CONTRACTOR

QUICK TOOLS
BY

COMPENSATION & INCENTIVES

COMPENSATION & INCENTIVES

QUICK WIN:
GETTING EFFECTIVE PERFORMANCE-BASED COMPENSATION STRUCTURES
IN PLACE IS A PROVEN WAY TO GET STAFF ALIGNED TO THE COMPANY GOALS
AND SIGNIFICANTLY INCREASE RETENTION AND JOBSITE EFFICIENCY.

Our Contractor Quick Tools are ready-made resources

specifically developed to help you professionalize and
systemize your company. This tool includes simple directives
to get you started, a completed example file to reference, and
an editable template to start using immediately.

Compensation is an exciting topic fuelled by a lot of emotion and creative ideas. If

reward plans are not structured properly, they lead to confused staff, unrealistic pay
expectations, and destructive behaviours to achieve the bonus over the intended result.

The goal is to create a balanced compensation structure for every role in your company
that incentivizes the right behaviour and gives staff the ability to hit goals that they
directly impact.

HINT:
Use your company values as the lens to base compensation structures around, and
whenever possible, focus on quality, volume, and profit metrics that the role influences.
COMPENSATION & INCENTIVES

COMMON PITFALLS:

• Too complicated to understand

• Not a sufficient incentive (should be at least 5% base)
• Bonusing not aligned with priorities of role and/or the company
• Giving % based incentives without thinking about the long-term implications of growth (i.e.,
owner takes a 10% overhead and splits the “net profit” 50/50 with staff #RiskyBusiness).

HOW TO USE THE TOOL:

STEP 1: PICK THE ROLE(S) THAT NEEDS INCENTIVE-BASED PAY

AND BUILD A PLAN TO IMPACT THE INDIVIDUAL
Looking through your organization, where do you see opportunities for your people to go above
and beyond in their roles, generating more ROI for the company? This could be obvious areas like
bringing in more revenue or producing profitable work; it can also be more obscure areas like
collecting A/R, training staff, or getting customer reviews.

Think about the behaviour you are trying to change by incentivizing the result; performance won’t
increase simply because you put more money toward it – you need to focus time and energy on it,
too.

EXAMPLES:

• Provide skill training

• Hold accountability to specific tasks
• Create competition within the role(s)

STEP 2: DECIDE THE NUMBERS YOU WANT TO IMPACT

The key thing here is picking the right metrics. They must be easy to track, simple to understand,
and be directly impacted by the behaviour you’re incentivizing.
COMPENSATION & INCENTIVES

To do this, decided what needs to change and start measuring actual numbers – you need clarity
on the current averages you’re achieving in order to improve them. You can’t change what you
don’t see.

EXAMPLES:

• Quality: 4.5-star Google Rating

• Volume: $2,000,000 produced work

• Profit: 40% Gross Profit margin

HINT:
Owners often assume that their team can impact change as quickly as they can; this
generally isn’t true. Changing results through your team takes time, but is the
sustainable long-term option.

STEP 3: DETERMINE WHICH TYPE OF COMPENSATION STRUCTURE

IS APPROPRIATE
There are a ton of compensation structures out there; strive for standardized structures that
make logical long-term sense in your company. Look at the examples in this tool for some clarity.

Ultimately, you need to decide how often you want to pay incentives (weekly/monthly/quarterly/
annually), how much you want to incentivize (percentage base vs bonus), and how these
incentives are going to be calculated.

Think through a risk versus reward axis – certain people are more risk tolerant, and certain roles
lend themselves better to this than others. Figure out the right balance of base versus bonus for
your people and the roles in your company.
COMPENSATION & INCENTIVES

HINT:
Too much risk leads to burn-out; too little risk leads to complacency.

HINT:
You can always increase bonuses; you can’t decrease them.

STEP 4: OUTLINE THE COMPENSATION PLAN

On a single page, outline the details of your reward plan for the role. Make sure it’s S.M.A.R.T.

(Specific, Measurable, Attainable, Relevant, Time-phased).

See reward planner example below.

HINT:
Make performance-based pay structures as simple as possible for them to be effective.

HINT:
The end goal is that your compensation structures are built into your Employment
Agreements and are aligned with your company goals.

STEP 5: ESTABLISH YOUR ACCOUNTABILITY STRUCTURE

The real works happens after the performance-pay structure is established, but not without
support and accountability. It should be your #1 interest to help your people hit their goals.
COMPENSATION & INCENTIVES

HINT:
You know you’ve established great compensation structures when you hit your goals by
simply focusing on helping your people hit their goals!

