Q: What systems, programs and incentives does your company use to encourage everyone to pull in the same direction?
Have you ever thought you were the only person in your company who gives a darn about bottom-line results, pleasing your customers, doing a great job, making enough money to stay in business, and making a fair profit? For the first few years he was in business, Damian Lang, owner of Lang Masonry Contractors, Inc., thought those exact thoughts. Then he realized to succeed and grow, he would have to change that thinking by installing systems that would insure his employees cared enough about his business as he did.
Damian founded his company by laying brick and block throughout Central Ohio with a few local friends as employees. Over the next decade he grew his company into one of the largest masonry contractors in the central United States. In 1998, he also founded EZ Grout Corporation which manufactures premiere masonry equipment for contractors. His company grew to well over $20 million is sales through the boom years and now continues to manage and maintain a steady flow of business with the best general contractors building the most prestigious and largest masonry projects throughout Ohio and beyond.
I spent several days business coaching and working with Damian Lang at his company headquarters in Watertown, Ohio. I observed his systems, operations, people, and management style in progress. I was impressed with his intensity to keep his people accountable to achieve their expected results at the job level, as well as the overall company sales, customer, and profitability targets. His management style includes daily job tactical early morning meetings to discuss immediate job issues, weekly manager meetings to review every job’s performance, and monthly crew meetings with the foreman and field workers to talk about safety, quality, and job productivity.
Lang Masonry uses an ‘open-book’ financial system to get everyone involved with achieving company goals. We spent time with each company manager creating and updating their future goals for total sales and markup required to achieve gross and net profit margins required to remain successful in a tougher economy than normal. Each manager was required to understand what it takes at the job and company level to be profitable, keep the company growing, the bonding company happy, the bankers satisfied, and customers awarding Lang more work. We also explored what size and types of new projects, customers, and opportunities were best suited for Lang’s growth in a very competitive marketplace.
Who do your employees work for?
Lang’s business philosophy is people don’t work for your company, you, or their boss. They work for themselves! Employees go to work to earn money for themselves, not the company owner. You’ve heard the expression most workers often use: “No problem, I get paid by the hour.” When you hear this phrase, you understand it to mean: it doesn’t really matter how long the job takes, because it really doesn’t matter to them. Is this the attitude you want from your employees?
When people get paid for what they produce, they produce more. And when they produced more, your company can do more and do more with less. When employees get paid by the hour for doing what their boss tells them to do, they work only as hard as they have to satisfy their boss’s expectations. And in most cases, they only do the minimum expected to produce less than they are really capable of. Another advantage of this pay for performance program is that during wet winter jobsite conditions, the rules don’t change and your installation costs remain constant.
When the owner keeps all the profits for themselves, this demotivates your workers. This common practice gets the workers thinking and talking about how rich the owner is getting when they do all the work. Therefore, workers don’t feel the need to pull together and accomplish more than necessary. In the end, this does not produce more work, but less. And when your productivity goes down, your job costs go up, plus your estimating labor rates per unit of work goes up as well. This then causes your field job costs to increase causing your company to become less competitive. The only way to win any new work under this scenario, is to lower your markup and make less money than you need to prosper.
Damian Lang’s Building Blocks
- When workers are more efficient, they should make more money.
Compensation systems which only enhance the company owner if the workers produce more are counterproductive and don’t work. When workers benefit by doing more and going beyond their normal efforts, they’ll likely produce more. Unit-based pay is simple. It requires you to take your bidding rates for labor and break them down into how many hours it takes to install what you do.
A drywall contractor bids installation by man-hours per square foot. To keep track of their labor rates, at the end of jobs, they take the total labor spent and divide it by the total amount of drywall installed to arrive at dollars per square foot for labor. To create a unit-based pay system, the next step would be to break this down by square feet, or drywall installed per day for the crew to achieve. If a job was 40,000 square feet of drywall at a labor bid rate of $.40 per square foot, this would equal $16,000 for labor. Therefore, a 5 person crew averaging $20 per hour should complete this job in 160 hours = 4 days. The daily crew goal would be to hang and install 10,000 square feet per day.
- What gets measured gets done.
