Employee Compensation: Recruiting and Retaining Key Personnel

With the construction economy recovering, the need for experienced project managers and supervisors is increasing. Unfortunately, the last downturn drove many experienced professionals out of the industry, so qualified senior project management resources are in limited supply.

How can you attract, recruit and retain proven performers? A strong and competitive compensation package is essential. By applying some fundamental principles, you can update your compensation to compete more effectively for the experienced managers and supervisors you need.

A Solid Foundation

Begin with the basics – a solid foundation of salary and benefits, which are guaranteed to the recipient regardless of company or individual performance.

Deciding how much base salary to offer is a judgment call, of course. Salary surveys by local trade groups and employment services, coupled with a bit of online research, can help you determine the general range you should expect to pay for a specific specialty or skill.

In addition to a competitive salary, most managers will also expect a package of traditional benefits such as health and retirement plans. The Affordable Care Act changed the healthcare environment considerably, but health benefits remain a fundamental expectation. The use of a company vehicle is also a popular sweetener that can make a package more attractive.

Incentive Pay

Over and above the base package are incentives that reward project managers or supervisors for specific achievements and allow them to share in the company’s success.

Some managers may be attracted by the opportunity to eventually acquire an ownership interest in the business through stock options or other equity offerings. Phantom stock plans and stock appreciation rights can also help keep employees’ personal goals aligned with those of the company.

On the other hand, some younger managers might find such programs less appealing and would prefer a more straightforward bonus or performance-based pay system instead.

In the smallest contracting firms, a bonus program may be completely discretionary and informal. Once a contractor grows beyond a few employees, however, there is generally a need for a more structured program that is tangible, transparent and demonstrably objective.

Company and Individual Performance

Generally speaking, an incentive program should be designed with two main factors in mind. First, it should reflect the company’s success and reward key employees who made that success possible. Second, it should recognize individual effort and incentivize certain behaviors. Ideally, the program will take both factors into account.

If incentives are based solely on the company’s performance – like a straightforward profit-sharing plan, for example – eligible employees may perceive that their bonuses are being diminished by factors they cannot control, such as high executive salaries or ownership perks that drive down the bottom line.

Conversely, if bonuses are based solely on individual or project performance, the company could find itself committed to paying bonuses to successful project managers even if the company is actually losing money overall.

In most cases, the solution is a blended plan triggered by some broad company measure, such as gross margins above a specified level. Once the bonus pool is established, it is then allocated based on individual or project-based performance metrics.

These metrics should be carefully considered so that they encourage specific behaviors that are beneficial to the company overall. The program should also be adaptable to reflect individual circumstances or unexpected complications.

For example, if a project runs into trouble, it makes sense to put your best project manager in charge to turn it around. But if bonuses are based solely on a project’s bottom line, your best performer could be penalized for taking on the challenge.

Test Before You Commit

When designing a compensation package, begin by analyzing the makeup of your company, the nature of the people who will be participating, and the types of jobs your company performs. A contractor that handles just a few large projects at a time will need a program that’s very different from one that performs several hundred small jobs every year.

Finally, take some time to run financial models of your program under various scenarios. This may require support from your accountant, but it is crucial that you understand how your incentive program will operate under varying economic and job conditions before you unveil it to employees.

About the Authors

Dale A. Ruther
Dale A. Ruther
CPA, CIT, CDS, CCIFP
Partner, Taxation Services

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