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In this episode of The Competitive Contractor Podcast, Hosted by Shivendra Kumar, Adam discusses the topic of incentives in the construction industry.

Incentives and paying staff for performance is a topic many construction businesses talk about and consider, but struggle getting off the ground. While it looks simple on the surface, there are a lot of dimensions ranging from financial to psychological.

Does paying for performance really work? How do we move to an incentivized pay structure and how we ensure that it is successful? Listen to the podcast and find out what our very own Adam Cooper has to say on the matter. Click below to listen on Apple, Google, and Spotify

Podcast Transcription:

Shivendra Kumar:

Adam, it’s great having you on this podcast. You are one of our first overseas guests, so it’s a milestone for The Competitive Contractor Podcast.

Adam Cooper:

Well Shiv, thanks for having me. It’s been great getting to know you and your business over this past year. I know we have some crossover in the ways that we work with construction companies to help them make improvements in their businesses and their operations. I really enjoyed our conversations. It’s always fun to meet and talk with someone who works in the same space as me.

Shivendra Kumar:

Yeah, likewise, it’s almost like a Canada branch and an Australian branch. Let’s start talking about you and how Ascent Consulting came about.

Adam Cooper:

Sure. Well, I spent a little over 20 years in the construction industry. I started out as an electrician. I had gone to school for that in a community college that was the equivalent of a five-year apprenticeship program, the electrical field here in the States. And then I went to work as an electrician in my early twenties and rose through the ranks, foreman, superintendent. Eventually, I was like a junior project manager, and then I went to work for some small companies where I had a lot more involvement in the whole project.

I got involved with this big company that did auto plants. So, I was now running big projects at auto plants on the electrical side. I work for a big general contractor based in Germany, I ran a lot of big industrial projects for a number of years. And then around 2000, I just started to start my own electrical contracting company, and it was a local outfit. And I ran my business successfully for about 6 years. And the, I got recruited by some very large national contractors here and got into the world of building high rises, condo towers, hotels, hospitals, schools, all sort of manufacturing facilities, chemical plants. And after about 20 years of doing all that, I had been an operations manager. I had run my own shop. I had run these big, massive projects, and I kind of got tired of building stuff. And I was sitting around, and I was just like, ‘There’s got to be something else besides building buildings and factories and apartment buildings and everything like that.’ And I was actually talking to my girlfriend at the time, and she said, you know, ‘You’ve been a general contractor, you’ve been an electrical contractor, you’ve worked for these big companies, you’ve had your own business for years successfully. You kind of know everything there is to know about this stuff. Have you ever thought about consulting and maybe showing smaller, growing companies all the tricks and the tools that you learned working for these big national contractors?’

And I said, ‘That sounds like a great idea. I’d love to go back into business for myself. I could really make a difference for people in their lives and their businesses.’ And so, that was six and a half years ago that I started the company. And we’ve been growing year over year. We now, we keep expanding our services, working with more diverse clients, and expanding our geography. We started out here in Georgia, in Atlanta for the first couple of years, and I think it was Year 2 and 3, we got our first out-of-state client. And now, we’ve worked with companies coast-to-coast in, I think, 15 or 16 states now. I’ve got a map on the wall outside of my office, and I keep putting red pins in for every new location with every new client. I even opened up a remote office on the west coast in San Francisco this year, got some co-working space. We have about 4 or 5 clients active in California. So, it made sense to set up a branch office out there and hoping to have a maybe staff full-time within a year. So that’s been the growth journey.

Shivendra Kumar:

Brilliant. Is that the office with the great views?

Adam Cooper:

Yeah, it is. Yeah, we’re right near the Bay Bridge. We can see over into Oakland, see the Bay. It’s awesome.

Shivendra Kumar:

That’s fantastic. On your journey, you transitioned from working for large construction companies to starting up your own electrical business initially. How did you find that transition?

Adam Cooper:

I learned a lot that first year. So previously, I had had a business with a partner of mine, a buddy of mine, and we worked together at a business, at a contracting company. And we did a lot of industrial work. And we had this idea to start a panel shop that makes industrial control panels, wires them up for people. So, we started that business back in the late 1990’s. We ran it out of this garage and then later this basement, and he did all the accounting. He had done accounting for his wife’s business for years, so he understood how to do accounting. I had taken accounting in college, but that had been a decade, basically, since I had taken accounting classes. So, when I started my own business, I downloaded or I went to the store and bought the CD that had QuickBooks on it, and I loaded it on my PC. And I realized I didn’t know anything about how to run QuickBooks, and there was no YouTube hack then. So, I called my old partner up and I’m like, ‘Can you some spend a day with me and show me how to use QuickBooks?’ He came over and taught me the accounting stuff. And that was the whole piece that I had never seen before, was the finance and accounting side of running a business. It took me a while to kind of really get good at it, but once I did, I kind of felt like I had the full picture. I had been a project manager, I knew how to buy things, I knew how to contract people. I knew how to hire contractors and hire employees. But running the finance side of the business was something I had to learn on the job.

