Technician Compensation—How to Stay Competitive
A look at different (and better) programs
By Jeff Morgan
Staffing a tire dealership has never been an easy feat. You need to maintain a skilled workforce out of a limited supply of qualified people. That problem has existed for many years, but lately it has become even more difficult.
Wage pressure and the fight for talent is not only hitting us from inside the industry, but it is also coming from other places like never before. The need to find and develop the right people is a high priority. However, if we are going to attract and keep those people, we must be willing to compensate them.
There are various different compensation plans that are used today. Being creative in finding new ways to reward production and quality are even more important than ever. Paying a straight hourly wage is just not going to get you what you want and need, nor will you be able to truly be competitive in today’s heated “wage wars.”
Before I get into different types of compensation plans, I feel the need to focus on those technicians whom you are training and providing with new skills.
During my career, I have too often seen one of two things happen. First, many dealers refuse to train their staff because they are afraid those employees will take those skills to the competition. Which is worse—training someone and losing them or keeping untrained, unskilled workers? In this market, you cannot survive if you are not developing your people.
Second, we often do not compensate technicians for the new skill level that they are at. And we are slow to give them an increase to pay them what someone with these skill sets would make on the open market. We try too often to save a buck or two here or there. Granted, if you invest in their development, they generally are less likely to leave, but only if you pay them fairly for what they can do. And the cost of trying to hire someone new to fill those shoes will likely be significantly greater than what you should be paying them now anyway!
Now that we understand the need to pay people appropriately for what they can do, let’s discuss ways to do it. As I mentioned previously, paying a straight hourly wage is really not going to be competitive anymore. On top of that, you are giving your technicians no incentive to perform at their best capacity.
Flat rate is a good program for top producers, but there is always the concern that average producers might get scared of an inconsistent paycheck and the possibility of poor weeks.
One solution that can help here is implementation of a hybrid between the two programs. In this compensation plan, the tech has a base hourly rate. This is what they get paid for the hours that they clock, including overtime. Then they get an additional rate on top of that for flag hours produced.
Let me give you an example. Instead of paying a tech $26 per flag hour, perhaps they get $18 per clock hour and $8 per flag hour produced. This not only protects them during slow weeks, but also provides them with a strong incentive to maximize their productivity.
Let’s say in this example that the technician clocks 40 hours and flags 35 hours. His pay for that week would be $1,000 ($720 on the clock and $280 from flag hours.) If you paid the technician straight flag hours, his pay would be $910. What if that technician clocked 40 and flagged 50? In this case, his pay would be $1,120. Granted, the technician would make more in straight flag hours, but for those techs that are always teetering on 100 percent productivity, this provides a more consistent paycheck, while still incentivizing them to do more.
Also keep in mind that the money produced for the flag hours would also need to be taken into consideration for the effective rate calculation if overtime comes into play for the overtime rate calculation.
You can also use a program like this to incentivize technicians to increase their skill sets. You could add dollars to the flag hour production, based on learning new skills or gaining certain certifications. In the previous example, perhaps you can add $2 to the flag hour production, bringing it to $10, if they obtain their refrigerant certifications to work on air conditioning systems.
Another possibility would be to add $1 to that number based on ASE certifications. The choice is yours, but the idea is to give employees a tangible reason to improve their skills and abilities.
This same concept can be used with your tire technicians or lube technicians. They would have a lower base hourly rate, but you could add an incentive for billed hours. Perhaps after they complete a 30-day orientation period, they start getting $2 per billed hour. Then if they complete various training programs—such as industry e-learning modules—additional money can be added. The same basic premise here applies—as they grow their skills, they grow their paycheck.
Another possible compensation program to consider is to bonus technicians based on the performance of your overall business. This would be on top of whatever their base program is. The goal of a program like this is to foster a sense of urgency and teamwork to complete work. Technicians are more likely to help each other out in order to get jobs done accurately and efficiently.
The easiest way to do this bonus program is to base it on sales dollars collected. However, you could do it on gross profit dollars collected, if you prefer. The idea is that a bonus dollar pool is created to be shared. For example, let’s say you do $35,000 in sales each week. If you create a bonus pool based on 2.5 percent of sales per week, then the bonus pool for that week is $875. You can choose whatever calculation you want to determine the amount of the pool, but just make sure that the calculation method remains consistent.
You also have a choice on how to distribute this bonus pool. One option is to split the bonus equally between all technicians in your shop. Another is to divide it based on hours worked or hours billed. In other words, technicians that either worked the most hours or produced the most billable hours will get a bigger piece of the pie.
A third option is to divide the bonus based on technician level. For example, if you have eight technicians, your top one gets 25 percent of the pool. The next two technicians will get 20 percent. The entry-level technician gets 15 percent. And the tire and lube technicians each get 10 percent.
Regardless of what you base the bonus pool on or how you wish to distribute, I recommend that your program be based weekly. While I realize that this creates a bit more work, the idea of making this bonus weekly keeps it top of mind for your technicians and that makes it more impactful. The more immediate the reward, the more likely your technicians will work to impact it, which is the ultimate goal. Again, remember to include these earnings into effective rate overtime calculations, should that come into play.
Your technician compensation programs should be designed with four main things in mind. First, is it fair and equitable in the marketplace? If not, you will have a consistently revolving door of technicians coming and going. This is significantly more expensive to your business than paying more up-front. You will also likely be settling for less than what your business needs with regards to skill sets.
Second, the program should allow your technicians to earn more as they become more productive. This puts their paycheck in their hands and allows them to make what they are worth. As they earn more, the business earns more. This is what you want. And it will keep your business healthy and your technicians happy.
Third, you need to make sure that your technicians fully understand how they are compensated. Too many only see dollars per hour and not the whole package. They need to understand the various factors that can impact their earnings. And you need to help show them how to maximize what they earn. Help them understand that their earning success equals your success, so you want them to excel.
Finally, you need to remain a businessperson. This means that you still need to manage the payroll of your business. It has been suggested that total payroll for any single location should not exceed 45 percent of gross profit. This includes sales and management of the location, along with technicians.
This also means that you need to find a good balance. Being more production-based in compensation will certainly help. And finding a good balance also means that you need to control overtime spending.
However, the biggest thing you need to do is make sure you are collecting what you are worth in sales. Do not be afraid to raise your labor rate, when needed. Look at your package prices and make adjustments, as appropriate. Make sure you are collecting proper margins on your parts and tires.
Your business success is predicated on the experience your customers receive. This is a direct reflection on the people within your business. Making sure that you attract and keep the right people doing the right things is vital. Your compensation programs are part of that equation. Make sure you give that as much attention as you would give to any other part of your business. The better you become at retaining your best people, the better it will be for the long-term health and continued success of your dealership.
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Tire industry veteran Jeff Morgan is the executive director of TEN (Training and Education Network), including the DSP (Dealer Strategic Planning) 20 Group. He can be reached at firstname.lastname@example.org or 651.846.9871. For more information, see 20DSP.com.
This article is part of the MTD Tire Dealer Survival Guide series. As more articles are released, they can be found below: