Two Compensation Plan Mistakes I’ve Watched Restoration Owners Make

Group bonuses invite people to game the system, and complicated bonus formulas just stop driving performance.

How do you structure a restoration employee bonus plan? Make it individual, keep it simple, and only use metrics the person actually controls. That's my perspective, and I've watched a lot of these plans fail, so let me tell you about the two failures I see most.

Generally speaking, I'm not a fan of team bonus programs. If one person isn't financially responsible for the outcome of a job, you end up with a lot of finger pointing, and good things don't show up on the P&L.

The group plan that went nowhere

When I start working with a client on comp plans, I give them one for their mitigation side and one for their reconstruction side. On the reconstruction side, they executed it exactly as I set it up, and it still works great. Years have passed. On the mitigation side, they told me a couple of months later that they'd made major changes and turned it into a group plan, because the employees wanted a group plan. They didn't want to be individually responsible. I think you already know what I think of that.

It turned out to be a bad idea, because nothing good happened. They were way under margin on mitigation, at less than half of what their gross profit should have been, and the bonus program didn't move it. Bonuses were also paid that shouldn't have been, because the team was gaming the system by not logging hours to jobs. Those were unallocated hours.

The plan that was too complicated

Sometimes a new client hires me to help with their comp plan, and I find an elaborate program with so many metrics that nobody can keep track of it. Either the metrics are too hard to measure, so the person tasked with measuring them doesn't do it consistently and the payout period comes and goes, or the plan is so complicated that the team doesn't understand it. The occasional bonus gets paid, but it doesn't drive the performance the company wants.

I've also watched clients announce a bonus program and then spend months figuring out the details. By the time it finally launches, it's so complicated that nobody cares.

What I do instead

Performance-based comp plans have done a lot for my own businesses and for many of my clients. Team members earn more, and the business gets a healthier profit picture. The ones that work are simple, and each person knows their target and controls the result.

For my managers, I set a base revenue level each quarter and pay a bonus on the revenue above it. There's a minimum gross profit percentage, with three bonus tiers above that minimum. And there's a customer satisfaction bonus that's all or nothing, at 95 percent or higher. I think a restoration business needs all three: growing revenue, strong profit, and happy customers. I always pay bonuses on collected revenue, never on billed.

That might sound like a group plan, since a manager is paid on the results of the people they manage. The difference is that one person owns each number. A manager is accountable for the people they manage, so that result is theirs. A group plan puts several people on one number, and if nobody is 100 percent accountable, then no one is. A high-level team success bonus on top of individual plans is fine. The individual plans are what drive behavior.

If you've got a bonus plan that isn't working, or one you've been meaning to launch, book a call with me at thegrowthleague.com/schedule and let's talk about how to build a more profitable, valuable restoration business.

Scott Miller is the founder of The Growth League. He started his own restoration company in 2005, sold it in 2017, and now helps restoration owners get more profitable, reduce the chaos in their business, and build something sellable.