Selecting a Technician Pay Plan
Figuring out the right payment strategy for technicians can be a complex decision. There are upsides and downsides associated with every payment plan, and each one carries its own set of business implications. The various options can all work in a variety of shops, but not all of them will be ideal for your specific location.
“There are pros and cons to everything. The plan has got to be based on your business model and fit your needs,” says Scott Wheeler, president of Automotive Consultants Group Inc. in Atlanta. “You need to identify a balanced pay plan that will hold margins and motivate employees. It has to be a win-win for everybody involved.”
There is no one-size-fits-all formula to understand the best payment plan for your shop, and there are countless hybrid strategies shop owners can use to pay technicians. But there are a few factors to assess to help make the best possible decision.
Wheeler and Dave Schedin, president of CompuTrek Automotive Management Systems, offer 13 tips to help you identify a proper pay plan that fits the needs of your business.
Know Your Numbers
Shop owners need to understand the exact amount of finances available to pay technicians, Wheeler says. Develop a comprehensive understanding of your profit-and-loss statement, and know your total operating expenses and costs of sales.
Forecast Financial Performance
Develop a clear direction and vision of where you want the business to go from a financial perspective, Schedin says. Set 12-month goals for work volume, revenue and profitability.
Forecast your gross profit for labor, parts and sublet to ensure your pay plan matches your profitability and personal income goals. With any pay plan, shop owners should generate a 68–72 percent gross profit margin for technician labor to be a viable option, Wheeler says.
Consider Your Shop’s Culture
Think about the environment you want to create for your shop, and the amount of engagement you desire between members of the team, Schedin says. Shops that want to develop high levels of teamwork and camaraderie, for instance, might consider adding a team-based incentive to the pay plan as well. One effective strategy is to set a benchmark for the number of billable labor hours the entire team needs to produce each month, and establish a financial bonus to divide among each team member when that benchmark is achieved.
Identify Staffing Needs
Calculate the work volume and number of billable labor hours the shop needs to generate each month to achieve your financial goals. Divide the number of billable hours by your average technician efficiency; that tells you exactly how many technicians are needed to produce your desired work volume, Schedin says. Then, identify the amount of work that each technician in the shop needs to produce to hit those production goals.
Set Productivity and Efficiency goals
Outline the number of billable labor hours each technician should produce on a monthly basis, and at what level of efficiency, Schedin says. Shops should strive for above 100 percent efficiency levels among all technicians.
Shop owners who want to improve technician efficiency might want to consider a pay plan more heavily focused on work production, Wheeler says, such as a flat rate strategy. Flat rate plans help shop owners hold labor profit margins more effectively because the business isn’t penalized for inefficient work or time spent on comebacks. If a technician takes five hours to complete a 3.5-hour water pump replacement, they still only get paid for 3.5 hours.
In addition, technicians are motivated to strive for constant improvement since they are paid based on work efficiency, Wheeler says. There is tremendous incentive for technicians to get additional tools, equipment and training, and complete repairs quicker than the time guide suggests.
Create an Incentive Structure
The essence of an effective pay plan is to engage employees to perform the way you want them to for the best interests of the company, Schedin says. They should qualify for incentives—such as monetary bonuses, wage increases, or even small gifts—when they reach established benchmarks.
Basic salary and hourly pay plans that don’t include incentives simply swap time for money, Wheeler says, and generally don’t produce high rates of productivity or efficiency. There is no benefit or motivation for technicians to work faster, smarter or harder, which can lead to “clock-milking” problems.
“It doesn’t matter whether they bust their butt or sleep—they get paid the same amount for one hour of work,” he says, which can lead to low productivity and costly overtime payments. Pay plans that include performance-based incentives typically produce better results.
Understand Employee Motivation
Not all technicians are motivated by the same things. Some technicians are motivated by money, while others are motivated by paid time off or personalized gifts. Shop owners need to get to know their employees to find out what makes each technician “tick,” Schedin says. Conducting personality profile assessments and one-on-one technician meetings are effective tactics.
Be Careful About “Guaranteed” Pay
Lost production time is the biggest problem associated with pay plans that guarantee certain amounts of compensation, such as salary pay plans, Wheeler says. Technicians are paid the same amount regardless of whether they’re actually at the shop. If technicians miss work time for any reason, you could end up paying labor costs when billable work isn’t being produced.
He says plans that offer guaranteed amounts of pay are not good for shops that have technicians with attendance issues or who lack self-motivation. Some technicians will operate at the lowest acceptable level of performance before they start generating negative feedback because there is no financial penalty for causing a backlog of work.
Understand Work Consistency
Although production-based pay plans help motivate technicians, they don’t work in shops with inconsistent amounts of work, Wheeler says.
“Technicians always want to know how much work you have available for them because they might only get paid when they produce billable hours. Technicians can earn $35 an hour, but it’s not going to work if they only generate 20 billable hours per week,” Wheeler says. “If the shop is empty, they are going to walk away and you’ll have a revolving door of technicians.”
Allow Room for Growth
Pay plans should be designed to grow technicians, and motivate them to improve the sustainability of their career. So assess your staff and understand their career goals, Wheeler says.
For example, hourly pay plans might work well for C-level technicians who are changing tires and oil and have no desire to rise above that level, Wheeler says. But if your shop is filled with more motivated A- or B-level employees, owners will need to consider a strategy that allows for financial growth over time. Highly motivated technicians generally want to earn extra money, and will eventually ask what they need to do to make that happen. If there is no way for the technician to make additional money, they will likely lose work motivation and potentially leave your shop for another position.
You might consider increasing rates for production or training-based achievements to reflect the value technicians offer to the shop, Wheeler says.
Consider Technician Responsibilities
Outline the work requirements you have in place for each of your technicians, Wheeler advises. Technicians who have responsibilities and duties that regularly take them away from production time should be compensated differently.
For example, you might have a lead technician responsible for overseeing production numbers, which requires them to dedicate a portion of time helping other technicians. Those individuals should be offered additional financial benefit beyond the plan that other technicians receive.
Tailor the Plan for Individuals
Technician pay plans should be individualistic—what you offer to one technician does not have to be offered to everybody, Schedin says. You might offer a similar benefits package to each employee, but their actual wages don’t need to be the same or calculated using the same strategy. Develop a pay system based on each technician’s value to the company. Assign monetary values to seniority, years of service, skills, expertise and training.
Don’t Make It Complicated
The pay plan should be relatively simple and easy to administer, and be efficiently measured and tracked by bookkeepers, Wheeler says. Don’t make it too complicated, and ensure it’s clearly understood by everyone.
A Hybrid Plan
It’s likely that just one of the industry’s basic pay plans—hourly, salary, flat rate, commission or team system—by itself is right for you. It might require combining concepts from a few plans to create the employee satisfaction, productivity and culture you’re looking for.