Dispatch #63 - Design a Project Manager/Estimator Bonus Plan - Part 2

In Part 1 (see Dispatch #62) I introduced some qualitative considerations when designing a performance-based bonus plan for construction Project Manager/Estimators. Here I get into the quantitative side, the numbers.

Building on the example in Part 1, the PM/Estimator gets a base salary of $130K, runs $3 million worth of work at 30% GPM, and earns a stretch bonus of $30K. 

Does $130K base + $30K bonus + benefits + phone/vehicle work for your PM/Estimators?

And does it work for the company? Is the following in line with your company’s financial model?

30% GPM on $3 million = $900K in gross profit. Minus the PM/Estimator’s salary ($130K), stretch bonus ($30K), benefits (another $30K), phone/vehicle ($10K) and the company is left with $700K (23% of $3M) to cover indirect, overhead, profit, taxes, and debt service.

Once you’ve agreed on the plan, document it; add it to the employee’s employment contract (job offer letter).

Now ask Accounting to calculate and accrue the bonus monthly, sharing the results with the PM/Estimator and his/her supervisor.

Pay the bonus out quarterly with a holdback in case the person’s numbers slide later in the year; make the final payment within 45 days of year-end. 

Don’t worry about getting it right the first time. These plans evolve over time, and you can supplement with a spot bonus. But don’t undermine the integrity of the plan, which should have some real risk/reward teeth to it.

Finally, design the plan so it can be used for all people in the same position. You can adapt the targets to individuals (e.g. make it $4M worth of work at $35% GPM), but preserve the plan’s structure. It’s a valuable asset; leverage it several times over and make it easier to scale your business.

Need help with this or other financial matters faced by construction contractors? Let’s talk!

David Stern CFO makes every effort to provide useful and accurate information. This content, however, is not intended as a substitute for specific business-related financial advice. We disclaim all warranties and liabilities from its use.