peak years of 2005 through 2007. This is a horrible situation if you are a contractor in California trying to keep your doors open and make a profit.

At several large construction conventions I have spoken at this past year, I have repeatedly heard shocking and similar sales figures from national companies who supply construction materials like cement, drywall, light fixtures, and lumber. Your state might not be in as bad of shape as California, but it does make you think about your business model going forward.

What type of company would you own?
If you were not in the construction business, what type of company would you want to start, buy, or own? Would it be dependent on the Federal government or your State to produce enough budget money to insure there was plenty of work for your company to bid on? Or would it be dependent on potential customers to ask you to bid plans and specifications against an unlimited number of competitors – qualified or not? Or would it be a business where you were awarded contracts based on the lowest possible price, regardless of your capacity, reputation, service, quality, or workmanship. Would it be a business where you do all the work and don’t get paid for weeks after you finish? Would it be a business where you do a great job and then the next contract is awarded based on the lowest bidder? Or would it be a business where you do a great job for a customer and then they may not have another job for you to bid on for a few years, if ever?

Being a contractor is a hard way to make an easy living. Or not! Most observers think contractors make a minimum of ten percent net profit and have all the freedom in the world. But the reality of our business is that as you may build a better and better company, you are really at the mercy of the market and customers to create opportunities to generate your revenue potential. In other words you don’t create your own future. You are at the mercy of others to decide to build and then give you an opportunity to present a proposal. Continue reading

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The 5% Factor: 5% Faster jobs = More profit! (part 3 of 3)

How can you make your jobs finish only five or ten percent faster? Many of these critical scheduling factors can cause major delays:

– permits
– procurement
– submittals
– approvals
– material selections
– long lead items
– probable delays
– potential problems
– anticipated conflicts
– critical decisions
– phasing issues

 Time is easy money!
Those major factors can cause your projects to take longer. But we are looking for the little things that really cost you money. When you don’t focus on faster, it doesn’t happen and you let your crews go with the flow. When you focus on speed, you get the whole team moving faster and becoming more efficient. When you start every project, get the easy money flowing by getting your supervisor and crew together. Explain the projected and budgeted schedule. And then ask them to brainstorm ideas how they can improve the schedule by a minimum 5% to 10%. Explain to them how 5% faster will translate into dollars and will keep your company competitive in the tougher

 Squish the Schedule 5% or more!

Total projected sch. = 100 crew days
Total bud. @ $3,000 /day = $300,000
Beat the sch. by 5% = Save 5 days
Total crew savings = $15,000
Beat the sch. by 10% = Save 10 days
Total crew savings = $30,000

In addition to saving on your crew labor budget, the overall project will finish faster as well. You will save even more money concurrently on general conditions, equipment, clean-up, temporary facilities, and supervision costs. This money adds up fast!

Miracles can happen!
Years ago in July, I was on a job-site meeting with my superintendent and concrete foreman. I asked them when they were going to erect and tilt-up the exterior concrete wall panels on a large warehouse project. They both told me they were planning on tilting-up on November 15th. That seemed too long a schedule to me for our 20 man crew to get the work done. So I asked them how they arrived at that date. They told me they met with the crane company and thought that date was ‘doable’ and they could easily make it happen.

I didn’t like their answer so I asked if they could finish a few weeks faster. They both squirmed and didn’t want to answer or commit. Then I asked if they could finish by October 25th if I offered them each a $1,000 incentive. In less than ten seconds, they both said they could make the faster October 25th date. A miraculous change of mind by two veterans. And they made the new date. It cost me $2,000 and saved me 15 days for 20 men. You do the math.

Sometimes we have to get creative to get the results we want. When we go with the flow, we don’t push our people, and it costs us real money. When you compete, you run a little faster. When I used to swim in high school, I always went faster in the meets than in practice. Competition makes people go faster. Challenges make people work harder. So do games where you keep score and can declare a winner. I like to say: ‘No score, no game!’ What incentives can you offer to get your crew excited about beating the schedule?