Shivendra Kumar:

Yeah. How did you find the business development side of things? Was it something new as well? Because that’s the tools, it’s usually the accounting and finance and the business development side that people struggle on when they transition from working to running their own business.

Adam Cooper:

They do. I was lucky. I knew a couple of contractors already because I had been working in the space. So, I started calling the contractors I knew and asking them if they had any work for me. And then I started calling old clients that we had done business with that didn’t want to hire my previous employer because they were too big, but they would hire me to come in and do a small project for them over a weekend, you know, install a new service line or disconnect or hook up a new piece of machinery. And then I got hooked up with a, I guess you’d call them like a placement company that placed contractors. So, big companies need a few people that are specialized for project, so they go to this recruiting company, and they don’t want to hire an employee. They want to hire a contractor. And so, I was able to start picking up work from them as well. And it all kind of snowballed. And then, an old employer hired me on for a massive project they were doing in Georgia.

So yeah, I mean, I would say getting it off the ground took a little work, but once it was up and running after the first year, 18 months, I would get a steady flow of requests for business or people would just call me up and go, ‘Hey, I’ve got a project for you. It’s $10,000, $20,000. It was like these little piecework jobs. And then every once in a while, they’d have a big project from a $50,000, $80,000, $100,000, $200,000 project. And I’d go hire some guys or contract some guys to work with me. But I was kind of project managing and ordering everything. I mean, half the time I was still pulling out my tools out there, helping to pull wire and install conduit and start things up. So, it was fun for about 5 or 6 years. I was a younger man then with more field energy and not as much email energy, I guess you could say. We didn’t have Zoom meetings in the 1990’s or the 2000s.

Shivendra Kumar:

Now, it’s always a challenge letting go of the tools, but it becomes, I think as time goes, as age catches up, I think you just naturally transition into it.

Adam Cooper:

I think I only pull my tools out now for honeydew lists. That’s about it.

Shivendra Kumar:

Now, we’ve had numerous conversations over the past few months. I found your insights and advice really helpful for what I’m doing. Tell us what Ascent Consulting does for the construction companies and contractors.

Adam Cooper:

Got it. So, we typically work with contractors that are somewhere, what we would call ‘mid-sized’. They’re typically somewhere around $5 million to $50 million in annual revenue. They’re either a general contractor or a trade contractor. Generals typically have more revenue and less people; trade contractors typically have less revenue and more people. That’s the kind of flip-flop. But we work directly with the owners and the C-suit executives to help you improve the performance and profitability of their business. So, we do not get involved in helping them manage their projects. We really help them with their business. And a lot of what we do is really about helping them get organized and ready to scale up to the next level. That can look like anything from helping to develop clearly defined rules and responsibilities, defining their processes and their workflows and the way things get done in their business, removing inefficiencies and wasted effort, removing cases of double entry or triple entry, finding new or better way to run their projects and their business.

It might involve better technology for them. Software and hardware consulting, helping them select, review, evaluate, select new operations software. Either it’s something that’s accounting that’s built in, like Sage or Viewpoint, or something like that, or it could be project management software like Builder Trend or Procore, anything like that. And a lot of times, as I said, it’s really about making them scalable. And then the other way we help contractors is we help them grow. So, we help them with strategic marketing, process planning and growth strategies, improving or enhancing their online presence, advertising. And then sometimes, we help with recruiting and onboarding for their people, so we help them select and onboard and train them as many people. And then a lot of times, we’re helping with due diligence for acquisitions and sales, so we’re doing operational assessments to evaluate their business as an outsider, so they can sell it. Or, if you’re a buyer, to help you evaluate this acquisition. We also have helped with succession planning, exit strategies, pretty much anything outside of what we would call legal or CPA advice [Certified Public Accounting]. You know, we’re not lawyers and we’re not CPAs, but we understand both of those roles so we can help in those areas, but that’s about where we draw the line. And then the other thing we don’t do, I’ve learned, is we don’t do software implementation. We leave that now to the software companies. We tried doing that a few times and it was a lot of work that we were a little underprepared for. So, it took a lot of extra effort to get them over the finish line to make them happy. But really, anything that we can do to help the business operate better and make more money is where we come in.