BONUS – SOME GUIDING PRINCIPLES:

1. Know the market: The market value for a role will factor into the amount of pay and type of
compensation. Find out what five competitors are paying for a role and think about how your
company compares and where it should fit in the range of pay.

2. Consult pay rules: Look at the legal requirements set by your province, state, territory, and
country to figure out what you can and cannot do.

TERMINOLOGY:

• Fixed Pay/Base Pay: Pay that doesn’t vary (i.e., hourly pay, salary)

• Variable Pay: Pay that changes with performance or results (i.e., piece rate, commission)

• A/R: Accounts receivables

EXAMPLE TOOL BELOW

COMPENSATION & INCENTIVES (EXAMPLE)

Performance-based payment has shown to work best for most positions in a trades
company, provided the compensation plan is created so that it aligns employee incentives
and bonusing with company goals, keeping volume, quality, and profit as key objectives.

PERFORMANCE-BASED COMPENSATION STRUCTURES:

1. Merit Plan: Performance-based pay plans where the performance-based pay amount is
added to some amount of guaranteed pay provided by a base salary or hourly amount.
2. Commission/Piece Rate Plan: A performance-based pay plan where the performance-
based pay is the only form of pay – there is no guaranteed amount.
3. Strategic Compensation Plan: A performance-based plan used to attract, retain, and
grow talented employees while aligning their behaviors and job performance with the
company’s goals and objectives. This model is typically used for the most key talent in
the company in service of long-term goal alignment.

PERFORMANCE-BASED PAY PRINCIPLES:

1. The employee must understand the performance-pay structure and believe it’s doable.
2. The employee must value the pay increase afforded by the pay structure.
3. You must manage expectations: performance bonuses are earned, not guaranteed.

[Link] | 1.800.875.1704 | INFO@[Link]

This document and its content are protected by Canadian, U.S. and International copyright laws. Reproduction and distribution
of this document and its content without the written permission of Breakthrough Academy Inc. is strictly prohibited.
TYPES OF COMPENSATION:
Type Description & Example Best Suited for
Guaranteed base + finite performance-based
amount.
Office Staff
Merit Plan Apprentice
I.e.: Merit Plan
Production Crew
• Base: $40,000 Salary
• Bonus: $5,000 Available Performance Bonus
Performance-based pay exclusively – no base.

I.e.: Commission
Commission/ • 10% gross sales after expenses Sub-Contractor
Piece Rate • 7% gross <500K, 8% 500-750K, 9% 750K -1M, Sales Professional
Plan 10% >1M. Door To Door

I.e.: Piece Rate

• $21/Hour - budgeted target per project
Base + performance-based bonus tied to bottom-
line (i.e. Retirement plans, profit sharing, equity) Key Leadership
Strategic
C-Suite Staff
Compensation I.e.: Strategic Plan
Director
Plan • Base: $90,000 Salary
• Bonus: $20,000 Available Performance Bonus Manager
• Profit Share: 2.5% Gross Profit

Reminder
Keep a focus on Volume, Profit, and Quality whenever possible

BONUS TIMELINES:
• Pay period: this impacts entry-level/seasonal employees best.
• Quarterly: this impacts day-to-day performance best.
• Annual: this impacts long-term retention best.

Some combination of these is recommended.

[Link] | 1.800.875.1704 | INFO@[Link]

This document and its content are protected by Canadian, U.S. and International copyright laws. Reproduction and distribution
of this document and its content without the written permission of Breakthrough Academy Inc. is strictly prohibited.
COMPENSATION STRUCTURES – EXAMPLES:
Type of
Role Compensation Structure
Compensation
Office Merit Plan Responsibilities: Return calls/emails within 48 hours,
Administrator keep accounts receivable within their terms, weekly
updates to all administrative and financial tracking
systems, ancillary office management items.

• Base salary: $45,000

• Incentive: $5,000 Available performance bonus

Crew Member, Merit Plan Responsibilities: complete jobs on budget, input hours,
Laborer, treat crew members and customers with respect. Bonus
Technician, available with any infractions deducted.
Apprentice,
Lead Hand, • Base: $20/hr
Crew Leader • Incentive: $1000/quarter available - $100 penalty per
infraction (i.e., not entering hours, lack of respect,
missed callbacks)

Foreman Strategic Plan Responsibilities: the on-budget productivity of your crew.

You have an available performance bonus of $4
per/hr/crew member.