Annual Savings @ 5% Faster

20 Crew @ 200 days @ $35 /hr
Labor savs. w/5% faster sch.
Equip. costs saved – 4 pcs @ $50/hr
Costs saved 4 jobs @ $1,000/day
Tot. Annual Savings = More Profit

Trash your old tools!
Another consideration is the working condition of your tools and equipment, and their overall effect on your crew efficiency. When is the last time you did a tool inventory or a detailed equipment analysis? Some you should keep, trash, replace, or upgrade. Field workers tend to use old, broken, or bandaged tools and equipment rather than admit to the boss that they might be broken or worn out. How much money are old unproductive tools or broken down equipment costing you?

The added benefits of having quality tools and great equipment will be increased crew teamwork, improved morale, more pride of workmanship, better quality, less mistakes, safer projects, and more efficiency. This will translate into even faster jobs and more bottom-line profits for your company.

Poor Production = Poor Profits!
Do you think your crew wastes at least 3 to 6 minutes per hour? Those few minutes are costing you a ton of money.

20 Person Crew 5% Time Lost
Time lost /person = 3 minutes /hr
Time lost /day /crew = 8 hours /day
Total hours lost = 1,600 hrs /yr
Crew labor rate @ $35.00 /hr
Annual Prod. Lab. LOST = $ 56,000 /yr

There are many ways to improve crew efficiency and finish your jobs faster. Start by taking a hard look at your start time, break time, lunch time, and quitting time. Does stop working at 3:30 pm mean start rolling up at 3:00 pm or 3:10 pm or 3:30 pm? For a 20 person crew, every minute you lose per day costs you as much as $2,500 per year or more.

Double your Profits!
Call an all crew team meeting and discuss ways to improve your schedule, save a few minutes every hour, define your exact hours for production expected, create meaningful incentives, improve your tools and equipment, increase efficiency, and strive to implement the 5% factor to get more everyday from everyone.

Can You Build Your Business Alone Or In A Vacuum?

Eastern USA Executive Round-table Peer Groups Forming Now

Business has been tough over the last few years. But the economy is finally at the bottom of the decline. Many of you have restructured and retooled. Some have made extensive changes and redrafted your business plans. And some of your competitors have closed their companies.

My expectation is that it can’t get any worse and now is the time to start regrouping and getting back into business in a bigger way.  Think about where you are now (not where you were). And what you need to do to double your current business over the next 3 to 4 years. Perhaps you need a new strategy, team, marketing plan, services, or customers. Whatever you need to do, one thing is for sure:

You Can’t Do It Alone!
With that reality in mind, I am starting a regular peer group program where you can meet with like-minded business owners to help each other see and do what it takes to meet your goals. I am opening the group to my Profit Builder Circle graduates and clients first and we will cap the group at 10 to 14 companies. So far I have 7 reservations including very successful business owners: masonry contractor, civil contractor, commercial general contractor, landscape maintenance company, apartment renovation contractor, mechanical contractor, steel building contractor.

I am personally inviting you to join us!
You understand the Profit-Builder philosophy and would be a valuable part of this dynamic group. I know you don’t want to spend the $$$ or time, but you need to invest in your future to get where you want to go. A few days twice a year will invigorate and energize your growth and allow you to actually talk to others facing the same issues you do. Plus it will be fun and you’ll build lasting friendships with other business owners you can call on during the year.

This is designed for business owners like YOU!
I highly recommend you consider this Executive Round-table Peer Group offer to join.  You will be a part of a compatible group of 10 to 12 focused company owners and can learn from how others make their companies work.  The group will meet twice a year for 2 days plus I will Phone Coach you several times between the meetings.

Join us at the first meeting in Atlanta – September 29 & 30th, 2011.
Please call or send me an email to reserve your place as a member of this group.

If you are tired of running your company alone, join us! You need a trusted group of advisers, like a personal Board of Directors who’ll help you make the right decisions how to grow your business and make more money. You can be part of a small group of compatible business owners in a regularly structured support group discussing & solving your issues.

