Are Your Site Manager Bonuses Incentivizing the Wrong Actions?
Reward the right people for meeting the right metrics.
Site managers play critical roles in both the contract security and janitorial industries. They are entrusted to deliver on your contracts and keep your customers (and employees) happy. Naturally, you want them to do that in the most efficient way possible. One way you can insure your site managers are helping drive your business forward is to reevaluate how you incentivize them so you’re rewarding based on a holistic picture of performance. Rather than focusing solely on job site profitability, take a look at employee retention costs by site as well. That will give you a more accurate view of who your best performers are, and it can help you avoid some bad manager practices that can hurt your retention, too.
As strategic partners with end-to-end solutions specific to the janitorial and security industries, Kwantek and TEAM Softwaree know how important issues like retention and turnover are to your business. We hear it every day from our customers, prospects and industry partners. That’s why we’ve partnered in this five-part retention and turnover blog series to help you focus on the metrics and data that will improve your business.
Measuring Site Profitability Isn’t Enough
As a business owner, your instinct is to reward efficiency. Whether that’s in the form of speed, technique, or process, making anything more efficient is always a top priority. If you’re incentivizing your managers by labor cost reduction or by job site profitability, don’t be surprised if they take it to the extreme. Although it seems logical to reward the manager who made you the most money, there are three unintended consequences of this incentivization strategy that make it unfit for your business.
- Managers stop giving raises: without regular raises, your retention will suffer, and your top employees will realize they’re making the same amount as people who do less work.
- Managers cover missed shifts instead of focusing on quality control: knowing that fewer employees doing the same job means higher profitability, they may be tempted to cover shifts for no-show employees rather than bringing somebody in.
- Managers overwork existing employees: increased demands can lead to a lack of appreciation and a feeling of being used from your very best employees.
Each of these issues negatively impacts employee retention and your company’s long-term profitability. In theory, you should absolutely reward your site managers based on job site profitability. But, you should also factor in the costs of hiring at that site. We discussed how to calculate your costs per hire and why that figure is important in our last blog post. As hiring costs move into the four-figure territory, your incentivization strategy should include how many hires site managers needed to make throughout the year.
Not surprisingly, we found an overwhelming majority of companies in the janitorial and security industries calculate annual bonuses for site managers based on net profit at the site level, where net profit is calculated as site revenue minus payroll costs.
Let’s use the following example to see why that’s not the best way to calculate site manager bonuses:
On the surface, Angela appears to be the most profitable manager. She has the highest percentage of net profit after calculating the difference between billable hours and the value of her site contracts. She would receive the largest bonus of any site manager and would be rewarded for her efforts.
However, a closer look at her hiring habits tells a different story. Angela had the worst turnover rate. She continued to make hires, and despite her lower average hourly rate, her net profitability plummeted after calculating her total hiring costs.
Conversely, Sally had the worst net profit percentage before calculating hiring costs. But, thanks to improved retention, Sally was able to hire fewer employees giving her a higher profit margin than Angela after factoring in the hiring costs.
Hiring Costs + Site Profitability = A More Complete Picture
Integrated job costing software makes it easy to determine your profitability by job site. For manager incentivization strategies, however, if you’re not associating hiring and admin costs by manager in addition to site level profitability, you may not have the full picture of your managers’ impact on profitability. It’s no secret that turnover and retention issues hurt profitability in general, but don’t forget the impact at the site level. You could be financially rewarding managers for actions that hurt your overall profitability.
In the next post in this blog series co-written with Kwantek, we will dive deeper into the top metrics to focus on when evaluating the effectiveness of your site managers. In the meantime, you can get caught up with our earlier posts in the series on calculating cost per hire and the difference between retention and turnover.
Other posts in this series can be found below: