Some remodelers base bonuses on company-wide profitability, while others calculate them on a job-by-job basis. Gallick does a combination of both. Not only does he pay bonuses for each job that exceeds its profit goal, but if company-wide profit is higher than 8% at year-end, the employees split up an additional $10,000. If it tops 10%, the bonus grows to $20,000. “These are tangible figures that allow employees to see the cause-and-effect relationship between their output and their income,” he says.
To help people understand this relationship, Gallick advises other remodelers to start off slowly. “Try running the system through one lead first to see how that works,” he advises. “And don’t overwhelm people with unnecessary details. Nobody cares how much you spent for pencils.”
Show and Tell While most companies keep the financial numbers they share with employees quite general, they all stress the importance of teaching employees how to interpret those numbers. “If you don’t teach people how to read the financials, OBM won’t work,” says Charles Russell, president of Westhill Inc., a remodeling company in Woodinville, Wash., that has 35 employees and completed about $6.5 million in annual business last year.
To that end, Russell has invited expert speakers, including a CPA and a business development person, to his quarterly company-wide meetings. That doesn’t mean he wants his carpenters to be accountants. “I just want them to understand how to relate the work they love to do to the financials,” he says.
His favorite way to explain this relationship is by example. He arrived at one meeting with $1,000 in cash. To show employees what happens to each $1,000 in revenue, he doled out the appropriate percentages to the material expeditor (for materials), the office manager (for overhead), and the lead carpenters (for salaries). He took the percentage earmarked for the IRS and tossed it in the trash. He said that besides being a great teaching tool, the demonstration has really improved employee morale. “Before, when a bill was delivered to a customer everyone thought that I was taking a wheelbarrow of cash to the bank,” Russell says. “Now they know exactly how much I make.”
According to Russell, this atmosphere of openness and cooperation works for most, but not all, people. Although he uses aptitude and personality tests in his hiring process to determine whether someone is a team player, he occasionally makes a mistake. “One of the best painters I’ve ever seen left the company because he just wanted to be left alone. His attitude was affecting other people’s morale,” Russell says. “He countered everything we were trying to teach and wouldn’t help anyone else.”
On the other hand, people who understand the concept of teamwork really thrive under OBM. Russell likes to talk about the young man he hired right out of high school 12 years ago as an apprentice carpenter. He took to the company’s business training and has moved up to become part of the executive team. “If I go away for a couple of weeks,” Russell says, “I have enough confidence in him to do my job while I’m gone.”
Trust but Verify That kind of trust between employer and employee is typical of open book remodelers. Take Repairs Unlimited. The 20-year-old company, based in Kansas City, Kan., has been open book since 1998, and recently expanded into the Denver market. With just under $10 million in revenues last year, they seem to be doing something right.
Company president Jigger James attributes much of this success to the atmosphere that OBM has helped create. “Opening the books has established a bond of trust between management and staff,” he says. “At the end of the day, people know that all of the financial information the company has is available to them. There’s a sense that no one is hiding anything.”
Repairs Unlimited has 14 account executives who are responsible for sales, estimates, and contracts. The actual work is done by subcontractors. A custom-designed software system gives each of their 21 employees full access to all company financials. Account executives work on a commission basis. James describes his management style as hands off. “We don’t have to manage our account execs much,” he says.
But trust is a two-way street. James is aware that an account exec could try to reduce costs and increase his profits by using cut-rate materials, such as a lower grade of paint, or by encouraging job shortcuts. To prevent such problems, James says he has to be very aware of what the red flags are. “For instance, slow payments mean that someone’s unhappy but isn’t telling you,” he says. Other warnings include complaints from a vendor and any kind of communication into the office from a customer.
James says this has yet to happen. In fact, he believes that by being open and honest, he attracts employees with the same qualities. “I think you couldn’t do this if you weren’t essentially an honest, caring company,” James says. “More than anything it’s establishing that you are what you say you are. It’s just putting your money where your mouth is in a very realistic sense.”
Charlie Wardell is a freelance writer in Vineyard Haven, Mass.