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Profit Power: Are you paying your employees too little?

December 21, 2016 -  By
jeffrey-scott-productivity

Peer group members analyzing divisional profitability.

Did you know that many high-profit companies pay their top employees above industry norms?

In spite of the upward trend in pay rates driven by the H-2B program, I see contractors continuing to struggle to find great employees. But maybe they’re not paying enough to attract the right prospects?

Last month I invited Verne Harnish (founder of Young Entrepreneurs’ Organization, now known as Entrepreneurs’ Organization, and author of “Scaling Up”) to speak to one of my landscape peer groups. My members enjoyed Verne’s open style. He discussed how some of his most successful clients pay their top employees above their industry norms. His clients are making great profit, and not because they skimp on payroll and bonuses.

Verne and I agree on this outlook. This is how I tried to run my business, looking for the best and the brightest and showing them how to continually grow their careers. It’s also how Mark Bradley of TBG Environmental runs his company, paying his key supervisors way above industry norms by the time incentives are earned.

This same lesson is confirmed by the founder of The Container Store, Kip Tindell, who pays his staff twice the industry average and enjoys triple the productivity of his average competitor, measured by sales per square feet. His book, “Uncontainable,” narrated by him on Audible, was very emotional and compelling. You may not be able to replicate his level of success, but you can learn from it!

However, you don’t reach triple the productivity, or even double, simply by paying C players more. They don’t magically become A players. It’s about finding and rewarding the right people.

We confirmed this in our peer group meeting. One high-profit member from the mid-Atlantic states (who enjoys 25 percent net profit) pays his top two employees well, with excellent impromptu and year-end bonuses. These employees are making six figures, but the company’s overall payroll is not high because his leaders are driven and his culture is one of lean, “do what ever it takes” productivity. He was emphatic that he would not tolerate employees who were a bad fit in terms of values. You could feel his passion.

The conclusion we reached in discussions with Verne is you get what you pay for. If you want to achieve significantly better results, you need to attract and hire a different type of employee.

The next day we analyzed each peer group member’s divisional profitability. It was eye-opening. I showed the group how the productivity metric of “gross profit per man hour” dramatically impacts net profit, especially in this new economy where it’s difficult to find great people.

This lesson was reconfirmed for me yet again last week, when another landscape peer group member from Michigan shared with the group that he paid out $30,000 in bonuses. Not bad for a company under $2 million in annual revenue. He’s making outstanding profits, and it allows him to share in the wins. Due to his consistent year-end bonuses, he can easily recruit because word gets around that he has a great place to work.

Do you have a great place to work and are you paying above average?

Breakthrough Idea: The “more gross profit per man hour” you can earn, the more you can share, and the easier it will be to recruit.

How productive are your men and women? Could you do better with a more intentional focus to efficiency?

Take Action:

First, make sure you surround your current A (and B) players with other A (and B) players. Ds should be let go, and Cs need better feedback, training or a new position that’s a better fit. Don’t tolerate someone who is sucking the life and passion out of your culture.

Think about what you would pay for the ideal candidate in a key position, develop a job description, and aim your recruiting in that direction. Be prepared to be surprised by recruiting outside the box.

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About the Author:

Jeffrey Scott, MBA, author, specializes in growth and profit maximization in the Green Industry. His expertise is rooted in his personal success, growing his own company into a $10 million enterprise. Now, he facilitates the Leader’s Edge peer group for landscape business owners—members achieve a 27 percent profit increase in their first year. To learn more visit www.GetTheLeadersEdge.com.

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