The SOP: What’s the Best and Most Effective Pay Plan for Technicians?
Cecil Bullard is the founder and CEO of The Institute for Automotive Business Excellence in Ogden, Utah. A veteran in the auto care industry, Bullard has run many successful shops and now lends his expertise to helping other shops succeed.
Ratchet+Wrench spoke to Bullard to find out how fledgling auto repair shop owners—those in operation for less than two years—should approach creating and implementing pay plans for their automotive technicians.
As told to Chris Jones
In my experience, the best pay plan for shops is a performance-enhanced plan with a base and bonus structure. Before you start, it's important first to understand what you can afford to pay for each position and what the employee needs to do to earn that pay. Once you understand that, you take 60% of the available pay and give it to your technician as a base, hourly/salary. You should then build 40% of the available pay for the position into a bonus structure for achieving the specific goals you want them to achieve and for doing the job that you want them to do. It also helps to have a good job description, so everyone understands what they're supposed to do.
You will need to determine what you want from a tech. I want a certain number of hours, a high quality of work, and I want my tech to be educated and have whatever certifications they can to prove that they know what they're doing. If that's what I need from a tech, then the bonus is going to be structured around those three things. And the more hours they produce, the more money I can pay them. You should then meet with them about the goals for the position and get their agreement.
It used to be we had hourly and flat rate. Flat rate puts the burden on the employee and hourly puts the burden on the shop. Hourly rarely motivates. Hourly says, “It doesn't matter what I do I still get paid.” Flat rate can be a motivator for some people, but it's also can be a demotivator; it demoralizes some. Some coaching companies talk about lowering the tech's pay or putting them on a flat rate so that when they're not performing, it doesn't cost the shop, but now you have a bunch of underpaid people who are underperforming and unhappy in your business. It’s just not a good pay system and in some States, it won't meet their minimum standards.
The Numbers
For the shop to be profitable, if I'm paying a base pay, there's a minimum number of hours that need to be produced. If you look at paying 40% of your effective labor rate, let's say your effective labor rate is $120, which will leave $48 an hour to pay your technician. I would take the benefit costs out, around $8 an hour, and have $40 an hour to work with. I would give the tech $28 or $30 an hour as a base hourly pay, and then build a $12 to $14 an hour bonus structure, based on the performance I want.
The Caveat for Newer Shops
Paying techs will get easier when you have a consistent enough business where a technician can do at least 40 hours a week. Brand-new shops should be careful. You’ve got to build car count, average repair order, and may have a tech you’re paying a base salary of X ($1,000 a week) for three, four, or even six months before you get to the point where you can really afford the bonus. If you haven't built the clientele to stay consistent, you’re most likely to pay a guarantee and lose money on that technician to start. You also need to pay a competitive rate because you need a good tech. If you can't pay a competitive rate, you’re unlikely to get a good tech and you’re likely to struggle with quality of work issues and comebacks.
Now, let's say the average shop in the United States is $130 an hour, and I can afford to pay 40% of that out to a technician but I'm a new shop starting out. You may not be hiring a super-tech or you might be that tech, so you may not be paying $40 an hour. You might start a b-tech out at $30 an hour and guarantee them 40 hours ($1,200 bucks a week) no matter what they produce. Hopefully, at some point, they will be doing 40 hours or more. At this point, you can look back and say, 'I'm not going to raise your base rate from $30 an hour, I'm going to take the guarantee away and the $30 an hour is going to come to you because you were here for 40 hours. So, you're still making $1,200 but now there is a bonus structure on top of that that has to do with your productivity, your education, and your lack of comebacks where I will pay you another $12 an hour because when you're producing 40 hours, I'm making enough money, and I can do that.'
There are some important rules around pay plans to keep in mind. First, never pay something to somebody that they have no control over. (You don't want to pay a tech based on margin because they don't control margin). Second, if you're going to put a bonus structure in place, make sure they can earn it first. If you have only 30 hours a week in your shop and you put a bonus structure starting at 40 hours, your techs will say, “Wait a minute. There are only 30 available hours, and you're telling me I get a bonus if I get 40? I can never earn it.” If you put a carrot in front of them that they can't get, it's frustrating. Third, make sure the bonus is enough to motivate behavior. You can't have a $1 an hour bonus because if I'm a good tech and I'm putting out 50 hours and you say I'm going to give you an extra dollar an hour at 50 hours, it's not enough to motivate me. But if you say you'll get another $10 an hour at 50 hours, that will motivate me. Next, you must have a good reporting system that documents and displays what they're doing. If my technician’s bonus is based on hours produced, on Wednesday they need to know how many hours they’ve produced so that by Friday they can earn their bonus.
Don't overcomplicate your pay plan, keep it simple, and make sure you have a system of documenting what's going on that both the employee and the owner can see. You don't want it to be a surprise for them on Friday when they don't get their bonus.