Shivendra Kumar:

Wow, that’s a massive, massive scope. But it I were to summarize it …

Adam Cooper:

It did not start that way. It started with three things and now it’s all these things. But that’s what six and a half years will do for you.

Shivendra Kumar:

But it’s a good area to be because what I also see from my practice is that if you look at the market we both serve, people know their area. So, if they’re in, let’s say. Constructing buildings, they understand that well. There’s not so much expertise around the business side of construction businesses, and I think the way you’ve explained it, you’re pretty much looking after or we pretty much look after the business side of their businesses. And the other piece I picked up on was that your business has a huge focus on businesses that are willing to grow or willing to take that next step. Because everything you said, so if a company wants to say where they are, they probably don’t need our services. I think it’s always about the plunge where they want to grow and whether they want to streamline the operations, they want to scale. Did I get that correct?

Adam Cooper:

Yeah, I would say the only time they call us and they don’t want to grow is when they’re losing money and they don’t know where the bleeding is. They need us to come in and diagnostically evaluate their business and figure out how to make them profitable again. But typically, once we do that, then they want to grow afterwards.

Shivendra Kumar:

Yeah, you don’t want to grow with a leaky job.

Adam Cooper:

Don’t take a boat with a leak out for the day, right? Blow the hole first.

Shivendra Kumar:

Yep, yep. Now, we’ll get into the topic that I think everyone’s listening to this podcast for, which is the topic of paying for performance and incentives. It’s a topic that comes up in many conversations with industry leaders and business owners over here. And as I research more, I found that this is a topic where companies actually come to seek your help and your articles and your posts rank very highly on the Internet for what you’re put out there, your thought leadership pieces. So, in this discussion, the first question I have for you is, what prompts companies to think of performance incentives for their staff?

Adam Cooper:

Yeah, there’s a lot of different reasons that we hear when people call us about this. Thank you for mentioning the articles. I did write a series of articles about a year, year and a half ago on the topic of incentive programs for construction companies. I wrote one specifically for project managers and superintendents, one specifically for the estimating department, and one specifically for business development roles. And there’s a few more in the works. We’ve had some more requests.

So, there will be some new articles coming out in 2021. The main reasons we hear that people call us and say we need an incentive program. The first one is they don’t have one, they don’t have anything in place. They want to find a way to reward their people, and they just don’t know where to start. The other one that we hear a lot is that they have a subjective system in place with no metrics. So, the owner is just kind of giving out year-end bonuses subjectively. He doesn’t, he wants something more defined. He wants metrics and KPIs, so we can evaluate their performance and actually tie that to a bonus and have it do some sort of math, so it’s not subjective, it’s objective.

Some other reasons we hear is that they’ve started losing people. They want to stop the attrition. They want to keep their employees, their good employees. And so, they want to find a way to reward their employees that’s tied to performance that makes them want to stay at that company long term. And then the other one, we’ve heard recently is that they want to make their company more appealing on the recruiting side. They’re looking for ways to attract and keep new talents, young or seasoned professionals, and they need something to incentivize them more than just a paycheck, because everybody pays about the same, but they feel like an incentive program and something that’s a structured bonus program will help them attract and retain more employees.

Shivendra Kumar:

It addresses a lot of the problems we actually talk about, because it comes up like the first reason is interesting, because no one has so far mentioned that to me, that they don’t have a program. But if I think retention, if I look at the Australia market right now, a lot of discussion on incentives happens when they’re looking at recruitment and retention. So, it’s interesting seeing that as well. Form your experience so far, does incentivizing really work in our industry? And should staff be rewarded for the behavior or for the achieved outcomes?

Adam Cooper:

Really great questions. So, I’m going to start by saying yes, incentive programs definitely do work. We’ve got plenty of companies that have begged us to build them. We’ve helped roll them out to the companies, and the employee feedback has been phenomenal. They’ve said, ‘Finally, we understand how you’re going to calculate our bonus. We know what we have to do in order to earn it. And if it’s designed right, it’s designed to deliver a win-win for the company and the employee. Both are getting what they want. The company is getting employees who are doing the key things they need to do to make the company more profitable. And the employees know exactly what they have to do to get a bonus, and they get paid out. So, we believe that they definitely work. We’ve got a lot of experience with clients that have reported back to us that their employees are happier, more productive, and the jobs are going better because of those.

So, the second part of your question was really intriguing, and thank you for sending that one over in advance because I had to do a little thinking about it. So, you asked, ‘Should they be rewarded for behaviors or for achieved outcomes?’ I think they should be rewarded for both, and they should both be and can be measured as well. So, let’s talk about behavior first. So, for example, you may want to reduce or eliminate unsafe conditions and workplace injuries on your projects. So, an area, that’s a behavior-related KPI. KPI is Key Performance Indicator. It’s something that you can measure, something you can track. It’s got data behind it. So, something we might measure them on would be the quantity of their safety inspections, like how many are they performing per week, or per month, and are those forms completed and filled out and signed off on?