• Base: $45,000 salary

• Incentive: $4/hr/crew member

Performance Bonus Threshold Calculation:

(40 hrs. x 50 weeks) x 4 ppl = 8,000 hrs.
8,000 hrs. x $4 = $32,000
Total compensation: $77,000

[Link] | 1.800.875.1704 | INFO@[Link]

This document and its content are protected by Canadian, U.S. and International copyright laws. Reproduction and distribution
of this document and its content without the written permission of Breakthrough Academy Inc. is strictly prohibited.
Project Strategic Plan Responsibilities: to produce $1M at a 40% profit margin
Manager, with 95% customer recommendations rate.
Operations
Manager • Base: $65,000 salary
• Incentive: 10% on profit generated above goal
• Non-monetary incentives: company truck, phone,
benefits

Incentive Calculation (example):

Revenue Produced: $1,200,000 @ 41.6% profit
Profit Generated: $500K
Bonus: $500K - $400K = $100K x 10%
Bonus earned: $10,000

Sales Manager Strategic Plan Responsibilities: lead sales team, sell $4M @ 40% GP,
$1,000,000 sold quarterly, 50% closing ratio

• Base salary: $80,000

• Commission: 5% of anything over $1M sold per quarter
• Incentive: $5,000 available bonus at year end for hitting
40% GP cumulatively
• Incentive: $5,000 available bonus at year end for hitting
40% closing ratio cumulatively
• Non-monetary incentives: company truck, phone,

Incentive Calculation (example):

$4.2M sold @ 42% GP, 41% closing ratio
@ 5% of $200,000 over goal = $10,000
@ 42% GP = $5,000
@ 41% sales ratio = $5,000
Total compensation: $100,000

[Link] | 1.800.875.1704 | INFO@[Link]

This document and its content are protected by Canadian, U.S. and International copyright laws. Reproduction and distribution
of this document and its content without the written permission of Breakthrough Academy Inc. is strictly prohibited.
Salesperson Strategic Plan Responsibilities: Minimum of $800,000 sold, 40% GP with
(Retail) commission reductions for going lower and bonuses for
going higher, paid out monthly or quarterly, not per job.

• Base: $30,000 salary

• Commission: 7%

Incentive Calculation (example): $800K sold

@ 40% GP = $56,000 commission (86K total)
@ 45%, +1% bump on commission = $64,000 (94K total)
@ 48%, +2% bump on commission = $72,000 (102K total)

Salesperson Commission Expectations: 10% commission paid biweekly as deposits

(Insurance) Plan or final payments are made, salesperson gets small draw
limit to help in winter/slow times. First 3 months is
training period with salary.

• Base: $0 salary
• Commission: 10%
• Draw Limit: $5,000
• Training Period: $800/week salary (3 months)

[Link] | 1.800.875.1704 | INFO@[Link]

This document and its content are protected by Canadian, U.S. and International copyright laws. Reproduction and distribution
of this document and its content without the written permission of Breakthrough Academy Inc. is strictly prohibited.
FULL REWARD PLANNER (EXAMPLE)

Name: Ricky Bobby

Role: Production Manager
Date: January 1, 2XXX

BASE COMPENSATION: $65,000 Annual Salary (paid bi-weekly)

PERFORMANCE COMPENSATION: $20,000 Bonus Available

Production - $15,000 Bonus Available

$1,000,000 Produced Revenue = $5,000
$1,250,000 Produced Revenue = +$5,000
$1,500,000 Produced Revenue = +$5,000

Customer Recommendation Rate - $5,000 Bonus Available

90% - 94.99% = $500
95% - 96.99% = $1,500
97% - 100% = $3,000

OTHER COMPENSATION:
• Health - $125/monthly value * 12 months = $1,500
• Cell Phone Allowance – $50/monthly toward personal phone plan * 12 months = $600
• Vehicle Allowance (Company Truck) – Value $500 monthly * 12 months = $6,000

SUMMARY:
Total Performance Compensation Available = $20,000
Total Base Compensation = $65,000
Total Base & Compensation Potential = $85,000
Total Other Compensation Value = $8,100

[Link] | 1.800.875.1704 | INFO@[Link]

This document and its content are protected by Canadian, U.S. and International copyright laws. Reproduction and distribution
of this document and its content without the written permission of Breakthrough Academy Inc. is strictly prohibited.
It is our mission to transform honest, hardworking
contractors into well-balanced leaders & thriving
entrepreneurs.

P. 1-800-875-1704
E. INFO@[Link]
W. [Link]