Every business owner or principal can benefit from a personal board of advisers that meets on a regular basis. Today’s business executives face increasingly difficult challenges. Competition is fierce, resources are stretched and every day it gets tougher. Its lonely running your company yourself and making every decision without the benefit and input from other people who face the same challenges as you do. Now you can tap into the ideas and wisdom of a small group of success driven entrepreneurs in a professionally lead ongoing board of director’s style setting. As a member of an ongoing Executive Roundtable Peer Group, you’ll generate fresh thinking, new ideas and clear perspectives on what decisions you need to make.

The first meeting will be held in Atlanta and then rotate between member’s locations. (If we get enough West Coast members, we can then split off a Western USA group as well.) The locations will be from Central USA to Chicago to Washington DC to Atlanta and east.

SPECIAL OFFER
Join before July 15th, 2011 and receive a 10% discount on you first year’s dues. Plus the initial one time $500 start-up fee will be waived.

Shall We Talk To See If This Is For You?
Please call or email me to talk about how this program can help you build your business.

George Hedley CSP LPBC
Certified Speaking Professional
Licensed Professional  Business Coach
Author of ‘Get Your Business To Work!’

 HARDHAT Presentations
Hardhat BIZCOACH
– Helping Entrepreneurs & Contractors Get Their Businesses To Work!

     Email:  
gh@HardhatPresentations.com
Website:
www.HardhatPresentations.com

The Worst Case Scenario: What If You Lost All of Your Clients?

When work was plentiful, it was easy to stay busy doing the same things over and over to the same customers. You didn’t have to look for new ways to improve your business, new services to offer, or new customers to build relationships with. Just bid enough jobs to your same five or ten customers, you’ll get your share, and make enough money to stay in business. You really didn’t have to be the best, creative, or innovative. You just had to be as good as your competition. The old saying: “A rising tide lifts all boats” applied during the good times. But now as the tide goes out, all boats will go down as well.

During one of my recent “Profit-Builder Circle” two day business owner boot camps I hold every few months, I asked the attendees what they could do to make a profit if they lost all of their business in the next few months. Most didn’t have an answer. They were so used to doing the same thing and business the same way for so long, they were stuck. Most said they would just try to survive. Survive? Survive doing what? I again restated the question and asked them to consider that all of their sources of past business would be non-existent and they would have to do something different. Still no real good answers. Do you have an answer to the question?

As I started to dig deeper, David told us he was an underground utility, sewer, water, and storm drain contractor in Florida. Ninety percent of his customers comprised of track home builders and ten percent were public works and Cities. The good news was that over the last ten years he had built a large successful and profitable company doing over $8 million in annual sales. He had over 25 managers and supervisors, 150 field employees, 100 pieces of equipment, a large yard, an equipment manager, two full time mechanics, and a net worth in excess of $5,000,000.  The bad news his home builder customers had put all of their projects on hold indefinitely and he was now pursing more public works projects to keep his equipment and crews working. On these projects, the bid lists had grown to over twenty bidders, and the only way he could win any contracts was to price lower than his actual costs. Plus his $1,000,000 annual overhead expenses were starting to eat away at his net worth he had built up over the last five years. David didn’t know what to do.

I asked David how long he would last waiting for something good to happen. He said he could probably hold on for at least a year. How much would it cost? He said he would lose at least $2,000,000 per year trying to keep everyone working. I asked him if it was worth it to give up everything he had worked for just to keep his long time loyal employees and managers working while his nest egg depleted. His simple choice: keep the money or give it to employees hoping the economy comes back fast. Not an easy decision. Then I asked what his equipment was worth. He said he could sell all 100 pieces of his equipment for around $5,000,000 net after debt.

Now the real question for you: Why are you in business? Is David in business to put pipe in the ground, grow his equipment fleet, and pay his overhead expenses? Many business owners forget the purpose of their business is not to cover their costs, do work, and keep busy. It is to give them what they want. Do you want to only break-even by working hard, and keeping yourself, your crews, and equipment busy? Or do you want to own and build a company that produces a constant flow of money, passive income, equity, wealth, and freedom to you as the owner? Your business is a tool to deliver the results you want and fulfill your dream of business ownership.