We might also be tracking the number of recordable accidents. Recordables in the U.S. are defined by OSHA, the Occupational Safety and Health Administration. A recordable accident is defined as an accident that basically requires first aid or something more serious for treatment. So, a cut that requires stitches, broken leg that needs a cast, any type of injury more than like a band-aid is defined as recordable. And project manager or the superintendent doing their job, they have to write those down. There’s a report, there’s an injured worker that goes to a healthcare facility, or an urgent care and gets treatment. And that paperwork is all turned in and it’s done through insurance, so it’s very trackable. So, those are behaviors that we would want to measure. That’s an area where we would be rewarding good behavior. Doing your paperwork, filling out the forms, making sure the workplace is safe.

Now, as far as outcomes, a simple one is you want your project to be profitable? Does it make plan? Does it make the profit margin that you budgeted for when you won the job? So that would be more of an outcome-related measure, and that could also be bonus or incentivized as well to make sure that the project management staff is watching the budget, they’re monitoring costs, they’re overseeing the labor to make sure they don’t spend too much on labor, they’re monitoring how much equipment they’ve got onsite for rental equipment. So, those are behaviors and outcomes, and I think they can both be measured and both be incentivized.

Shivendra Kumar:

It looks complex to think through, but I think it’s a good way because you’re sort of promoting the outcome. In other words, you get double the benefit when you’ve achieved the outcomes because you’ve been rewarded for the behavior, and you’re also rewarded for the outcome.

Adam Cooper:

Well, you know, if you do it right the behaviors lead to the outcome. If you do all the correct behaviors, you will get a favorable outcome. Or in weird circumstances, you know, sometimes there’s just things you can’t overcome cost-wise. If there’s a miss in the estimate and they missed a big scope of work and you have to spend that money to get the job done, well, that’s not really on the project manager, so you may not make the profit bonus. But if they’re still doing everything else right, you still want them to get something for their good behaviors, their key behaviors. So, we think it should always be kind of two-sided for the staff.

Shivendra Kumar:

Yeah, because you don’t want the incentives to become a disincentive if something goes wrong as well, right? I guess you can backfire as well if things don’t go right.

Adam Cooper:

They can, they can, and it takes time to really think through these other programs. You bring that disincentivizing. The other thing that you have to make sure of is that … I don’t want to cast a negative light, but if you’re incentivizing on filling out safety inspections, you don’t want them just filling out safety inspections for the sake of filling them out. You want them filling them out to really create a safe work environment. So, you have to have more than one person doing it. You have to have a superintendent doing it and then maybe a project manager also doing them so it’s not just one person who can fake the paperwork to make the bonus. So, you do have to think kind of a little bit on the sneaky side. Have I made sure that this can’t be something can fake just to make money, right? So, there are some people out there that would potentially look for the loopholes, so we try and plug the loopholes too.

Shivendra Kumar:

Yeah, and I recall in a conversation someone mentioned that, okay, if I’m now making 80 phone calls in a month, I’m meeting my targets and that sets me up for my incentives. Whether the sale comes or not, they were just focused on that particular behavior. So, I guess you’re right that we need to put some checks and balanced in place. Adam, on that topic, on the behavior and achieve outcomes, I know you used the examples of a project finishing successfully and profitably. When should incentives be paid? Like, you could look at it being paid at the usual cycle of salary reviews, or it could be the end of the financial year or end of the calendar year, or should it be paid out when that particular milestone or success or profitability is realized by the business?

Adam Cooper:

So, for the project teams, we typically recommend that they are paid out when the project is completed and fully funded, meaning that your last pay application or invoice has been paid in full and all money has been collected and the project is closed out by your client. So, at that point, you know what the final outcome of the project was financially, and then you calculate and pay out bonuses from the project team. For people like business development or estimating, there’s typically some type of a milestone payout. So typically, once the project has been awarded and you submitted your first invoice and it’s been paid, that’s when business development and estimating might be paid out their bonus, because the job is now off and running and you got money from it. Now, you can pay off those people who are the front line of winning the work, and then back-office staff and support staff like operations managers, chief executive officers, operations managers, accounting departments. We typically have them as part of more of a profit share that’s paid out annually at the end of the year when the company closes its books for the year or whatever their financial fiscal year ends. That’s when all that’s calculated and paid out annually.

