1155

JUNE RELEASE 2016 INCENTIVE COMPENSATION SURVEY Incentive compensation is an important aspect of attracting and keeping the right candidates for employment. What are peer companies doing? How many people participate and what percentage of the compensation budget is variable? What segments or specialties are seeing success with incentive plans? What incentives should your firm implement and how?

MARK ZWEIG, from page 1

divided by net service revenue times 365. E.g., a company with $5 million in NSR and a $3-million backlog has 219 days of backlog. ❚ Direct labor. The dollar amount of raw labor charged to active jobs or projects. ❚ Total labor. The dollar amount of total raw labor. ❚ Utilization rate. Total direct labor dollars over total raw labor dollars. E.g., a firm has total direct labor of $2 million with total raw labor of $3 million. The utilization rate is 66.67 percent. Some people calculate this as total direct labor hours over total labor hours, but this is not correct! ❚ Effective labor multiplier. NSR divided by raw direct labor dollars. E.g., a firm has $5 million in NSR with $2 million in direct labor. Effective labor multiplier is 2.5. ❚ Target labor multiplier. Projected NSR divided by projected raw direct labor. A hypo- thetical number that may or may not become reality. ❚ Revenue factor. Net service revenue divided by total raw labor, OR utilization times effective labor multiplier. E.g., a firm with NSR of $5 million and total raw labor of $3 million has a revenue factor of 1.67. ❚ Accounts receivable (AR). The total dollar amount of all bills sent out but as of yet owed to you by clients. ❚ Average collection period (ACP). The time it takes you, on average, to collect on an invoice. Expressed as days outstanding. Total AR divided by annual gross revenue times 365. E.g., a company has a total AR of $1 million and does $6 million in gross revenue. ACP is 60.8 days. ❚ Work in-progress or work in-process (WIP). This is the total value of work performed that has not yet been billed to clients. Usually expressed in days of unbilled revenue. Un- billed revenue divided by annual net service revenue times 365. E.g., a company does $5 million NSR and has total unbilled work of $350K. WIP is 25.5 days. ❚ Overhead rate. Total costs less total direct labor divided by total direct labor. E.g., a company has $4.5 million in total costs with $2 million in direct labor. Overhead rate is $4.5 million minus $2 million divided by $2 million, or 1.25. Usually expressed as a per- centage, this would be 125 percent. ❚ Accounts payable. Total of all money you owe your subconsultants and suppliers. ❚ Current assets. Cash in the bank plus accounts receivable on a specific date. ❚ Current liabilities. Accounts payable, accrued payroll (money people have earned but not yet been paid), and other short-term obligations. ❚ Current ratio. Total current assets divided by total current liabilities. ❚ Income statement. Total income less total expenses equals profit or loss. Covers a pe- riod of time – usually a month, quarter, or year. ❚ Balance sheet. Total assets minus total liabilities equals owners’ equity or “book value.” Calculated at a specific point in time – usually month end, quarter end, or year end. A “snapshot” view of the firm. ❚ Accrual accounting. Revenue is based on revenue earned, whether or not it has been billed or collected, and expenses are based on expenses incurred, even if the company hasn’t received a bill for them yet. ❚ Cash basis accounting. Revenue is based on money received by the firm (cash in) and expenses are bills that have been actually paid (cash out). Cash basis accounting is how one keeps their checkbook. MARK ZWEIG is Zweig Group’s founder and CEO. Contact him at mzweig@zweiggroup.com.

1200 North College Ave. Fayetteville, AR 72703 Mark Zweig | Publisher mzweig@zweiggroup.com Richard Massey | Managing Editor rmassey@zweiggroup.com Christina Zweig | Contributing Editor christinaz@zweiggroup.com Sara Parkman | Editor and Designer sparkman@zweiggroup.com Megan Halbert | Design Assistant mhalbert@zweiggroup.com Liisa Andreassen | Correspondent landreassen@zweiggroup.com Tel: 800-466-6275 Fax: 800-842-1560 Email: info@zweiggroup.com Online: www.thezweigletter.com Twitter: twitter.com/zweigletter Blog: blog.zweiggroup.com

Published continuously since 1992 by Zweig Group, Fayetteville, Arkansas, USA. ISSN 1068-1310. Issued weekly (48 issues/yr.). $475 for one-year subscription, $775 for two-year subscription. Article reprints: For high-quality reprints, including Eprints and NXTprints, please contact The YGS Group at 717-399- 1900, ext. 139, or email TheZweigLetter@ TheYGSGroup.com. © Copyright 2016, Zweig Group. All rights reserved.

THE ZWEIG LETTER June 6, 2016, ISSUE 1155

Made with FlippingBook Annual report