David and I discussed his options in detail. Keep doing what he had always done and watch his future disappear. Or consider a radical change. If he sold eighty percent of his equipment; reduced his overhead by 20 people to one project manager, an estimator, and a few office staff; and just kept a few crews working; he could stay in business at a reduced break-even level of $1,500,000 in annual sales. That way, when the economy turns for the better, he could jump right back into the main business he excelled at and his company would be one of the last underground contractors still standing. Then he could take at least $3,000,000 generated from selling his equipment and invest it. I suggested he start looking to buy under-market and under-valued fixer upper homes in good locations that could rent out easily to families at break-even lease rates. I recommended he seek single family homes in clean and safe neighborhoods near business centers, schools, shopping centers, hospitals, and government offices. He could utilize his crews during down times and when work was slow to do the repairs and refurbishment on his investment properties.

David made a goal to sell much of his equipment fleet and invest $3,000,000 to purchase 100 houses (100 houses @ $125,000 average price = $12,500.000 in value) within the next six months. If each home appreciated at least 25% over the next three years, his $3,000,000 investment would reap him at least $3,125,000 in net profit. This is a lot more than his construction company would have ever made, even in good times. David realized that his business was not the end, but a means to an end to ultimately get what he wanted.

Measure and Aim For What You Want!

Measure what you want!
Without numbers to track, it’s like playing baseball in thick fog. You continue to play ball and try your best. But in the fog, you can’t see past first base, where the hits go, or read the scoreboard. This lack of information makes the game rather challenging, perplexing, and dull because nobody knows how they’re doing or who is winning or losing. Without knowing the score, what’s the point?

Measure what’s important to you. Paying your bills, invoicing customers, and keeping your checkbook balanced isn’t enough to get ahead or be the best at what you do. In everyday life, you measure your weight, blood pressure, miles per gallon, the Dow Jones average, who won the football game last Sunday, or the dollar amount on your paycheck. What measurement indicators will tell you if your business is on track, serving your customers, achieving your goals, building wealth, or enjoying your life? Here are some numbers to track and indicators which will tell you if you are building an excellent company:

– Annual taxable business income & profit
– Company Net worth & equity
– Personal net worth annual growth
– Annual income from investments
– Annual company profit margin growth
– Sales from new, loyal & repeat customers
– Profit from new, loyal & repeat customers
– Customer complaints & referrals
– Employee turn-over & training
– Personal time off & vacation days

Aim at what you want!
Start with what you want to accomplish. The number one stress business owners experience is from not knowing where they’re headed. What do you want and where are you headed? Next, how will you achieve your goals? If you depend on hard work to deliver what you want, you’re going to be disappointed every time. Then set up a measuring system to keep track of your progress towards your targets.

For example, if you want to increase your net profit margin, there are many things you can do. You can lower your overall cost of doing business, increase your sales, or charge a higher price for the services you offer. At first glance, most business owners focus on cutting costs. This is futile and won’t work over the long haul. With lower expenses as your solution, you won’t be able to hire better people, add more services for your customers, do the little things that make customers want to give you more work, or help you reach you ultimate goal of more time off or freedom.

The second choice is usually to increase your sales volume by proposing on and winning more business opportunities. Winning more work should increase your total gross profit, but will keep you working at an even faster pace to accomplish the additional projects you have to manage. This is like running on a treadmill faster and faster going nowhere. This won’t move you towards your goal of earning more, working less and living the life you want. But it will keep you busier – is busy what you want?

Expand your business expectations. Learn how to measure your success.
Join me at Profit Builders Academy 2 Day Bootcamp

PROFIT BUILDER CIRCLES ACADEMY
2 DAY BOOT CAMPS!
APRIL 14 & 15, 2011, OKLAHOMA, OK
MAY 19 & 20, 2011, NEWPORT BEACH, CA
FOR A COMPLETE 18 PAGE BROCHURE
& REGISTRATION FORM EMAIL GH@HARDHATPRESENTATIONS.COM

Where are you headed?

