Rick Schumacher 2017-08-30 05:10:33
In an industry where many companies are struggling to attract and hire quality candidates, the first order of business should be making sure the existing team is productive, happy, and appreciated. While money isn’t everything, good compensation and benefits are minimum requirements for any company to offer its people. For companies who want to take it a step further, there’s nothing like a bonus check to demonstrate appreciation. But how should a company structure a bonus plan? Who should get bonuses? And when? Those questions are at the heart of this month’s real issues survey on... SMART BONUS PLANS THIS MONTH’S QUESTION came from a LBM dealer in the southeastern U.S., who wrote: “We are trying to decide if we want to change our bonus structure to a profit sharing plan where everyone on our team would have some skin in the game. Is this the best way to structure a bonus plan? What do other dealers do?” As we do each month, we built a brief survey around that core question and emailed it to the LBM Journal subscribers who have opted in to receive our email communications. A big thank you to the dealers who took time away from their work to weigh in on this issue. QUESTION 1 Does your company have a bonus plan in place? To get an idea of where LBM Journal readers’ companies are when it comes to bonuses, we asked, “Does your company have a bonus plan in place?” As the graph shows, the results vary between reader categories. The lowest percentage of companies with a bonus plan in place was lumberyards at 56.9%. Specialty dealers/distributors (ex. windows and doors, roofing and siding) were virtually tied with wholesale distributors, manufacturers and service providers (“Vendors”) at 72.2% and 73.7%, respectively. That number doesn’t tell the whole story, however, as 36.2% of lumberyards report that while they don’t have a bonus plan in place, they do pay bonuses in good years. This is higher than the 26.3% reported by specialty dealers/distributors and far higher than the 0% reported by vendors. When it comes to companies who don’t pay bonuses, more than a quarter of vendors (27.8%) take the lead. A minority of lumberyards and specialty dealer/distributors do not pay any bonuses, 6.9% and 5.3%, respectively. QUESTION 2 Who is included in your bonus plan? Next, for those respondents whose companies do offer a bonus plan, we wanted to learn who is eligible. All three categories of respondents (lumberyards, specialty dealer/distributors, and vendors) agree on one thing: none offer bonuses to independent contractors. From that point of agreement, the answers diverge. Based on our survey, lumberyards are most likely to pay bonuses to managers and executive team, at 87.5%. Specialty dealers/distributors and vendors came in at just 64.3% and 69.2%, respectively. Full-time employees were the employee set most likely to receive bonuses across the board, with 84.6% of vendors, 78.6% of specialty dealers/distributors and 75.0% of lumberyards on board. Not surprisingly, part-time employees are the least likely to receive bonuses (25.0% of lumberyards, 21.4% of specialty dealers/distributors, and just 7.7% of vendors). QUESTION 3 What kind of bonuses does your company provide? Lastly, before getting to the verbatim answers, we wanted to learn what kind of bonuses are the most prevalent. For lumberyards and specialty dealers/distributors, the answer was clear: 68.8% of lumberyards and 71.4% of specialty dealers/distributors report paying a profit-sharing bonus, compared to just 33.3% of vendors. Among vendors, year-end bonuses are by far the most popular, coming in at 58.3%. Holiday bonuses were ranked third among all three company categories. Between 14.3% and 18.8% of respondents’ companies pay other kinds of bonuses. Here’s a sampling: • Quarterly bonus on sales • Bonus for longevity • Performance • Bonus for hitting budget QUESTION 4 With many companies struggling to attract and keep quality people, more dealers want to make sure that their bonus plan supports that goal, while benefitting both the company and its people. Since profit-sharing means that everyone has some skin in the game, is that the smartest solution? If yes, how should a profit-sharing plan be structured—and who should benefit? “Yes, profit-sharing is definitely the smartest way to structure a bonus program. In my view, it should be tied to personal performance, not company profit.” “Every employee should benefit in profit-sharing; even part-time and janitors. Everyone works hard to benefit the company. I have no idea how to structure it.” “This is an easy one. The answer is yes— locally, regionally and company wide. If your individual location hits goals, then all employees at that location earn a bonus. The same goes if your region hits its goals, and if the company hits its. Even in down years, companies should still bonus all employees.” “Yes and no. There should be a flat rate profit percentage to the hourly workers and incentive-based profit sharing to commission salespeople.” “From our perspective, the profit-sharing concept works best for us. Everyone participates and everyone knows what’s at stake when mistakes occur that cost us money. We accrue a certain percentage of projected net profit monthly and if things are going well, pay about 33% of the total accrual in July and then the balance is at stake for the balance of the year.” “Everyone should benefit. At our company, I figure our percentage of the total payroll for the year and apply that to the total I have allocated for bonuses.” “Senior management and middle management have specific pre-tax profit targets that have three tiers and a bottom, below which the payoff is zero. All the hourly folks have the same tiers, but their payoff is based on the number of hours worked that year.” “Yes, all should benefit, but the most productive people with the most responsibility should receive a bigger share.” “Bonuses should be tied to profitability, productivity and margins.” “Our company has one bonus plan for sales, one for management, and one for yard workers.” “I do like how profit-sharing is structured in our company. We receive an equal ‘percentage of compensation’ across the board that is independent of other bonuses. One thing that would provide more benefit, at no extra cost to the company, would be the availability to invest that profit sharing in whatever format the employee chose; i.e., Roth IRA vs. the company 401k. This would provide some diversity that is not currently available. I agree with only offering the profit share bonus as an investment option, rather than cash, as this puts the employees’ future wellbeing at the forefront.” “No, from my experience in our industry, it seems that salaries are the number