1/28/2020

By Wayne Rivers, Family Business Institute

Contractors continually ask, “What’s the very best employee incentive program?”  How do roofers get their employees to do the right things at the right time? How do they improve employees’ abilities and willingness to think like owners? We think we've stumbled onto the best employee incentive plan, and so we want to share this intelligence.

In the context of a contractor class, we were talking about incentive plans, and somebody asked, "Well, what about Goodhart's Law?" I didn't know what Goodhart's Law was, but, apparently, it's a fairly commonly known term of art. Goodhart's Law came from a 1975 article by economist Charles Goodhart who stated, "Any observed statistical regularity will tend to collapse once pressure is placed upon it for control purposes." If you extrapolate that into common English, you might say that employees who know they're going to be measured by some quantitative formula will optimize towards that measure whether or not their behavior is in the company's best interests. To papraphrase further:  People game the system.

If you create your incentive program to focus on profits, that might mean that your people hoard resources on jobs which constrain other jobs which shed profits. Or maybe your safety experience suffers because you're focusing more on profitability and less on safety.  If, on the other hand, you focus your incentives around safety, that might mean lower job profits. Or it might mean that you push the schedule in the interest of increasing safety. If you then focus on schedule, that might mean sacrificing quality, safety, or profits. You see?

Over and over again in construction companies, leaders put an incentive plan in place only to realize that it focuses on the wrong things and produces unanticipated outcomes. There are, of course, a tiny handful of incentive programs that actually work. That means that there are hundreds of incentive programs which DON’T work.

So, what is the very best incentive program for your roofing company?

The best program is to have a company with a wonderful culture. That is absolutely the best incentive plan that you can possibly have, but few want to hear it because creating a company culture takes intention and a ton of CEO and leadership team time. It doesn't materialize instantly. It can take a year or maybe even the better part of three years to develop your culture to the point you want it. What is culture? It is a combination of the beliefs, values, attitudes, and resulting behavior in an organization. It is how people treat each other along your organizational journey.  Every roofing company has a culture. The only question is whether you have a culture by DESIGN or by DEFAULT. Incentive programs, on the other hand, are sexy because you can incentivize a certain behavior almost right away by putting time off or financial rewards or something else of value on the table.

The best incentive program, then, is to design and build a great company culture. That's a controversial conclusion, but it is the only incentive plan that has consistently stood the test of time.