Do you want your field workers to work hard and stay busy, or get a certain amount of items installed by the end of every day? When your workers don’t know how many units they need to complete every day, they just work at the same pace to satisfy their boss and keep employed. When they know exactly how many units must be installed every day, they will do whatever’s necessary to get it done. To make this happen, they need to know the number of items they must complete every day. For example, Lang Masonry employees know exactly how many block needed to be installed every day. It starts with the estimate. The estimator counts the number of each different type of block or brick in the job. The he puts a labor rate on top of the material costs to calculate the final bid. When the job starts, the foreman knows these units and how many days there are to complete the job. Converted to blocks per day per crew size, each crew member then works together to complete the job at or under budget. The crew gets paid based on a dollar per block rate. So the faster they build and the more block they install per day, the larger their paycheck becomes.
This system requires the foremen to count actual installed results at the end of every day, and keep their project manager, superintendent, and crew informed of daily progress until the job is finished. This system keeps the field crew and individual workers accountable for achieving results. As the workers only get paid for what they install, this keeps jobs on-budget with very few labor overruns. And over time, the overall labor bid rate gets more and more competitive as crews figure out better and faster more efficient ways to build projects.
Counting what the crew installs every day keeps workers focused on results. Most company incentive plans are based on what happened several months ago. Workers can’t relate to what happened nine months ago when their bonus checks are passed out at year end. Knowing their daily results, the crew can make adjustments and keep their jobs on track. If the job goal is to install 1,000 blocks per day and the crew only installs 800, their pay is reduced accordingly. When they know their daily results, they can make necessary adjustments to get back on track and improve their personal pay as well as the job schedule.
- Safety & quality count too!
One of the top priorities of any successful contractor is to maintain a safe working environment for the workers and produce quality work. Working at a fast pace motivated by a pay for performance system would not be complete or work without a component including provisions for maintaining safety and quality. Each of Lang’s jobs have a designated safety person in charge of insuring the safety program is maintained on every jobsite. When the program works, there are no lost time accidents or safety violations. For these expected results, the crew is compensated accordingly. But if there are accidents, violations, or costs associated with safety problems, the entire crew’s daily pay is reduced to cover these issues. This also keeps each crew focused on working together to insure safe jobsites.
In order to be awarded major construction contracts by the largest, best, and most professional general contractors in the area, Lang must keep their impeccable reputation for building with superior quality workmanship. Lang promotes their company as ‘the’ professional. To keep this reputation, they must produce the highest quality product possible, even higher than required by contract, plans, or specifications. Their incentive pay programs also rewards crews for no call-backs, no punch-list items, and no closed-jobs repairs. Getting people to care about doing these little extra things generate big returns, lowers field costs, and makes your company more competitive. When there are quality issues, the same crew that built the project is required to go back and fix the problem. These repair costs are then deducted from the crew’s pay. This keeps the entire crew focused on doing excellent work at all times and reduces those nasty closed-job costs which haunt poor-quality contractors.
- Drug free workplace.
Drugs and substance abuse hinders every employee’s ability to perform, can slow down the entire crew, or put the crew at risk when working in dangerous situations. At Lang Masonry, every employee is required to take an initial, back to work, and periodic randomly scheduled drug tests. If the workers fail, they have several options including looking for work elsewhere, entering a drug rehab program, counseling, and then re-testing. No exceptions.
- Continuous teamwork and improvement.
When your team pulls together, they will talk to each other and seek better ways to build, improve productivity, increase quality, avoid call-backs, and perfect safety. Everyone benefits by helping each other and going the extra mile. Communication also opens up between the managers, estimators, and field works as everyone is compensated based on actual results.
Implement and learn from others.
Learning from other successful companies allows you to grow and build a better company. Another of Damian Lang’s attributes is his involvement in a contractor peer group that meets several times per year. With other contractors talking about their business operations and challenges, he learns from other’s successes and issues. He also gets candid input for his management systems plus opinions and suggestions from other like-minded business owners. Now it’s your turn to implement some of these building blocks that work!
As a professional construction BIZCOACH and popular industry speaker, George Hedley helps contractors increase profits, grow and get their companies to work! He is the best-selling author of “Get Your Construction Business To Always Make A Profit!” available at his online bookstore at www.HardhatPresentations.com. E-mail GH@HardhatPresentations.com to sign-up for his free e-newsletter, join a peer mastermind BIZGROUP, attend a BIZ-BUILDER Boot Camp, implement the BIZ-BUILDER BLUEPRINT, or get a discount for online courses at www.HardhatBizSchool.com.
George Hedley CSP CPBC
Phone: (800) 851-8553