one priority, and bonuses aren’t something that people can count on.” “Yes, profit-based bonuses make good sense. They should be based both on sales and margin. The combination of both is important, as it rewards sales reps who don’t ‘give product away’ just to make a sale. After all, it doesn’t make sense for a company to pay profit-based bonuses on sales with very little profit.” “Yes, and all-full time employees.” “I believe bonuses should be based 50% on profit/success sharing and 50% on personal performance/contribution.” “We are a 100-year old company that has a Teamsters Union contract for the yard and profit-sharing plan for the office, both of which have been in place for the last 50 years with great success in hiring and keeping employees. The profit-sharing amounts are at the discretion of the management.” “Instead of determining bonuses by profit, a smarter way to do it is to pay bonuses to all employees when the company exceeds its budget goal.” “We hold store managers accountable for their controllable investment in Accounts Receivable and Inventory. Year-end profit is compared to their average figure, and managers share a proportionate part of the store’s profit.” “Depending on the year, we usually give out bonuses at the end of the year. The employees really appreciate these, but they are soon forgotten. Then it’s back to, ‘I need a hourly wage increase.’ If we could do a monthly profit sharing, it would be a much better motivator and take away from the constant request for wage increases.” “Managers and full-time employees should all receive bonuses. Ideally, this should be done with different pools of money—one for management and another for employees, so the employees don’t have hard feelings toward management getting a bigger bonus (which should happen, as they have a lot more responsibility).” “From my experience, no new hire asks about profit sharing, or bonus, or retirement plans. They ask only about the medical insurance plan.” “We do not have a profit sharing plan, per se.” “Pay quarterly.” “Paying bonuses based on profit works well when we are making money, which we haven’t in a few years.” “First off, paying your team a good wage is key. Offering something like ESOP, which we do, can be very attractive to career-oriented employees. All full time employees should receive some sort of profit sharing.” “Finding the right balance of team vs. personal achievement compensation is key.” “The way our bonus plan is structured, the yard managers benefit the most. Our plan is also almost 40 years old, and needs some updating.” “We base bonuses for our employees on EBITDA.” “It should be based on company profits, with employees having a voice and role in eliminating loss through reduction of waste in the company.” “We generally bonus all of our hourly staff at the same amount. We will reward managers and a few exemplary staff members at a higher amount. Prior to the recession we would bonus hourly staff in hours, so higher paid hourly staff would receive higher bonuses. We have not restarted that practice yet.” “Having some skin in the game is a fantastic way to encourage employees to go the extra mile in the performance of their job. I think that profit-sharing candidates should certainly be full time employees with at least a full year of employment under their belt. As far as how the share is structured, to me there should be a tiered system with those employees directly responsible for increased sales profits to the company based on their position and for reaching certain performance goals, as the top recipients. This adds great incentive and also creates a fun challenge for employees to try and attain those goals...a greater reward for their successful effort!” “Great question. I would very much like to know what other dealers do.” “Those whose pay is based on commission should receive bonuses but, because they are paid based on the sales they generate, they should not receive a larger percentage than those that work hourly (i.e. warehouse workers, delivery drivers or even counter guys) those that get the job done.” “Profit-sharing bonus is limited to heads of departments, who have control over their department. Holiday bonus is given to all employees based on length of service.” “Our company determines bonuses using a sliding scale percentage of net profit for all employees.” “I use a formula of 3% of net after taxes and divide among full time employees with three or more years of service.” “All staff get a bonus, with the amount based on the job and number of years with our company.” ￼“I pay out approximately 21-24% of EBITDA per store, with managers receiving 5-6%, salespeople receiving 3-5%, and our delivery drivers are paid a bonus on everything over a certain dollar level of production.” “Profit sharing is a great team motivator but it has to be kept front and center at all times. This means monthly reports on the performance of the company. If you don’t report the progress, the employees lose sight or forget about the program. The structure of the program must be fair to all employees and easily understood so there is no misinterpretation of the amount the employee expects on a profitable year. If not managed well, profit-sharing can backfire as well.” “Everyone benefits. No organization is successful without everyone pulling their load.” “Our formula is based on net profit in a 12-month period from October to October. We chose October as our year end for bonuses so that end-of-year tax planning cannot kill bonuses’ on a good year.” “Yes, profit-based bonuses are the smartest way to do it. They should also be focused on how well the team met the company’s priorities that year, and flexible enough to allow for future changes in emphasis.” “Full time employees with a minimum number of years of service. When people know that they need to stick around in order to benefit, it helps keep them from jumping ship.” “Profit-based is absolutely the right way to determine bonuses. As to who should benefit, it should be a team goal and team-oriented reward.” “Bonuses should be structured so the players all know the details of how profits are generated.” “As many employees as possible should be on a company’s incentive plan. All salespeople should be on commission plans, all managers should be on bonus plans. We haven’t figured out an effective way to incent operations employees.” “At our company, we have an allotted percentage of profit to share. The individual payout amounts are based on years of service and performance reviews.” THE READER WHO SUGGESTED THE “REAL ISSUES” TOPIC WILL RECEIVE AN LBM JOURNAL EXECUTIVE PRIZE PACK. Includes: a polo shirt (we’ll contact you for size), corkscrew, cap, mug, and pen.
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