A Compensation Plan That Works

Upchurch admits that the first year was an educational process for him and the foremen, but he said all employees have gained a better understanding of their role within the plan.

The monthly bonus payouts are variable compensation, and adding this component.

2000 IN REVIEW. Strong annual revenue growth is now a trend at NatureScapes. If this continues, the company is well-positioned to make capital re-investment decisions for additional people and equipment. Information from the plan also provides yearly productivity comparisons, especially in the areas of crew labor hours percentages.

For example, the cost of sales increased due to a number of factors. Three new managers were hired for the maintenance division, a new irrigation division was formed and staffed, six new trucks and related equipment were purchased, dump fees increased and fuel costs rose dramatically for several months. However, these additional managers and equipment will allow the company to grow substantially.

The numbers also show that although the annual color division is only a little more than a year old, it has improved its expense management from the first year and is adding dollars to the top and bottom lines. The incentive plan has motivated this manager to use temporary and current full-time hourly employees more effectively to help get new flowers planted in a short time.

Meanwhile, commercial maintenance represents about 85 percent of the company’s total business. More than $900,000 in new revenue occurred this year in the maintenance division. All of this new work was accomplished with less than a full percentage increase in labor costs. This tremendous productivity improvement is a testimony to including both the division manager and foremen in the plan.

Unfortunately, the landscape division struggled, partly due to a major drought and watering restrictions that struck Georgia in May. As a result, many residential customers postponed installation. These weather challenges hurt many installation businesses during the year.

Upchurch reacted to this challenge by looking at how to use the landscape team’s resources. He made strategic changes to benefit this group and integrate it more carefully into NatureScapes’ services.

For 2001, Upchurch directed the division to cross-sell its services to the company’s maintenance clients rather than seeking new customers. This will help the maintenance division provide additional value to its customers, thus avoiding the acquisition cost of new customers and improving overall cash flow.

At first glance, last year’s profit appears weaker than 1999 profit. Upchurch's maintenance division, despite a substantial investment, grew and continued to show a profit. Also, the major portion of the company’s direct labor costs indicate a strong increase in productivity.

Upchurch knows the cause of the diminished results from the prior year, and he views the situation pragmatically. He knows that his company cannot continue to have substantial increases in revenue without re-investing capital in additional people and equipment.

BEYOND FINANCIAL RESULTS. Upchurch views the incentive plan as more than just another way to pay his employees more. Providing the same information to his staff on a regular basis allowed him to observe their ability to work together and collaborate on achieving strong business results. Upchurch has seen latent talents in some of his managers grow and mature.

In addition, tracking ongoing results in specific financial areas gave the company’s management team fiscal discipline. The managers meet monthly to review the previous month’s results. Each knows exactly how the company stands on a monthly basis.

Every employee also understands the influence they have with these results. Since this is a performance-driven incentive plan, there are no surprises at the end of the month or year. If business results are not achieved, this fact is reflected in the payouts each worker receives. As a result, each plan participant is gaining a greater understanding of the components that comprise a successful business.

No discussion of an incentive plan is complete without considering whether the plan truly motivates the participants. Many companies pay their employees bonuses and then complain that these additional dollars have no visible impact on performance.

Incentive plans are a motivational factor when the participants understand what they contribute to the enterprise and the level of compensation they can earn. This concept is called the principle of equity. The Nature Scapes incentive plan embodies this principle in both design and application. And it requires persistence and staying power.