Like most contractors today, you probably struggle to attract and retain qualified managers and other important personnel. You may offer your key employees incentives to stay with your construction company and work harder. But if you're offering them gold stars while a competitor is paying cash bonuses, your company's finest may disappear.

Here are five easy steps to implementing an effective incentive plan in your construction company:

1. Identify your key employees. Your first step is deciding whom to include in your incentive plan. Typically, key construction company employees include senior project managers, chief estimators, marketing personnel and chief financial officers. Many contractors include lower-rank employees in their incentive plans.

2. Develop individual goals. After you've identified your key employees, if necessary, you can customize the plan to fit each participant's goals. The goal-setting process is a good opportunity for you to meet one-on-one with your key employees. Clarify your concern for their well being and happiness and ask them to work with you to define their goals. When employees help develop their own goals, they'll take more responsibility for achieving them. Your job is to ensure that each employee's goals are realistic, attainable and agree with your construction company's long- and short-term objectives. You must also quantify each participant's goals. For example, when meeting with an estimator, establish clear deadlines or gross profit margins that he or she needs to consistently attain. By quantifying goals, you and the employee can easily measure each goal's success. Include both subjective and objective aspects to each goal as well. Subjective goals include factors such as owner satisfaction, self-evaluation and other key employees' feedback.

3. Measure and evaluate results. Choosing the appropriate employees and establishing their goals won't mean much if you don't monitor their progress. Ask incentive plan participants for quarterly, monthly or weekly goal reports. Whatever interval you decide, ask participants to submit reports regularly so you can provide timely and complete feedback. Demonstrate consistency when measuring employees' goals. Establish an evaluation method during your first meeting. But be flexible, too - you may need to modify the method if problems arise. Just make sure you notify any affected employees.

4. Establish method and time of payment. The fourth and arguably most important step in a successful incentive plan is the incentive itself. Hardly a surprise, cash bonuses top many employees' favorite incentive lists. In fact, cash bonuses tend to outweigh employee stock ownership plans (ESOPs), deferred compensation programs or qualified pension and profit-sharing arrangements. If you choose to use cash bonuses, clearly establish how and when you'll compensate those who achieve their incentive-plan goals. Carefully evaluate each participant's performance before determining whether he or she qualifies for a cash bonus. And keep participants involved - allow them to list their accomplishments and contribute to their own progress assessments. Of course, the final decision is yours. So if you decide an employee hasn't sufficiently met his or her goals, you must choose between two options:


• You can provide a small bonus to maintain the employee's goodwill, or
  
• You can deny him or her the cash bonus.
  
  

If you deny a bonus, meet personally with the employee and clearly and gently explain why he or she failed to qualify and how the employee can rectify the matter in coming months. Remember, incentive plans are double-edged swords - though they can reward and inspire some employees, they can alienate and infuriate others.

5. Re-evaluate your plan regularly. Last, annually review your incentive plan. Identify weaknesses and determine whether the plan is producing wanted results. For instance, look closely at which employees received bonuses. What did they do right? Has it kept them with your construction company or did some quit anyway?

And scrutinize employees who failed to qualify for bonuses. Did they choose unattainable goals? Perhaps they aren't suited for their current positions or even your company. Particularly useful are key employees who fail to completely qualify for the bonus once but then overcome their deficiencies and succeed. These employees may hold the key to turning passive, temporary slackers into long-term rainmakers.

It works both ways. Implementing, monitoring and revising a good employee incentive plan isn't an overnight process. But if you regularly re-evaluate and modify your incentive plan, you'll eventually develop one that works. And with plenty of hard work and a little luck, its long-term benefits will far exceed the time and money you invest.

As a hardworking contractor, you must regularly evaluate your employees to determine pay raises and promotions. But don't forget that evaluations work both ways. Your employees are watching you, judging your fairness, generosity and future earnings potential.

Editor's Note: Randy J. Bonnecaze is a Certified Public Accountant (CPA) with Hannis T. Bourgeois LLP, Baton Rouge.