Tuesday 20 February 2018

Paying Project Managers Commissions - Is That a Good Idea?

Posted by at 9:00 AM in

I must admit that I am not very supportive of commissions.

Typically, they are used as incentives to get employees to do better than they are already doing at their jobs. Incentives are used to coax the employee into better behavior, higher achievements, and improved results. They are paid extra if successful. The problem is rarely does this work. Rarely does coaxing or incentivizing actually produce better behavior. So the owner ends up paying twice for the behavior that should already be expected.

What might be better is to tie performance and outcomes to salary increases. What if you gave a modest salary increase every 3 or 6 months tied to the PMs regularly achieving a 40% GP on jobs they manage. If they reach the average of 40% average over the preceding 3 – 6 month period they get a raise -  if they don’t they won’t get it. This approach still requires proper training to insure they know how to manage to achieve a 40% profit, and that they are given the necessary tools to be able to do so (Xactimate Pro Project Management feature, work related use of spreadsheets, etc.). If they fail to meet the minimum of a 40% average across the board for their projects for 2 successive salary periods you should replace them. Why keep underperforming PM’s who continue to cost you money and fail to improve.

This might provide better incentive for improvement and better results for you. Otherwise, giving commissions on work performed rarely increases behavior or raises their performance bar to where you want it to be … so you pay money for what you should already expect from their performance and you get nothing in return. Some owners pay a lot of money every year on incentives that is wasted since it fails to inspire higher standards of behavior. You might be interested in this blog I previously wrote on the matter - http://growmyrestorationbusiness.com/employee-incentives-really-work/

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