Shivendra Kumar:

So, it’s a mix of approaches for different, let’s say, categories of staff I guess, right?

Adam Cooper:

Yeah, yes.

Shivendra Kumar:

Curious on how construction companies should approach incentivizing their staff. Like, what are actions that need to be done before introducing incentives and how difficult they are to implement? I’m guessing from the conversation we’ve just had that businesses need to have good performance measurement process. Would that be the right order?

Adam Cooper:

I would say that’s right in the beginning. You have to … we like to say you have to define the key behaviors that you want to reinforce. Like, what do you want your people actually to do? That’s the first thing. Let’s figure out what the behaviors are. Then, let’s figure out how we’re going to measure the performance of those behaviors. So, in the previous example, I’ve talked about safety. So, we define that we want them to be safe and keep the workplace safe, and we’re going to measure that by the number of safety inspections and the number of recordable accidents. There could be other ways to measure safety. It could be that you have a third party or a safety manager that goes out and then inspects their sites, and the number of violations or deficiencies he finds adds up, and they have to figure out how you want to measure something, but first you have to figure out what it is you want to measure, and that’s a function of what is the behavior you want to reinforce. We always want to say you’re looking for positive behaviors, not negative behaviors. It's much easier to incentivize positive behaviors. So, we want to find positive things for them to incentivize.

Some of the key behaviors we often hear are related to having paperwork completed and on time, high quality of the installations, safety, as I mentioned, client satisfaction, and then organization, either of tools, of equipment, of documentation, of change order paperwork, but the job is organized by all the players. And then key outcome that we often hear are related to production rates, labor utilization, tool management, and again, profitability of the job. Those are outcomes that we typically want to drive. Then, we have to figure out how to measure those, and once you have that figured out, then you just have to figure out, well, how am I going to create a pool of money to share? And then how am I going to share that money? Is it a 50-50 split? Is it a weighted percentage? Is it based on the number of hours that they perform on the job? There’s all different ways. We’ve built dozens of these things just in the last 18 months, and no two are the same, but they all have some commonalities to them.

Shivendra Kumar:

Yeah, so if I were to just put that in a sort of sequence, so it’s basically agreeing on what is the desired behavior that the organization is trying to promote. It’s then putting some measures to be able to track and monitor those, and then it’s identifying to say, ‘How will we fund this, and how will that fund now be distributed for the personnel involved?’

Adam Cooper:

I think it’s a great summary and a four-step process.

Shivendra Kumar:

Now, the tricky part comes when you’re looking at the entire workforce, and the entire workforce is not often incentivized, right? So as an example, while the bidding team is rewarded performance, the logistics and commercial staff are not, even though they’ve helped and taken on the extra workload of developing or supporting the project that has been won. So, what’s a good way or what’s a recommended way of approaching this?

Adam Cooper:

It's a great question. You know, we touched on this a couple of minutes ago, and I’ll say a little bit more about it, is using some type of a split approach where there’s different structures for different departments or different divisions or different groups of people. So, the project team is based on project performance metrics. So, safety, construction, project profitability, and those are paid out, as we mentioned, maybe at the end of the project. Estimating may be rewarded on different metrics. They have different things we want them to do. We want them to have accurate estimates that are done on time, and we want them to win jobs. So, estimating could be rewarded based on the awarded contract value, the initial cost budget, projected margin, and that could be paid out on a milestone schedule with the first payment after the project is awarded. The back office may be a general profit share pool of money with splits between people or departments. The accounting department might get a 25% profit share, and then inside of that department, that 25% is split up between the people in that department, whereas the business development group may get something different. And there’s way to incentivize everybody in the company. And, you know, construction companies often start with the project team. Once that’s in place, then they can look at expanding out into the other departments, depending on how big they are. And finding ways to incentivize everybody just makes the whole organization better.

Shivendra Kumar:

Yep. There’s often the challenge of incentivizing team behavior versus individual behavior. You would incentivize, there will be people who, I’ll rephrase it, how does a business handle the situation where a high performer is going to miss out on the incentive because of a team member who is not performing, and the team has now been let down by a particular individual? So, if the estimator has made a gross error and the project hasn’t done well, how do you reward the project manager in that case? Or would they miss out on the incentive?

