One of the top challenges facing construction companies today involves devising the best compensation strategy to retain top talent while also meeting business goals.   On November 13th, Barnes Dennig Director Dave Phelps and I delivered a presentation on this hot topic, covering the importance of incentive compensation as well as the findings of the 2013 FMI U.S. Construction Industry Incentive Compensation Study.

Building an Effective Incentive Compensation Program

According to the study, 88% of U.S. construction companies offer some type of incentive compensation, but the vast majority of plans were rated as “ineffective.”  The study identified seven best practices to use when establishing and maintaining an effective incentive compensation program:

  • Discretionary vs. Structured
    • Plans that are strict and formulaic are reported to be “very effective”–or three times as effective as those that are completely discretionary.
  • Arbitrary pay vs. market value
    • It’s critical to use existing benchmarking and industry compensation information to determine pay levels.
  • Balanced design based upon what is strategically important
    • The company must define what it’s trying to achieve before expecting an incentive program to produce tangible benefits.
  • Top-down versus Bottom-up funding approach
    • A top-down approach isn’t tied to the corporate bottom line; rather, a bottom-up approach is based on strong financial controls thanks to an established corporate budget and targeted performance levels.
  • Employee empowerment
    • You can’t just incentivize the top management; while that may be helpful, incentivizing based on a strong strategic plan throughout the organization will have the most dramatic impact.
  • Communication and Transparency
    • If employees do not understand the compensation plan or perceive their goals to be too far out of reach, it will not be effective.  Increased communication and transparency lead to increased employee satisfaction with pay and benefits, as well as a higher level of trust.
  • Clear and measurable stretch goals/objectives
    • Goals must be able to be tracked and measured so employees can easily determine their achievements.

To receive a copy of the 2012 Barnes Dennig Contractor’s Compensation & Benchmarking Study or to learn more about compensation strategies, contact us or call (513) 241-8313.

Compensation & Benchmarking Study