As the utility industry continues to evolve, with growing demand, aging infrastructure, and increased pressure on service quality, one factor stands out as critical for success: how do you motivate your contract crews.  

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Traditional fixed-rate or day-rate contracts often fail to align crew behavior with the company’s long-term outcomes. That’s where profit-sharing and performance incentives come in. A shift that can transform contract crews into invested teams, driving efficiency, accountability, and shared success.

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‍The old way of working  

Under legacy contracting models, crews are usually paid fixed daily or hourly rates. While predictable, these models share three key drawbacks:

• Weak alignment of incentives: Contractors get paid irrespective of quality, efficiency, or outcomes.

• Low accountability: There is little financial consequence for delays, waste, rework, or sub-par performance.

• Minimal motivation for excellence: Once the minimum required output is met, there’s no extra benefit for doing better.

For utility work, where safety, reliability, timeliness, and cost control all matters, these limitations can lead to inefficiency, mistakes, and fractured accountability.

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‍How Performance Incentives and Profit-Sharing Realign Goals

By contrast, an incentive-based or profit-sharing contract aligns the contractor’s success with the utility’s success.  

According to research and industry practice:

• Incentive contracts such as cost-plus–incentive-fee (CPIF) or shared-savings models reward contractors for efficiency, quality, and timely delivery, not just hours worked.  

• Contractors assume more responsibility for outcomes and thus have a real stake in performance, safety, and cost-control.  

• Performance-linked incentives (PLI) encourage continuous improvement: better productivity, fewer delays, safer execution, and overall reliability.  

Essentially: when contractors know their compensation depends not just on hours but on results, they act more like partners and not just hired hands.

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What Contract Crews Gain and Why They Stay

Implementing profit-sharing and performance incentives for crews delivers benefits on multiple fronts:

• Crew members see direct benefits from improvements, efficiency, and quality.

• Incentives push for speed and reliability, reducing rework or delays.

• Since incentives are often tied to safety metrics, crews are more likely to follow protocols.

• When crews feel invested, they’re more likely to stay, reducing turnover and onboarding costs.

In industries beyond utilities, for example, construction contractors who adopt performance-based pay report higher crew output and better engagement.  

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How should Utilities Structure Incentives — Best Practices

To get it right, incentive-based or profit-sharing contracts must be well-designed. Here’s how:

• Define clear, objective performance metrics. e.g., job completion time, quality standards, safety compliance, minimal rework.

• Use shared savings or bonus pool models, where contractors benefit when projects come in under budget or ahead of schedule.  

• Balance incentives across cost, quality, schedule, and safety. Avoid overemphasis on speed alone, which can prompt shortcuts.

• Maintain transparency and trust. Clear documentation, audit trails, and fair payout mechanisms help avoid disputes.

• Incorporate long-term incentives for repeated good performance. Contractors who consistently deliver quality on time benefit more over the lifetime of the contract.

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‍Risks and How to Guard Against Them

Like any contract model, incentive-based agreements come with risks. But they can be managed if designed carefully:

• If incentive criteria are poorly defined, contractors might cut corners or prioritize speed over safety or quality.  

• Overemphasis on cost savings can lead to under-investment in safety, maintenance, or quality.

• External factors outside a contractor’s control (e.g., supply delays, regulatory changes, unreasonable scope shifts) can unfairly penalize them.

To mitigate these, utilities should ensure that they balance performance criteria, allowances for unexpected external factors, and the audit mechanisms.

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‍Why Incentive-Aligned Contracting Is the Future of Utility Workforce Management

As demand on utilities grows through storms, accelerating infrastructure upgrades, distributed energy integration, and workforce attrition are needed. They need contract crews who think long-term, who care about safety, quality, and client reputation.  

Incentive-aligned contracting:

• Converts contractors into vested partners

• Encourages continuous improvement rather than minimal compliance

• Improves productivity, lowers costs, reduces rework

• Supports better safety outcomes and compliance

For most utilities, the choice isn’t between “contract or in-house.” The distinction will be between contractors who are truly aligned, and contractors who aren’t.

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‍Final Thoughts!

Profit-sharing and performance incentives are business frameworks for trust, accountability, and shared success. In a world where grid reliability, storm response, and operational excellence are non-negotiable, aligned incentives ensure every hour, every crew, and every work order counts.

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In the first episode of From Boots to Boardroom, Darrell Hallmark brushes upon this topic. Listen to the full conversation about utility leadership here.