Adam Cooper:

That’s a great question. We actually just worked through this with a client a couple of weeks ago. So, it’s a little technical. I’ll see if I can walk you through it over audio. So, let’s say the estimator estimates a project that’s worth a million dollars, he says, but it’s only going to cost $800,000. So, it’s got a 20% margin. So, he goes to bid, and he wins that job. So now, the company’s got a $1 million contract. Well, not the project manager and the superintendent review the plans, and they review the estimate, and they find out that he missed $100,000 worth of scope. So, the project is a $1 million contract, but the cost is now $900,000. So, it’s only a 10% margin. So, in this case, we would say the estimator does not get a bonus because his estimate is not very accurate. So, he doesn’t qualify for a bonus. Now, the company has an option. They could set the job at that 10% margin in their system, and then the project manager is incentivized on hitting that 10% or better. So, it’s adjusted before he gets it, because it’s not fair to the project manager to book it at 20%, when they know it’s only got a real shot at making 10% based on what they know today, and he would have to get a lot of change orders to get another $100,000 in profit. So, we would typically tell them that there’s got to be an adjustment period, there’s got to be a checkpoint in there, and you don’t set up the next group’s bonus until you … everybody’s agreed that it’s a real number. That’s kind of a great way that we did it in this previous company.

If you don’t have a way to catch it, and that team member has let you down, and there’s no way to recover that, the project manager and the … let’s say it’s a project manager’s superintendent now, and they go to the job, and the project manager’s doing everything right, but the superintendent is just not being in control of his costs, and he’s using too many people, and he’s burning through labor hours, and the project manager doesn’t catch it soon enough, or doesn’t have the authority to stop him. Well, the project manager should be measured on his KPIs, and the superintendent is measured on different KPIs. That way, the project manager could still make a bonus, and the superintendent wouldn’t. That’s why the team approach sometimes works and sometimes doesn’t. And if you’re just doing a team approach, and the job doesn’t qualify for a bonus, but the project manager did everything right, we always remind owners, you always have something called a discretionary bonus. You could still give the project manager a bonus, even though the math didn’t work. You can still give them a bonus, a check just because you want to reward his hard effort, and his hard work, and him doing the right things even though the job didn’t make enough money. You can always do something discretionary.

Shivendra Kumar:

Yeah, very well explained. I like the first part that you mentioned, where if the estimator hasn’t done a good job, and the project manager and superintendent, like, find the variation, I think a good part that has come through for business owners in an incentive model is that by introducing the incentive, you’ve sort of prompted the project manager and superintendent to do that handover check correctly. Because in a normal situation, it could just slip through and halfway into the project, that’s when the business or the financial business will start to reflect that particular change. Whereas in this case, I think when it is incentive driven, people would want to actually make sure that, hey, if I lock it in now in the 30-day period, then that’s going to become my measure, so I better do a good job in checking this correct, because that’s going to be how I’ll be measured.

Adam Cooper:

Right. And it also goes back to the estimator, because if the estimator knows that the project team is going to scrub his estimates, he’s incentivized now to do an even better job, because he knows it’s going to get checked, and his bonus depends on his estimate being as close or better than the project management team comes up with for their cost estimate.

Shivendra Kumar:

Yeah. So, it’s interesting how it promotes teamwork, but it also promotes accountability within the team, and if I were to get responsibility sharing in the business from, let’s say the CEO or the managing director downwards, I think this is great because it just means the team is keeping check of each other, relieving some of the responsibilities that the executives might have. And that works very well.

Adam Cooper:

It’s been a lot of fun designing these things over the last couple of years. We keep getting more creative and finding new ways because every contractor is different, and we’ve got to figure out ways that we can measure everybody, drive key behaviors, hold each other accountable, and really, like you said, build that unified team that we’re all in this together and everybody wins if everybody does their job right.

Shivendra Kumar:

Yeah, and I’m glad that companies are coming to you because one thing I know is this is an area that you don’t want to experiment and go wrong with. It can do a lot of damage to the organization. So, if someone has the best practice in this case, you probably built a lot of experience and IP around this. It’s good to take advice, particularly for companies … I mean, companies would normally consider this if they’re trying to grow and expand and be more productive. And if it backfires, it can have a total negative effect, right? So, I think taking advice and going through what you’ve done or taking advice from anyone in that case, I think just sets them up for success or even accelerates their success.

Adam Cooper:

Oh, for sure. Yeah, you hit the nail on the head. This is not an area to experiment with in the real world with your employees. This is something that we typically model. We design pretty complicated spreadsheets and data models, and we put in all the different scenarios, and we kind of work it through all of the different angles and make sure all the math works and test it. We kind of stress test the whole thing before we show it to the client that we’re designing it for. Then, we get feedback, and we stress test it again before it goes to the employees. We know that it’s kind of a bulletproof program.

Shivendra Kumar:

Yep, a lot. I can imagine what goes on behind the scenes. Now, what type of incentive structures work and don’t work for small to medium sized construction companies?

