Building Industry Magazine - June 2014 - (Page 50)
BEST PRACTICES
The Secret to Higher
Employee Engagement
BY GARRETT J. SULLIVAN
A
s a management consultant,
I hear a similar refrain over
and over again from contractors:
"My employees are interested, but
they aren't as highly engaged in
our company as I am." Given that
employees aren't enjoying all the
benefits of ownership, this shouldn't
be surprising. Many contractors
institute bonus plans to motivate key
employees, but this still depends on
the talents of the individuals at jobsites. Bonuses can be subjective, easily
misunderstood and, if not monitored,
become predictable, alternative forms
of compensation.
Don't expect your employees to be
excited about working hard to make
money for you. They will more likely
be interested in making money for
themselves. Here are three proven
ways to help them do that and add
incentive at work.
Self-Funded Bonus Plan
To enact this program, owners must
determine planned revenue and profit
at the beginning of each year. The
actual amounts don't really matter-
but once set, they cannot be changed.
These numbers (or percentages, if
you prefer) are announced along with
a promise that any profit above the
projected benchmark will be shared
with employees. The split can be made
in a number of ways: for example, onethird to the company, one-third to taxes
and one-third to employees. There
are also many options for disbursing
as a liability. At the end of
the fiscal year, when the new
book value is set, employees
can take a distribution or
continue their "investment"
at the revised rate. Adding a
five-year vesting clause to the
program is an innovative way to
retain key talent as well. Like selffunded bonus plans, this method is not
an expense to the company.
the employee portion. Employees can
earn points toward the bonus for each
month worked in a weighted-average
formula, using their year-end wages as
a base. An advantage of this method
is that the company incurs no expense
because employees are compensated
with money you weren't expecting to
receive.
Synthetic Stock (SARs)
Synthetic stocks, also known as
phantom stocks or Stock Appreciation
Rights (SARs), have become very
popular. While similar to common
stock, SARs have no legal standing as
shares in the company.
To implement SARs, the firm must
establish the book value of its stock
at the beginning of the year. This can
be translated back to $1 per share, a
percentage or a starting baseline of
100. Key employees are then awarded
a set number of SARs. An agreement
lays out terms and conditions, such as
the determination of book value and
the distribution of payouts. The SARs
obligation is then carried on the books
Employee Stock Ownership
Program (ESOP)
This system provides employees
with actual ownership interest in the
company. In an ESOP, companies
provide their employees with stock
(often with no upfront costs) that is then
considered part of the employees' remuneration for work performed. Shares
may be held in an ESOP trust until the
employee retires or leaves the company,
at which time the shares are sold.
The primary challenge for ESOPs is
scaling the plan to accommodate the
number of employees needed to make
it work. Additionally, a considerable
amount of reporting is required for
qualified plans-and laws are moving
toward similar accounting for nonqualified plans as well.
While ESOPs can raise engagement, younger workers often find
themselves having to wait for older
employees to retire before increasing
their share of ownership. New
employees may also find the long-time
horizon of these plans daunting.
When properly executed, employee engagement will almost always increase dramatically within a year of
starting one of the above programs. I often ask contractors how long they think they could leave their company
and still return to find it operating smoothly. A week? Two weeks? With contractors that take employee engagement seriously, their answer is: "I could leave for a month and not worry about what I might find when I come
back." Spare yourself the insomnia, commit to an employee engagement program and take your well-deserved
one-month vacation next year.
For a self-funded bonus plan and deeper analysis of SARs case studies, visit www.SullivanHI.com.
Garrett Sullivan is the president of Sullivan & Associates, Inc., a management consultancy focused on the
construction industry. Connect with him at GSullivan@SullivanHi.com, www.SullivanHi.com or (808) 478-2564.
50 | BUILDING INDUSTRY HAWAII | JUNE 2014
http://www.SullivanHI.com
http://www.SullivanHi.com
Table of Contents for the Digital Edition of Building Industry Magazine - June 2014
BACK ON TRACK
A LACK OF MIDDLE-INCOME HOMES
GUAM READIES FOR THE MARINES
STANFORD CARR: Kudos for a Visionary
HLPA’s 2014 Wood & Lumber Resource Guide
News Beat
Datebook
Contracts Awarded
Low Bids
Spotlight On Success: Kaiser Kona Medical Office Building
HWEA Photo Contest
New Products
Best Practices
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