Are you really ready to hit your goals, earn more, work less, and live the life you want? It would be crazy to board an airplane without a flight plan or destination. Or try to swim upstream in a rapid rushing river. Or drive a car blindfolded. But this is how most business owners run their companies. They don’t have a specific destination or road map to get where they want to go. They work as hard and as fast as they can trying to make headway against all odds. And they don’t know where they’re going. This causes frustration for the owner, managers, and employees who try to fly faster, make a lot of waves, and go around in circles.

You know what you need? You need something to shoot for. You need a goal. Here’s a goal you have been striving to reach for years: Keep doing more! When you keep doing more, you stay busy and never run out of things to do. That’s like being capsized in the middle of the ocean aboard a small rescue dinghy and the captain keeps yelling: ‘Paddle faster!’ Never mind where you’re going. Never mind if you’ll ever reach land. Just paddle faster until you run out of food, water, or energy. And then you’ll die worn out, tired, and broke.

Why do you need specific direction? In order to achieve the results you want, you must know where you are going and why.

“If you don’t have specific written targets and goals,
you’ll never have to admit you’re a failure!”

You can continue living the lie, staying busy, and offering excuses about your progress. You’ve heard all the excuses: ‘It’s the economy, bad employees, lousy customers, cheap competition, or some other problem out of your control.’ Or you can decide to stop making excuses and do something about your condition and future priorities and plans. In order to get your business to work, earn more, work less, and live the life you want, what will you have to do to improve your:

– Sales Volume
– Profit Margin
– Market Share
– Cash-flow
– Wealth
– Effectiveness

To achieve your targets and goals, you will have to make major changes how you do business and strive to be the best in your market. At FedEx, flawless service is the NORM, not the goal or the exception. Walmart expects NO mistakes from its suppliers! If their suppliers don’t make it easier for Walmart, they go elsewhere! To be the best, you’ll have to improve your company operations, systems, management, administration, employees, estimating, pricing, marketing, sales, and service. Take a hard look at how your company is doing at your sales, profit margin, market share, cash-flow, wealth, and effectiveness. Do you, your managers, or employees specifically know? What numbers are they aiming at? Numbers tell you how well you’re doing. You will need a new set of measurable standards to see if you are improving, on track, and headed towards being the best in your class.

Change Your View

 

Grand Canyon - View from the Skywalk

You can’t get better and improve by spending time and talking to same 5 to 10 people for 5 to 10 years in a row. You have to change your view. Get up, get out, and go see new people, markets, cities, customers, and companies. Your goal is to learn and experience new ideas and ways to do business. Read new books, different magazines and hang out with different people. A new outlook will get you moving.

When you are stuck in the same place, it’s hard to get unstuck. Most people don’t realize they are stuck. Are you stuck? Year after year you:

– Call on the same 10 customers.
– Bid the same project types.
– Use the same proposal format.
– Use the same subcontractors & suppliers.
– Use the same software.
– Keep making the same excuses for the same employees
– Use  the same tools & equipment.
– Use the same bonus & pay system.
– Use the same marketing program.
– Use the same sales system.
– See the same people in the same places.
– Drive to and from work the same way.
– Try to make a profit by selling low price.
– Listen to the same complaints, every day, over & over.

Treading water?
When you’re stuck, the problem with most people is they don’t know where to start. They continue to tread water, stay frustrated and paralyzed, and can’t make decisions about what to do first with their sinking situation. I played water polo in high school and college. In water polo, like most team sports, the team that wins usually takes the most shots, has the most unique plays and uses different ones often, has the best players and changes them often when they aren’t performing, has the best strategy and changes it often, outplays their opponents with different techniques, and always keeps moving. Winning teams don’t just tread water and wait for something to happen.

As long as I can remember, I wanted to be an entrepreneur. I always wanted to start my own company, be my own boss, and make it on my own. Entrepreneurs are different than most people. Entrepreneurs are builders, risk takers, and make things happen. They are creators, always growing, and looking for new opportunities. Entrepreneurs are always on the move, trying new things, and don’t get stuck in the same place doing the same things. They never tread water waiting for something to happen.

Entrepreneurs know what they want and have a clear picture of what they want to happen. They have written plans to achieve their goals. And they always track and make progress towards what they want. Say you want to build a house. You hire an architect to get the process started. What’s the first question the architect asks you? ‘What do you want?’ To build and grow your business over the next several years, what do you want and need to do to make it happen?