Adam Cooper:

Well, let’s talk about the ones that don’t work. The ones that typically don’t work and where we get a lot of calls is the subjective ones where the owner is just picking amounts to give to people. At the end of the year, it’s not based on anything measurable. It’s really done more by feel or by tenure. Like, this person’s been here longer, so he’s going to get a bigger bonus. And it doesn’t really take into account how good or bad that person performs their job. The other ones that really don’t do well is just giving everyone the same amount based on their role. If all project managers get the same amount, then that means that the less talented project managers are getting too big of a bonus, and/or the really good project managers are getting a lower bonus. And if they find out that they’re all getting the same amount, because contractors may like to talk, when the project managers find out everybody got the same bonus, the star players are going to be disincentivized because you gave them the same amount as the guy who does half as much and doesn’t take as much money and his jobs always have problems. They’re going to look for some place that rewards their performance. So, we find that the ones that really are individually evaluated based on a standard set of KPIs, those are the ones that work even for small companies. Even if you’re five or ten employees, you can put a simple bonus program in place that really does the job and makes everybody feel like they’re part of the team and makes everybody want to help everybody else win.

Shivendra Kumar:

Yep. How much effort goes into running an incentive program? Let’s say for a $5 million business, what type of commitment is required for them to run a good incentive program?

Adam Cooper:

After we build it?

Shivendra Kumar:

Yep. So, operationally, how much time does the managing director, or the HR manager have to spend in making sure that this program runs well? Because it seems that it’s fairly involving, particularly towards the back end of a project or the back end of the fiscal year.

Adam Cooper:

Well, I guess that would depend on who builds it. If we build it for you, it’ll take you about 10 minutes per project to run the math, do our calculator and figure out what everybody gets. It may take you a day if you have to go collect some data and run some reports all together. And then, even the end of year ones are pretty quick to calculate. You type in the numbers and what we build for you does all the math. But it sometimes takes us 2 or 3 months to build out a whole program for a company, depending on how many people there are and how complicated it is. We’re doing one for a company in California right now. It’s been about 8 weeks and we’re going to have it done by Christmas, so about 10 weeks. We’re doing one for a $30 million-a-year mechanical contractor right now, and it’s probably going to take us about 3 months to get it all nailed down, because they’ve got about 40 different roles and departments and all these different calculations to do. So, just getting it all unified and making sure all the math works takes us a little time. But the first month of that was just talking about it, just trying to figure out who and what and what do they want to measure and how are we going to measure and what are those key behaviors. So, it takes some time to put these things together right. But once they’re built, they’re pretty easy to operate.

Shivendra Kumar:

So, it’s a system pretty much you’re investing in, which will serve you 5, 8, 10 years, I guess, until there comes a time to review it or some new method comes along? Now, finally, what are other benefits of incentivizing staff? I mean, we talked about attracting and retaining talent, but what other effect does it have on the business? How does it impact the bottom line of the business, and does it have an overall impact on the culture of the business or the customer’s perception of business? What lese have you seen?

Adam Cooper:

Yeah, if you can get everybody in the company holding each other accountable, playing for everybody to win and doing their jobs right, it’s going to show up on the bottom line. It’s going to drop out the bottom on project profits. You’re going to typically expect to see a net increase. I mean, we have companies that have reported 3 to 10% increases in project profitability, because the employees know what you need them to do. They know they’re being measured on it. They’re incentivized to go to that part of their job well. So, we see it fall out in project profits with the back office. We see them like the estimators, we see them getting better at estimating. We see their win percentages going up. We see that the amount you bid the job for is actually the amount you book the job for, which makes profitability more predictable and increased. We see people having better relationships with their co-workers. They’re acting more like a team. They’re helping each other out. Those are a lot of the benefits we see just from having the program in place with existing staff. And then, as we mentioned, and you just recapped before, it’s an excellent feather in your cap when you’re out recruiting and interviewing, when you can show a potential employee that you have a structured program and how it works and what they’re going to be measured on. It gives them a sense of confidence that you’re a quality employer, that you’re going to treat them professionally and you’re going to treat them honestly, and it’s all in black and white. There’s nothing subjective. They know they’re stepping into an organization that’s kind of got their act together. It just makes you more attractive as an employer.

Shivendra Kumar:

One more question I have before I conclude, do incentives always have to be in dollars? Have you seen companies incentivize employees in other ways than giving them money?

