REPAIR SHOP MANAGEMENT: INCENTIVE PAY PLANS

February 10, 2010

By Terry Keller

If you are finding yourself somewhat resistant to reading this article because of its title, you are exactly the shop owner who needs to read it! If your employee pay plans have little or no incentives in them, I’ll bet your team’s productivity and your profits are lower than you want or are on a serious roller-coaster.

Even if you do have an incentive-type structure set up for your employees, are you sure they’re truly incentives under all circumstances and don’t have accidental disincentives built into them that some of your people resent?

Learning from my Many Mistakes

As I state in many of the articles, blogs, and classes I write and teach, I have learned most of my lessons in life and business from making mistakes and comparing those experiences to better ways.

I have probably made every mistake you could think of when it comes to employee relations and compensation.

For example, back in the ’70s, I had a crew of 12 full-time and part-time employees in my 3-bay Texaco station. At the end of one of those years my bookkeeper sent out 102 W-2’s.

It would be difficult to cover all of how I had a poor grasp of how to hire, lead and compensate team members here in one blog, so let me focus on what works and why relative to incentive pay.

Better Employees Start with Better Pay Plans

In a recent blog I detailed the principles of Repair Shop Management: Hiring and Retaining Quality People”. Making the transition to better, more capable employees changed my business and my life forever! But this change could not have been sustained without applying true incentives and compensation plans that worked!

I suspect some of you are still resisting this idea.

Why?

Could these be some of the reasons? Maybe it’s that…

You have been taught by someone that incentive pay plans cause too many problems.

You tried it and it failed.

You have concerns that your measurement systems are not accurate enough to sustain this type of plan.

You might believe plans like this can become a source of misunderstanding because they are complicated.

You think incentive pay plans are too much work.

You’re not sure what to put incentives on for each type of position.

Certain employees have resisted or even threatened to quit if you take them off salary or hourly (and isn’t it always the case that these are the same employees who don’t follow the rules or who “own you” in other ways?).

You’re afraid you’d have to pay your people too much.

As a shop owner who is or was a tech, you’re afraid your techs won’t make enough to pay their bills.

You feel like an incentive pay plan will create motivation for your employees to over-sell.

The list could go on, I’m sure. There are always reasons not to do something, so let’s change the focus…

Why should you install the right incentive-based compensation plan in your shop?

Producers thrive on incentives. High-quality, responsible employees thrive not just on motivations like incentive pay, but also on other incentives, like: the chance to be heard and have a say; the possibility for training and advancement; recognition by management, peers and customers; and even the opportunity to fit in with the rest of the team. In other words, they want an opportunity to grow in every way using a clear career path set forth by company leadership.

High-quality people want to excel. They love competition and want to know if they are winning or losing the game each day. Keeping score and having targets are important to them.

Incentives create team enthusiasm. There is no better way to promote team enthusiasm than through team incentives.

Incentives sustain high production. Unless your team is on a good incentive program you cannot sustain high production over time. Without incentive, your team simply will not go the extra mile when you need them to do so like on big days or during the summer months.

In other words, using incentive pay plans in your shop can make a huge difference when it comes to hiring and retaining quality employees, and growing your shop all year long. But an incentive pay plan isn’t without its pitfalls.

Here’s what to watch out for…

Don’t make the plan too complicated. Each employee should have a very good understanding of where they stand each day and exactly where they stand each week. You must have simple daily reporting that allows them to know this within a couple of minutes of review.

Only incentivize people on what they can control. Don’t pay them on things they cannot control or on things you have not given them full authority to manage.

Don’t set targets (bonus trigger points) that are too low. Doing this turns incentives into entitlements. If it’s just part of their “regular wages,” an incentive pay plan will have little impact on their behavior or motivation.

Don’t set targets that are too high (unrealistic or unattainable). This creates discouragement and resentment, which is exactly the opposite of what you want!

As with every other system in your shop, you must measure to see if you are getting the improvement and the results you want. There are many voices out there telling you “what to do” and “what not to do,” and it can get pretty confusing at times.

Doubly so because the advice offered by “experts” often has some validity to it. What it comes down to is this: if the expert you’re taking advice from does not teach simple ways to measure results or offer real-life solutions for fixing things that aren’t working (in this case, your pay plan), then it doesn’t matter how valid their theory seems.

In the end, it’s just a theory that doesn’t work, and your sincere effort to follow it won’t ever make it work.

I have seen many, many pay plans that didn’t work. Some of them backfired and became disincentives, others were so weak or confusing there was no motivation to work.

To develop exactly the right pay plan for every position in the shop is an involved, delicate, and even dangerous proposition. If any piece of raw data is not considered correctly or is left out, it will cost you money and production and can wreak havoc with your team.

On the other hand, in my years of trial and error, I’ve developed a handful of pay plans that do work well and have continued to work well over several decades.

I am still proving and improving them in my shop and dozens of client shops today. In other words, it is well worth the time, effort, trial and error you spend working on a pay plan that works for you.

One Final Word of Caution

You must develop incentives and incentive pay plans for your entire team and install them together (or at least within days of each other). Otherwise, the different positions or departments may work against each other. This will create production bottlenecks and chaos and will kill morale.

Be careful not to install personal production incentives that create too much competition between each tech or between service writers. You must also install checks and balances to ensure integrity and honesty in every job position so that over-selling does not occur and is not rewarded.

I could go on and on, covering topics like when to and when not to install minimum guarantees and how long they should remain in place; or how to address the timing and method of resetting targets as your business grows over the years; or how to keep your total payroll cost in correct proportion to total sales as monthly sales fluctuate or as they grow over time.

But really, there isn’t enough space here to detail everything you must consider.

You Can Do It!

Let me leave you with a word of encouragement: I can tell you from years of experience that these and dozens of other “unseen” hazards or disincentives can be avoided so that your pay structure protects you, your profits, the business, and your employees.

If done correctly, an incentive pay plan can transform your shop, grow your profits, build an incredible team, and change the way you do business! It’s an exciting thing, once your hard work creates an incentive pay plan starts to pay you back!

As I’ve said, there’s not enough space in this or dozens of blogs to write about everything there is to know about incentive pay plans. If you want to know more about what I’ve learned about creating good incentive pay plans, give me a call at 866-826-7911 or drop me an email over on the contact page!