Introduction
The incentive plan is designed to reward employees over and above their salaries and wages when, through their efforts, the company achieves superior performance, which results in exceeding the budgeted profits and improved returns on assets employed.

Salaries and wages are paid to employees for performing their responsibilities and duties in accordance with those levels as set forth within their job descriptions. Incentive compensation is meant to reward personnel when they perform their duties with diligence and commitment to superior performance that contributes to the achievement of the business’s operational and financial objectives as outlined in the company’s annual business plan and budget. Based upon the organization structure of the company, the President reserves the right to establish the level of participation for all personnel.

Objective
The purpose of an incentive plan is two-fold: On the one hand, it is designed to provide certain company employees with a form of compensation that encourages them to work together as a team, focusing on company profits, rewarding strong performance and ensuring positive motivation to increase profits. At the same time, the program must deliver a return to the company in excess of the amount paid out in performance bonus.

Incentives are not give-away programs. On the contrary, their intent is to establish a reward relationship between what employees are paid and what the company achieves. With this in mind, the incentive plan must be established to direct employee performance toward the achievement of very specific company objectives and provide monetary rewards that represent both a reasonable expense for the company and an attractive incentive for the employee based upon actual attainment of overall company performance objectives. An incentive plan can be implemented for any size company.

Benefit
The benefits of a well planned and controlled incentive plan are improved results for the company along with greater financial rewards for the employee(s) who perform well. For the company, the reward is evident in the improved profits achieved while, for the employee; the benefit is a monetary reward combined with the formal recognition of a job well done with the presentation of this monetary reward. The overall impact is the evolution of a group of employees into a work force that is encouraged, financially, to work as a team, in a smarter and harder manner for the company and the customer, with a focus on the bottom line impact of their performance. They then become a part of the company’s profitability success.

Plan Development and Administration
The President recommends personnel for participation in the incentive compensation plan before the start of each new accounting year. Personnel hired after the start of the year may also be added to the plan with the approval of the President. There are usually two incentive plans, one for construction operations, and one for overall company results. Within the pool for overall company results there would be a sub-pool for the general and administration (Office) personnel.

Before the start of each year, a budget is developed by management and approved by the President. This budget established company objectives for construction contribution (Gross Profit Margin) to profit and fixed overhead for the company. These budgets would be used to establish objectives for the incentive plans.

The controller would maintain the records for the incentive plan and would review them monthly with the President for approval. Should an employee leave the employment of the company before the year-end bonus payout, he/she would forfeit any unpaid bonus entitlement.

Construction Incentive Plan Calculations
The construction incentive plan would consist of a pool made up of construction management personnel such as construction managers, project managers, superintendents and other key full-time employees selected to participate. The construction plan bonus is determined by taking the budgeted construction revenue less the budgeted construction cost, site O/H, variable O/H, and net equipment cost.

In the example above the budgeted construction profit is $2,441,920 and the actual construction profit is $2,515.000. The company predetermined that it would payout 20% of any profit over 90% of the budgeted profit*; and since the excess profit is $317,272, the company pays-out $63,454 in construction bonuses and keeps $253,818.

Participants in the construction pool are assigned a % share in the pool. The President determines the participants and share of the pool that each participant receives. A discretionary share is recommended for each pool. This allows the President to further compensate an employee who went beyond the call of duty. Bonus pools are maintained on an YTD basis and negative results are subtracted from any scheduled payout. The maximum bonus paid out per individual would be 20% of their salary on a yearly basis. The controller is responsible for proper calculation and payout of employee bonus pool amounts with the Presidents approval prior to payouts.

Company Pool
In addition to the construction pool, key employees, as selected by the President would participate in the bonus pool for overall company results. This pool is designed to foster teamwork between departments and to focus key managers on the achievement of overall company profit goals. The following examples represent positions that would participate in this pool: controller, construction manager, business development manager, chief estimator and G & A personnel. This pool would be based on a bottom line (Profit before Interest and Taxes) greater than budget. Just like the above construction bonus example, a predetermined share of excess profit would go into the pool, recommended at 20% over 90% of budget achievement*. Participants in the pool, including the G & A sub-pool would be assigned a % share in the pool. Pool bonuses would always be determined on an YTD basis and negative results would be subtracted from payout. (In a case where the first two quarters exceed forecasted profits and the third sustains major losses, the accrual account could be reduced or eliminated.)

Payouts
All bonuses would be calculated, by employee, on individual spreadsheets. Each month the bonus pool would be recorded, reported and presented to the employees. At the end of each quarter, 50% of that quarter earnings would be paid out, with the rest accruing to year-end. Months where there are negative bonus numbers, year - end accrual accounts would be reduce. Employees who resign or are terminated before year-end would forfeit all unpaid bonus accruals.

* It is up to the Owner/President to determine who participates, what % of the bonus each employee receives and what % of excess profit would be paid out.

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