Construction Business Talk

Hiring & Keeping Great Employees

I have asked several audiences what the most valuable assets was in their construction company.  People think and come up with all sorts of answers like equipment, inventory, etc.  However, when pressed almost all will confess that their most valuable asset is employees.  What I would like to discuss is your great employees.  Which ones are these?

·         Arrive early, leave late when it is necessary

·         Take initiative and solve their own problems

·         Highly productive

·         Motivate others

·         Have a real concern that the job is done right and on budget

It is easy to spot the seasoned contractor that recognizes the value of employees and works diligently to get and keep them.  When we ask we are told about how many employees who have been around for years.  When we ask how they spend their work week they tell us of all the work they do finding new employees.  A lot of business people shy away from hiring.  Get over this!!  Great employees make a great construction company.

What is the Secret?

How do these seasoned veterans get these great ones?  Lots of work finding them and high expectations!  The work is in the hiring.  Those who value great employees are constantly on the lookout for additions to the workforce.  Many will find something for a great one even if it costs a little extra to do so.

Finding Candidates

We have found that great companies go thru quite a process to find new employees doing things like:

·         Post job openings on Internet

·         Advertise in Trade Journals

·         Hobnob at builder events and meet potential candidate

·         Incorporate Employment Opportunities on their websites

·         Have an employee who handles job inquiries

Once found, these candidates need to be vetted (popular new word).  Our problem as employers is that we have limited resources to find out who the candidate is and what baggage they are bringing with them.  The actual hiring of a new employee is one of the riskiest things a contractor does!

Checking Backgrounds

There are several things that should be done to minimize the risk of hiring the Employee from Hell. 

·         Call the last 2 or 3 employers.  Checking with only the last one will rarely get that frank opinion you are looking for.

·         If education, licenses, and/or special training are requires, check these out!  Very few applicants are totally honest with things like these.

·         Criminal Background Check  - Check out Alpha Background Investigations at http://www.alphabackground.com/.  This service is used by Robert Half and is reasonably priced.

Interviewing/

This can be time consuming for a busy manager.  Narrow the candidate down to 5 or less based on resume or references from people you know and trust.  Then, schedule interviews with the appropriate people in your organization.   There could be more than one person that needs to talk with your candidate.  Here are some items to consider for the interview.

·         Ask open-end questions that cannot be answered Yes or No.  It is important to hear how your candidate answers.

·         Ask why they want to work for your company.  This will tell you if they have done their homework and understand what and who you are.

·         Ask about their career plans.  You are trying to get a sense of how long they will be with you.

·         Ask about salary requirements and enjoy the ones who will negotiate with you rather than simply take what you have to offer.  This will serve you well when they deal with your subs and suppliers down the line.

Salary Offer

Seasoned contractors always have their ear to the ground with regard to prevailing salaries in the area.  We think you should pay the current rate.  However, we strongly recommend a probationary period of 3 months where the candidate is paid at 80% of the going rate.  At the end the rate goes to 100% with a bonus of the 20% withheld for the first 3 months.  If the employee does not measure up, or we find information that contradicts information on the resume, the 20% is retained and we part ways.  Look for your candidate to negotiate.  If they negotiate with you, they will negotiate with subs and suppliers!

High Expectations

Once you hire great employees you need to keep them motivated.  Do this with planning and communicating schedule, labor, and quality expectations before the project begins.  “This job is to be completed by May 15 (90 days), using this schedule of hours (by task), with no more than the usual number of callbacks from the client.”  Then you need to tabulate and communicate the results!!  We suggest you do this weekly for crews and project managers.

Replacing a Great Employee

Contractors who have been in the business for a while know only too well the value of a great employee. You know this individual! They show up on time, solve their own problems, and always have your best interests at heart. If you have ever lost a great one, you probably remember that pit in your stomach when you found out they were leaving. Why so?  Because you knew you would have to go through the very difficult process of finding a replacement. We want to examine this in terms of dollars. First we will look at a skilled craftsman. Then, we will look at a project manager or superintendent.

SKILLED CRAFTSMAN

Let us assume your great journeyman was being compensated at $72,000 per year. Let us further assume that management time to supervise this individual was minimal and compared to the average journeyman this individual consistently produced at a 20% higher rate. For some reason, they are leaving your company.

So, you could go to the union hall or place an ad in a trade journal for the replacement. The union hall is relatively inexpensive. The ad will cost you about $500. Not to bad on either count. You get 20 applications for the job. You have your staff run some background checks and narrow the list to 5 who you will interview. That took someone about 4 hours. It will take you another 4 hours to do the interviews. So far, so good.

You hire this individual and begin familiarizing them with your projects and the way you do business. Let's be conservative and say it takes 3 months to get them up to speed. We have to assume their productivity is less than normal at the outset (assume 75%) and that this person will probably produce at 100% at the end of 3 months. If we do the math, that ramp up cost you 1500 the first month, about $1,000 the second month, and about $500 the third month for a total of $3,000. Add to that your hiring expense of about $2,000 and the cost is a total of $5,000.

Now ask yourself what the likelihood is that your new employee will be around after the 3 months? You never really know who you have hired until they have been around for a while! The chances are between 2 and 3 to 1 they will stick. If we assume we have to hire 3 to get the one we want, your hiring expense is about $15,000 or about 20% of their annual salary. This does not take into account the fact that your great employee was producing about 20% more work. If we have to pay about the same for the replacement, your cost has now gone up about $1,200 per month; another $15,000 per year!

So, the pit in your stomach was not only the prospect of having to hire the replacement and all the time it was going to take, it was the cost you may not have realized it would take; a lot of money!

PROJECT MANAGER

It only gets worse when we have to hire new management people. The salaries are higher, the hiring costs are more, and the ramp up time is longer. Get used to the fact that the national average for this individual is about 80-100% of the annual salary. So, a project manager making $100K will cost about $80-100K to replace.

HIRING RISKS

Let's add another something to consider when we hire new folks; employee fraud and/or incompetence. You may not have had the pleasure of either of these, but then again you probably have. Here is a list of things you need to at least be aware of with regards to hiring construction workers:

1. Fraudulent workers comp claims that raise your work comp costs
2. Stealing materials and tools
3. Fraudulent time reporting
4. Hiring phantom employees and subs and pocketing the wages
5. Submitting phony supplier invoices and pocketing the cash (usually working with the suppliers employee)

This just adds to the potential misery. What's the answer? Figure out how to keep them around. See my article on motivating and keeping employees.