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Buckets of Profits at BBL: Creating an Incentive to Strengthen an Ownership Culture

Cathy Ivancic

April 2000

Last month, a "bucket of profits" poured out bonuses for all employees at BBL Buildings and Components, a 100% employee-owned company in Perryville, Missouri. The company has initiated a new short-term incentive and enhanced communication about performance. This is part of a strategy to help everyone in the company think and act more like owners.

"For us to become even better at what we do, it was time to look at the way we reward ourselves," noted Dale Schemel, President of BBL. BBL has been a profitable company; however, the short-term incentives that were in place did not help employees focus on new areas for improvement.

BBL had four different incentive systems for four different groups in the company. Field employees earned bonus when they kept labor hours below the estimated hours for a job, shop employees earned a bonus if their overall labor hours was below the hours estimated, salespeople were rewarded on volume, and office employees were rewarded based on discretionary bonuses which varied with profitability. While these approaches served the company in the past, they did not reward the employees in different parts of the company for working together--and working together provided the greatest opportunity for improvement at BBL. In addition, the incentives were often the source of unproductive conflict.

This year, BBL introduced a single incentive plan which is based on profitability. The bonus is tracked with a series of "buckets" that represent profits earned. When $50,000 of profits is earned, it "fills up the bucket," which triggers a bonus for employees. Part is paid out immediately, and part of the payout is put in a big end of the year "bucket." Early buckets have small payouts. Buckets filled later in the year have larger payouts.

The bucket bonus approach--borrowed from a model developed by Steve Wilson, founder of Mid-States Technical Staffing Services--provides a simple visual tracking for the incentive. In the break room at BBL, there is a large display of the current bucket of profits. "I know people are looking at it, even when it isn't paying out," says Schemel. "As builders, we have slow months. During a slow month, someone drew a hole and droplets leaking out of the bucket. But later when things picked up, someone put a band-aid on the hole!"

Implementing the new bonus based on overall profit brought some new challenges, including (1) matching the pay at risk in the incentive with the responsibility in the company, (2) rewarding outstanding individual performance and (3) connecting the incentive to the work that people do every day. BBL took on these challenges directly when implementing the new incentive.

For several years, BBL leaders have risked more of their total compensation on the success of the business. Company leaders wanted to maintain this approach in the new incentive. "It isn't right for a guy starting out on a crew to be risking 30 percent of his pay and it isn't right for the top leaders to have only 5 or 10 percent at risk, " according to Schemel. "The more responsibility you have the more of your compensation should be at risk." The incentive developed uses a graduated scale by position. Each level of responsibility pays out a certain number of units of bonus. Positions with more responsibility, get more units from the buckets paid. However, that also means more of their overall compensation is dependent on company profitability.

The change in the incentive created a need to recognize and reward individual performance in addition to the group reward. BBL's old incentives had stronger connections to individual performance. For example, annual discretionary bonuses for office employees could be used to recognize outstanding individual performance. The new bonus rewards everyone for group performance. BBL leaders needed to strengthen individual recognition in other parts of compensation and performance management. Schemel noted, "For example, we are now working on getting more agreement about what it means to be an outstanding salesman or an outstanding foreman and so we can recognize it."

When developing this new incentive, company leaders were concerned that a profit-based incentive would be too removed from the job for a person to understand how they could affect it. To strengthen to job level connection, BBL put communication about performance into high gear. They hold regular meetings which track performance of job-level activities for each of the divisions. "We are talking more than we ever did about job-level performance," says Schemel. BBL's bucket bonus provides a reason to talk about shared performance goals, a key element of a successful ownership culture.

Ownership is the long-term reward for working together at BBL. According to Dale Schemel "as an ESOP company, we should be working toward the same goals." BBL's new bucket bonus is a tool for reaching toward the next level of improved performance together.

Cathy Ivancic is a consultant and co-owner at Workplace Development Inc. Since 1985, she has helped more than 100 ESOP companies enhance ESOP communications and develop an ownership culture. She is active in national organizations that promote shared ownership and has served on the NCEO's board of directors and as an officer of the Ohio chapter of the ESOP Association.She can be reached at civancic@workplacedevelopment.com.

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