After more than two decades in business, Birmingham, Alabama–based architect Jeff Dungan hated the notion of encouraging employees to work more rather than more efficiently. After a breakthrough moment while crunching numbers, he overhauled his firm’s bonus structure to an incentive-based tier system.
What were you trying to solve for when you decided to reinvent your bonus structure?
I don’t run a sweatshop. I’m a pretty easy guy to work for. But paying a large salary and then coercing you to work a lot of unpaid overtime is the oldest trick in the book. Goldman Sachs is one of the most famous for it. They’ll pay you six figures right out of college, but they’re going to make you work 75 hours a week, so you’re not making a lot
if you actually do the math. Architecture firms will do the same thing—it’s like, “Fine, I’ll pay you whatever number, but I’m going to get it back out of you by working you to death.” But I don’t want to be that kind of person, and I don’t want to create that kind of culture.
While I was determined not to be that kind of guy, I found myself in the uncomfortable situation of trying to get people to work more. A couple of years ago, I was on vacation at the beach and I decided to write a list of my goals for the upcoming year, and I wrote, “Have people work more hours.” I literally wrote this down on a piece of paper with my own hand, and I saw it with my own eyes and I threw up in my mouth. I thought, “I can’t even believe that I wrote that. I’m disgusted with that.”
What made you think that was what you needed?
The challenge of running an effective office that’s profitable and competitive—it was a struggle to be sure that everybody was really getting in at least 40 hours a week of actual, billable work, and that just didn’t feel good to me at all. Then and there, I decided, “You know what? That’s actually not what I want. What I want is for projects to be executed in as efficient a manner as possible, and still be beautiful and still make the client happy and still be profitable.”
At the end of the day, there are only two kinds of companies in the world: You’re either providing a service or you’re selling a product. If you are providing a service, then by nature you are basically selling your time. So if that’s what I’m really selling—my time and expertise and talent—it’s only the efficiency with which I dispense my time that is going to determine the relative success or lack of success of my business. And if you save time, you save everything. You have more time to spend with your family, you have more time to have a life—and you also have more time to go to the next project.
How did you start to apply that thinking to your firm?
In business, it’s helpful when you have metrics. If something’s not measurable, then there’s no way for you to know if you’re doing it right other than seeing your profit and loss at the end of the month, quarter or year. But once you can measure things, you can compare them, or you can see how you’re doing on one particular project. What I really wanted to understand was the firm’s efficiency. But how do you create a standard for that? I know that when this particular person works on a project, they are going to really move that ball down the road pretty rapidly, while another person might be a little bit more plodding, but it always bothered me that I couldn’t find a way to get a handle on [quantifying] that other than [through] profit.
Why is it hard to assess efficiency using profit?
Profit has been sort of homogenized—it’s everybody’s contributions blended together. How can I ferret out if one person is working at a much more efficient rate than another person? Now, I don’t want to look like I’m this miserly guy over here just trying to wring every profitable hour out of every human hand. I’m not that at all—I’m well aware that there’s more to life and more to our work than just being efficient, but it sure is nice to be able to tell.
You also can’t run a business on, “Oh, that feels good” alone.
Exactly. But how do you do it? I’ve never been taught a way. When I was on that beach vacation—I was supposed to be having fun, but instead I was poring over 10 years of numbers, trying to figure out, "How can I analyze this?" Because numbers always tell the truth.
Every time we get in our car, we are aware of our speed because we have this wonderful unit called miles per hour. We can compare that to the speed limit, and we think, “What can I get away with here?” So I thought, “How can I figure out the miles per hour for the work? What are my metrics?”
I realized I’ve got data on time, because I can see that it took this person 1,000 hours to do a project, and it took another person 2,000 hours to do a different project. On its face, that difference sounds terrible, but what’s the missing element? Our projects aren’t all the same size. Well, what if I divided the square footage by the time?
Here’s an example: One team member was able to get through the design process and drawings for a 5,000-square-foot house in 1,000 hours. Well, when I divide those 5,000 square feet by 1,000 hours, it comes out to five square feet per hour. What does that even mean? I didn’t know, but it was a number, so now I can compare it to another number. So then I went to another project, a 6,000-square-foot house that took somebody 2,000 hours to complete. That means they drew at three square feet per hour. Now it’s apples to apples, and I can see that the person with the bigger project was almost half as fast as the other person. Wait—I never say fast. I say efficient, because it’s really not how fast you can draw—it’s about accuracy, thoughtfulness and not having to go back and fix mistakes. If I’ve got somebody who is more efficient—and if I can operate my whole office at a more efficient rate—then I can actually generate more work without burning everybody out. It’s really just a matter of efficiency. So then the question became, How can I monetize this to the benefit of the company and to the benefit of the individual?
What were some of the limiting factors there?
I already pay a salary. We already have the best insurance in the state of Alabama. So how can I figure out a way to incentivize my people, and in so doing make [our performance] better as a company? I analyzed for days, and I figured out that—you’re not going to believe this—the most efficient person in the office was drawing at a rate that was twice as fast as the slowest people. Twice. Intuitively, I already knew who the efficient people were. But now I could prove it.
