Your Project Manager | Pay Structure and Incentives?

[Ashley O.]

Greetings!

I'm an infill home builder and rehabber in Portland, OR.

We currently focus on higher margin projects and are taking down about 4 projects a year. Anything else that comes across our plate from direct marketing we will wholesale.

I focus on running the business and have a project manager who runs the construction day to day for me.

I currently pay him 2k per month, per project.  I share in the upside of each project with a bonus, but it usually varies.  My project manager and I have a 1099 relationship, not W2.

I'm wondering how others compensate their project managers who have similar business models??  

I think it's time I institute a formal compensation package. I'd like to structure something that gives my PM ownership over the project and gives him strong incentive to build the best possible product that is on time and on budget.  Perhaps build in something to the package that penalizes him for schedule and budget delays that are well within his control?

Curious what others think?  What has worked well for you?

Thanks!

-Ashley

[J Scott]

Originally posted by @Ashley O.:

My project manager and I have a 1099 relationship, not W2.

I'd be careful about that relationship.  Make sure you're not providing any tools, make sure you're not dictating hours he works, make sure he is allowed to sub-out his duties to others, make sure he does work for other investors, etc.  

If you're not doing those types of things, the IRS is likely to classify him as an employee, and you'll be on the hook for withholding and back FICA payments.  Also, if he gets hurt on the job and you don't have workers comp to cover him, you could end up in a nasty lawsuit.

Basically, consult a good employment attorney unless you're 100% comfortable with this structure...