What will you have to do to make it happen?

Contact George
gh@hardhatpresentations.com
www.hardhatpresentations.com

7 Tough Questions To Win In 2011!

1. Should You Spend Less Time At The Office?
Given the hectic, stressful lifestyles of most business owners and managers, it is no wonder that ‘enjoy life more & take more vacations’ is a popular new year resolution. Get hotel reservations and airplane tickets one year in advance of your next vacation to make sure you do what you want to do. And don’t take your cell phone or computer! Plus go out and see at least 20 customers over the next 20 days weeks.

2. Should You Start Your Fitness Program?
Can too much exercise can be bad for your health? Plus if you don’t workout today, you’ll be more rested tomorrow and then can workout even harder. Working out also reduces your ability to be at work more hours, take on more responsibilities, and make more money! So, when you finally make enough money, then you can afford to buy some workout clothes that make you look fit, join a gym, and get on a program. What about the fitness of your company as well? Are you also examining what needs to improve, where you need to trim the fat, or what areas need to get fit? Look at your business fitness goals for the next 12 months. Think about your future and imagine what you want to be different or better one year from now.

3. Should You Gain 175 Pounds?
After all, skinny people look worse than heavy ones. Over 66 percent of adult Americans are considered overweight. So it’s not surprising to find that weight loss is one of the most popular New Year’s resolutions. In your business, where should you add some weight to lessen your load? Perhaps you need to add a professional office manager, accounting manager, project manager, estimator, or field superintendent. When you add a real pro who can help take some of your workload, you’ll be able to focus on the priorities that will increase your sales and improve your bottom-line.

4. Should You Spend More Than You Make?
Live way, way, way beyond your means is the new normal while you wait for the economy to turn around. In business, don’t sell your equipment and even consider buying more at irresistible prices. This will force you to hire a mechanic, buy a service vehicle, and rent a bigger yard to house all your equipment. This will force you to work harder to make the payments and cover your monthly overhead. And the new economic stimulus will hopefully provide enough opportunities for you to keep your fleet working at least some of the time! A positive New Year’s resolution is to get a handle on your finances now! As you have heard me say many times, you must know your numbers to grow your business and make a profit. When you’re strapped, you make desperate decisions and poor choices just to keep afloat.

5. Should You Get Completely Stressed and Out Of Control?
Stress is a good thing to have. When you’re stressed, you wake up at night and make those valuable lists that help your business and personal life become better. Stress helps you multi-task and never be in control. Besides, if you get in control, you can’t get enough things done in a day. So sweat the small things, take care of every detail yourself, and worry about all those little things you don’t have control over. In business, only a few things are worth stressing over. What are your top three priorities in your company? I suggest the only things business owners need to stress about are sales, revenue, and customers. When you have enough sales and customers, the rest can sort itself out with good systems and people. How many more hours will you dedicate to your top three priorities over the next year?

6. Should You Keep Doing What You’ve Always Done!
When you learn new ideas, you don’t have enough time to do all the things you want to. So not learning new things is a great way to get by in life. Read less books and stop trying to improve. Besides, too much learning can really wreck your head. I suggest you watch more television as an alternative solution to your predicament. People who don’t commit to written resolutions or goals, continue doing things the same way. They get trapped in what I call the “un-comfortable” zone. They know they want to break out of their situation by doing something different, but don’t. They live with continuous dull pain, stress, and discomfort rather than do something new, exciting, or different. What do you want, dull pain or positive results?

7. Will You Win Or Lose In 2011?
If you could start over, what would you do different? Why aren’t you doing it? Everyone needs time to stop and think about their future. You need input, help, advice, wisdim and ideas to decide what you need to do to go out and build a better business. I will be holding a special “Win In 2011” Profit-Builder Circle Academy in Costa Mesa, California. I am offering a special rate never offered before to help construction business owners jumpstart their companies and figure out what they need to do to take them to the next level based on the reality of the economy. – Where do you need to add new business? – What do you need to stop doing? – What do you meet to eliminate? – Where are you stuck? – What decisions are you postponing? – How should you reorganize your staff and management team? – How can you implement your plans to make a profit & grow your business? Email me at: gh@hardhatpresentations.com for more information if you are interested in participating in the Profit Builders Circle.  Please place “Profit Builders Circle” in the subject line.