Adam Cooper:

I have. In the articles I wrote, I wrote about the benefits that you can give employees. So, favorite one that we’ve recommended that some clients use is extra paid time off. So, give them an extra week of, I guess you call it holiday over there, don’t you? Give them an extra week of holiday. We call it vacation over here, or PTO [Paid Time Off]. Giving them an extra couple of days or a long weekend of holiday or giving them an extra week paid. You can give them company merchandise, like jackets and t-shirts and backpacks and things like that to build better branding. They serve kind of a marketing purpose too. Gift cards, experiences, you know, dinners out for them and their family. We’ve had companies buy everybody in the family their Christmas dinner. Like, either provide turkeys and hams or give everybody like a $100 or $200 gift card to the grocery store. These are small gifts that go a long way. We’ve recommended tool programs to clients. So, if a project is going well, and you’re a trade contractor and you’re electricians, you can buy them all new Linesman’s pliers or new screwdrivers. You can buy a bin of brand-new tools and have a tool exchange. If you got a worn-out screwdriver, we’ll give you a new one. You can do free trainings for people. So sometimes people want to do continuing education. So, we recommended that they set up a continuing education program. If your job does well, you qualify to go get continuing education, something that they want to learn about.

 It doesn’t always have to be directly business related. We had a company where they took all their employees out and got an instructor and taught them how to go fly fishing one weekend as part of a, it was a project reward. The project did really well, they took the whole project team out and got them fly fishing lessons. A couple of the guys fly fished, and the rest of the team had been hearing about it and seen pictures, and they all wanted to go learn to fly fish. So, that was a fun little excursion that they got to take all the employees on. Company trips and retreats. They could group fishing outings. It could be anything, anything you’re doing to build the team and reward them for hard work. These are all great ways to incentivize your people.

Shivendra Kumar:

As I hear you speak, it comes very, very clear. We both are business owners as well. I think what comes out of it is to say, actually, it’s a win-win. It’s a win for the employee, and the business gets so much out of it as well. Because if everyone’s working well, everyone’s motivated to work, it helps the business as well. It’s a good way … it’s a good investment, you would say, right?

Adam Cooper:

Yeah, it’s really building your company’s culture. I mean, this becomes a part of the company culture. They know that if they play hard, they work and work hard, then they’re going to win hard and get rewarded for their efforts and really, be appreciated. It comes down to appreciating the employees and finding ways to measure their performance and then reward them and show them that you care and that you appreciate everything they do for you.

Shivendra Kumar:

Yeah, that’s fantastic. Adam, before we finish this podcast, where can people get more information about Ascent Consulting and the topics we’ve discussed today?

Adam Cooper:

Thanks for asking. So, the best place to get information about us is on our website, which is www.ascentconsults.com, and I’m sure you’ll provide a link to that in the show notes. Go to our articles section, and we have our articles organized by topic and category and department. You can search for any topic you want, and it’ll pop up, and read all about it. You can get to incentive programs, I think, by searching either in the financials or in the project management sections. And you can also Google us. If you Google ‘Incentive Programs for Construction Project Managers’, we should come up probably number one or two right now.

Shivendra Kumar:

Yep, number one.

Adam Cooper:

You checked?

Shivendra Kumar:

I checked. I had to prepare for this podcast.

Adam Cooper:

I check about every month to see where we’re ranking on a lot of stuff, and that one’s been up at the top for a while. So, you can find us on Facebook, Twitter, Instagram, LinkedIn, and we even have a YouTube channel now. they’ve been recording me speaking at some events and started a YouTube channel against my better judgment. I do not like video, but we have a YouTube channel now. You can find us on YouTube, and then on your podcast has been great. And then, you can always email us directly at info@ascentconsults.com, or email me directly at acooper@acentconsults.com.

Shivendra Kumar:

Yep. You’re doing amazing work in terms of sharing all the knowledge and information with the industry. There’s so much information on your website. I’m just grateful that you’re able to share that freely with the construction industry. Adam, do you have a final message for our audience?

Adam Cooper:

Yeah, let me start by saying I really appreciate you inviting me on. It’s been a pleasure to get to know you this year, Shiv, and I’m still waiting on that first project you called me to help you out on in Australia. I’m still chasing that one in Cambodia. If I get to that one, you’re coming to Cambodia with me next year because I can’t do it alone. It’s too big a project for just me and my team being so far away. I love the stuff that you’re doing. I wish you the best of luck with your business and with your clients. I’m always here if you need any help, any insights, and I look forward to joining you on another podcast in the future.

Shivendra Kumar:

Thanks for that, I appreciate that a lot, Adam, and maybe we can go fly fishing here or in Cambodia. It’s great having you on the podcast and sharing your insights to help many of our contractors make even more significant contributions to Australia’s construction industry, grow their business and be the competitive contractor. Adam, thank you very much once again.

Adam Cooper:

Thank you.

- End of Podcast -