Implement scorecards to determine your bonus program.

Welcome back to “The Way To Pay!” Last month, you learned a winning philosophy for a sound and sane compensation and bonus program. We covered:

• Who does what and for how much.
  
• Using your budget to build goals.
  
• Straight pay vs. commission.
  
• Bonus basics - beat the budget.
  
• Defining the boundaries of your pay plan with your values.

Take a look at the article at www.Pmmag.com if you haven't had a chance to read it yet. Compensation is a hot topic and I love sharing what I have learned with you. Good stuff!

This month, we'll dive back into the nitty-gritty of win-win-win compensation and bonus plans. Hang on! It can get messy. There are few things as upsetting as changing someone's pay structure. However, if what you have is not working for you, it's time to change. Be strong and read on.

Start Keeping Score

Basically, a bonus is a reward for exceeding goals. Where do the goals come from? Your budget. A budget is a guess. It is a guess about future sales and expenses. Sure, you can reference past data and enlist the help of a seasoned “budgeter” to help you with your budget assumptions.

You will get better and better at budgeting with practice and experience. Even so, it is a good idea to test your budget against your actual financial performance before you kick off your bonus program.

After you settle in on your budget and establish goals for sales and expenses, it's time to trot out the scorecards. Let your team know that scorecards are a tool for making sure you have a reasonable budget, an appropriate selling price, and realistic goals.

Sell your employees on the scorecards by communicating that the budget is a guess and you need their help to see if you've made a good guess. Spend some time going over your budget and budget assumptions with them. Show them the money, honey.

Kick Off With Sales

As you kick off bonuses at your company, the first scorecards and the first bonus program should be for those folks who deliver sales. In a service company, the service plumbers are the sales force (as well as the installation force. Service plumbers need to be supermen and superwomen!).

In a remodeling or new construction company, those who get the proposals signed and the deposit collected are the sales force. Don't be hesitant to start your bonus program with the sales team. Yes, each position is important and every person on your team can contribute to the success of the company. The reality is we all ride on the shoulders of those who can deliver sales.

You should honor and recognize good sales: sales that sit well with your customers, sales that serve your customers' needs and wants. You should deliver a bonus for sales above and beyond goal. Without sales, nobody else at your company has anything to do!

The scorecard for the service plumber should include these items:

• Sales. For the day and for the week.

• Batting average. If the customer says, “No, thanks,” it's a miss. If the customer says, “Yes, let's get started,” it's a hit.

• Measurement of efficiency. You can measure “billable hours” or “gross pay as a percent of sales.” Either will work. I vote for gross pay as a percent of sales. Gross pay is the number of hours worked times the hourly rate paid.

Each of these measurements compared to goal. Where does the goal come from? You got it - your budget.(See the sample scorecard.)

Go over how to fill out the scorecards with each service plumber. To be eligible for the service plumber bonus plan, require that every service plumber complete his or her scorecard - accurately and completely - for three months before the bonus program begins. This is a great way to test your plumbers for “willingness.” If they aren't willing to fill out the scorecards, don't bother with a bonus program.

Professionals like to keep score. Professionals are happy to measure performance and hold themselves accountable. The items on the scorecard reflect performance and are used to calculate the bonus.

Note: This sample is a super-simple scorecard. You can get fancier. This is just an example to illustrate a basic bonus philosophy. There are other terrific ways to keep score and craft winning bonuses. However, this simple scorecard reflects critical numbers to track and to match against your budget numbers.

Labor and material costs are the “big rocks” on your financials. These costs will have the biggest impact on your profitability. The service plumber can impact these costs with his or her performance.

I suggest you track and manage material costs by counting each truck's inventory and holding the service plumber accountable for materials delivered to and taken off his or her truck. While that system is a discussion for another day, failure to perform well in any aspect of the job can impact the bonus. How? With qualifiers.

Bonus Backfire

It stinks to hand out bonus checks when you are losing money, or rewarding an employee who is not meeting operational standards. To keep this from happening, attach sensible qualifiers to your bonus plan. Not too many, just enough to ensure that your bonus plan doesn't backfire.

Suggested qualifiers:

• Gross pay as a percent of sales at or below goal. Where does this goal come from? Yep - the budget.
  
• Batting average at or above goal. As the owner, you have the right and the responsibility to insist on a minimum batting average for service calls. This number comes from your budget, too, and is an assumption of how many customers you will serve each day.
  
• And no write ups! This is the “safety net.” A bonus program is most effective when you have your operations handled and your procedures are written, communicated and taught.

Are you holding people accountable for the required procedures? Good. Are you willing to write someone up who shows up late? Out of uniform? Neglects to complete the paperwork? Fails to properly handle materials? Good. Once you let it be known that a write up cancels your eligibility for a bonus for the period, you will clean up a lot of housekeeping issues.

The first 90 days of keeping score help you test your budget and proposed bonus plan. This is the time to sketch out the bonus plan on paper and assure the over-achievers that they can make as much or more with the new pay plan as they did with the old plan.

You can pay your team as much as you want, as long as the selling price is based on your costs. Where does the selling price come from? You know it. Your budget.

The scorecards should be filled out and posted on a daily basis. This is an exposing exercise. It can be threatening. It can be frightening. You might get some pushback from your team. Hang in there. Your intention is to help every service plumber meet or exceed goal. You want every plumber to get a bonus!

Bonus is for going above goal, exceeding expectation and beating budget. And, there are ways to increase each plumber's sales and productivity as long as he or she is willing to try different behaviors. You are going to teach them what works. You are going to help them win. What an honorable job.

When 90 days are up, kick off the bonus plan. As mentioned last month, you can share a percent of sales above goal as a bonus, as long as the employee meets the qualifiers. For service plumbers, one month is a good bonus time period.

One More Thing

Let your team know that you will evaluate this and every other bonus plan 60 days after kick off. As the owner, you have the responsibility to assess the program and make sure that it's working - for the customers, the employees and the company. Let them know you are interested in their feedback and suggestions for improvement.

What if someone isn't meeting goal? What if someone comes really close, but just misses it? What about goals for new hires? For old timers? What if ... Gosh. I am out of space already. I love this topic and I am happy to continue this discussion in next month's column.

Comment? Question? Disagreement? Success story? I'd love to hear from you. E-mail or call me. And tune in next time for “The Way To Pay - Part Three.”