Click here to learn more about the Profit Builders Circle

It’s Bonus Consideration Time!

I hate bonus time and figuring out how much extra to pay employees at year end. People today expect a year-end bonus or incentive compensation for their efforts. Plus they need the extra $$$ to pay for all their holiday shopping and expenditures. Sometimes bonuses even seem like an entitlement instead of compensation for extra effort and results. What should I do? I try to be generous but the economy is slow and profits are dwindling. Should I pay out lots of cash and hope there is enough to last the next year? Or should I tell everyone there just isn’t enough to go around this year? Or should I get everyone a turkey and tell them to have a great holiday? Here is an email I received from a reader of Construction Business Owner magazine. I write an “Ask The Expert” column every month.

Question: George, As I sit at my computer I’m reflecting on how blessed I am as an individual and business owner. I have been wrestling for some time with how to fairly compensate our senior management team comprised of 6 people: three senior guys including me and three young VP’s of Operations, Administration, and Business Development. These 3 attended your two day Profit Builder Circle boot camp recently in Atlanta which definitely reinforced my philosophies and mentoring of these 3 young men. You really do a great job.

Do you have any suggestions on incentives or bonuses for the management team? In the past, we have used a program that established a set percentage of net income for retained earnings; a set percentage for owners as a return on their ownership equity, and a certain percentage of net income as a bonus to the management team. But now, the older management team members are not putting forth nearly the effort they used to. They bring a lot to the table, but their interest and drive has waned. It is an entitlement problem in my opinion as they are financially secure. I have positioned the 3 younger VPs to run the company and they are doing great and progressing well, but I’m not quite ready to turn things over to them completely. I am still very involved as the CEO and mentor these young managers on the business side.

How do I compensate the 3 younger managers for running the company? How should the older managers be compensated for their ownership, even if they are not providing much on a daily basis as they are being paid a six figure salary now? And what percent is recommended for retained earnings?

I hope to back further away from this business this coming year and improve my golf handicap and want to be fair to everyone, old and new. We have built a very successful specialty service business and my goal is to continue to monitor our processes and procedures and continue to find new ways to improve while continuing to grow all our people. I know there is no magic formulas but I thought you might share your thoughts on this topic. Ken D. CEO -CES LLC

My Answer: Ken, as your older managers get more conservative and less enthusiastic about growing your company, it is time to make a positive change for everyone. First stop confusing compensation with return on equity. Everyone needs to be paid a fair salary and compensated for their contributions based on what the fair market value demands for the job they perform. If an employee is worth $50,000, that is their salary without exception. If they aren’t worth that amount, pay them less or more accordingly.

Profit is return on shareholder’s equity. Owners should share the profits based on their stock ownership less what you keep in the company as retained earnings before profit distribution. The older managers should be paid a salary based on exactly what they are worth to your company. If they only work a few days, they get paid less. As owners, they participate in the overall company profits. If you want to give them a little more like a car, health insurance, or extra pay, that is a gift for tenure and a result of your soft heart. But remember, the extra compensation you pay the older owners for not working a full load makes your overhead higher than it really is, makes you less competitive in the marketplace, and forces you to pay out profit before your really earn it. This actually reduces your company’s net profit and lowers the incentive potential for your younger managers.

The key managers who run your company should receive a healthy salary and benefits based on what they are worth as well. Plus give them a percentage of the pre-tax profit for their efforts and contributions. I recommend the first 15% return on equity stay in the company before any profit split takes place. If the 3 managers are 100% responsible for the company results, allow them to earn up to 35% of the profits as their incentive. Then the owners will receive the next 50% of profits as their return. – George

Well now it’s your turn to decide if company bonuses are in order for your employees. Good luck doing the right thing. If you have any good employee compensation ideas, email me please post them here or on our LinkedIN Group HardHat Biz Hub.