No emotion, no feeling of, “He likes that person better.”
Exactly. I decided to create an abundance system. I want to reward efficiency, but I’ve got to make the bar attainable. I can’t say, “I want you to draw at some ridiculous rate that nobody could hit.” So I figured out the average rate, and I said, “I’m not going to reward below-average efficiency.” I will reward average, and then I’ll reward above-average at [an even better] rate. And then I’m going to go one level higher than that, and I’m going to reward that at another rate. And those rates are not linear, they’re exponential. I put it all together and presented it one at a time to each person to get their input and feelings.
How did it go?
About as well as you would expect. First, they looked at me like my head was on backward. Then they asked questions. They were like, “What if I get a client who can’t make up their mind?” I said, “Well, what if you do? Let me ask you a question: Would you say in your career that every client you’ve ever had is terrible? Or would you say that some were good and some were bad?” It was the latter. So maybe over time you have a few bad ones. Hopefully, if I’m doing my job correctly, I’m weeding out or reeducating the bad ones to become better ones, at least.
And what happened?
It worked. It motivated them, and they have been paying a lot more attention to where they are and their yard markers. Every week when they enter their time, [they can see] how much time they’ve spent in each phase and compare that to their targets. Now they have a target. It’s fine if you just want to come in and take your time, but the bonus is going to be a lot more meager than if you had worked efficiently.
The numbers I put together were very compelling, and you could really make some serious dough. I also said, “I’m not going to make you wait until the end of the year—we’re going to do this in the middle of the year, and then again at the end of the year,” which works out great because most of our projects last about six to eight months. I break it down by phase, so even if you’re only done with design development when it’s time for bonuses, I will bonus you based on your performance for design development. When you finish the construction drawings in the second half of the year, you’ll get a different bonus for the part of the project that’s left—even if you struggle on one part, it doesn’t eliminate you from being successful on another part.
Did this apply to your team members across the board?
Yes. I had to come up with different numbers for the interior design part of what we do because they had a very different rate of drawing, but it was still measured in hours per square foot.
Did it work? And how did you feel the difference?
I paid out about 50 percent more in bonuses than I ever had before. But at the same time, our profitability was great—I couldn’t tell you if our profitability was that much higher, but it was good. And what I love is that my people are making more money, but they’re also incentivized by the right things and it is totally up to them. It has nothing to do with whether I like you or not. And I just feel like that’s fair.
The fact that the company paid out so much more in bonuses last year than it did the year before only shows me that they’re benefiting from it. That they’re succeeding, and that I didn’t set the bar too high. I’m getting ready to do the bonus calculations again as we close out the second quarter, and it’ll be interesting to see how everything went this time.
After this payout, do you recalculate the average and reset that target?
I did, but I might not every time, and never in such a way that it’s not attainable. I think the natural progression is that we all become more efficient and effective over time, and so whatever that average is, it starts to move up ever so slowly. In any business, you’re either getting better or you’re getting worse. You’re either thriving or you’re dying. There’s no treading water. It’s kaizen—the art of continual improvement.
Do you worry that all those bonus checks might end up outpacing the firm’s profitability?
I’d be lying if I said I wasn’t a little bit worried that all of a sudden I’d be writing out crazy checks to everybody. But I think I stuck the landing. When I started calculating how much we were writing out, I did get a little nervous—it was like, “Damn, this is a lot of money.” But I thought about it and realized, you know, good for them. They did it. And by God, I’m happy for them and for the firm.
Now, the fact that I’ve been in business for 20 years and I just wrote 50 percent more bonuses than I’ve ever written before—I’m sure somebody out there is saying, “Is that really smart? Is that good business?” Some people could question that, but I look at it as: Are the people who work here happy? Are their lives better? Is that good for the firm? Yes. Did we lose money? Did I write so many checks that we weren’t profitable? No. So I think we’re OK.
Can you actually feel that improvement in efficiency in your day-to-day work? Did projects move differently in a noticeable way?
Not really, to be honest. I have great people, and I think everybody was already working hard. But the big difference for me is that now I can measure it. And there’s no question that they’re aware of it too—that they now are looking at their time differently. Before, they just logged their time: “It took me however many hours to do that. OK, whatever, it’s not changing my paycheck.” But now it does. Now there’s some meaning to it. I almost worry that people might underreport their time, you know what I mean? What if they work for eight hours but they say, “Oh, it only took me two hours to do that.” I was almost worried about that, but if they did that, it would all show up on their timesheet.
We touched on this before, but this system also takes the subjectivity out of bonuses.
Exactly. I’m no longer trying to figure out how much I like Sarah versus Bill. How do I know how much money to give them? How do I figure out what their value is? A lot of those things are left to intuition, but it’s great when you have more tools that involve a little less guesswork and a little more cold, hard math. It feels very fair. It feels like when the business is successful, the people who are actually making the business successful are also rewarded, and not just the person whose name might be on the door. You know, they always say thank you when I give them their check, and I say, “Well, thank you, because you earned it.” And that feels good to me.
Homepage image: Jeffrey Dungan teamed up with designer Beth Webb for a family’s Belgian-inspired retreat in Alys Beach, Florida | William Abranowicz