Editor’s Note: You are currently reading Part 1 of “Boosting Employee Performance with a Compensation Program.” In Part 2, Bob Clements details how to initiate a new compensation program into your workplace.

Why Have a Compensation Program?

One of the biggest mistakes that I see made in dealerships across North America is how employees are compensated. As I work with dealers, I encourage them to re-evaluate why they pay their employees the amounts that they do, and if the compensation plans they use generate the right results.

I can’t tell you how much money I have wasted in the 25-plus years that I have been in business because of compensation programs that just didn’t deliver the results I needed from my employees. In most cases, I overpaid for the results I received — which left me feeling a little bit foolish at the end of the year. I was working more hours than anyone else, but was making less money in some cases. Yet, I had all the risk!

I believed then that if you paid employees well, they would appreciate what you were doing for them and work harder to help make the business a success. I was wrong. In all but a few circumstances, I paid out more, but got less performance and whiny employees who didn’t appreciate what I had done.

Create a High Performance Dealership with Bob Clements is a new series brought to you by Yanmar.

More from Bob Clements

Yanmar — Don’t settle for less when you can have more. For example, Yanmar makes all its compact tractors’ major drivetrain components – the Yanmar engine, transmission, and axles — in-house. Because they’re made to work perfectly together, you and your customers get a hardworking machine with more usable horsepower, less power loss, and a smoother, more comfortable ride. Yanmar’s tractors are designed to work as hard as you do for a lifetime. Strengthen your dealership with Yanmar today: AgMarketing@yanmar.com or call 770-877-9894.

As I work with dealers today, I take the lessons that I learned and help dealers apply them to drive the performance and, ultimately, bring success. I have found that with the right program that is measured on a daily basis you can improve both the performance of your technicians and enhance the experience your customers have with your dealership.

If your goal as a dealer is to grow your profitability and to have your customers tell their friends about the positive experience they had with your service department, then creating a compensation program that works is critical to your success. To make any compensation program work — you have to start with a baseline and understand your current situation. Knowing your baseline will give you a point of reference so you can quickly measure your success, or lack of success, on a daily basis and make adjustments as needed until you get the performance you are striving to achieve.

For the short term, run a simple baseline against your recovery rate. The recovery rate is simply a measurement of how many hours a technician is billing on a daily basis versus the amount of time you are paying them for each day. For example, if a tech is paid for 8 hours and he or she bills out 8 hours that day you would be recovering 100% of their time. If you pay them for 8 hours and they are billing out 4 hours, you are only recovering 50% of their time. To be profitable, you need to be recovering at least 85% of a tech’s time on a daily basis.

If you have business management software, it should be simple to run a report that will give you the information. If you are not using software or at least not having your techs clock in and out on work orders, then you are going to have to do a little manual work. I would encourage you to start by looking at the total amount of labor you sold over the last 30 days and divide that by your posted labor rate. You will now have the total number of hours of labor that were billed out of your shop. If, for example, you found that you had billed out 160 hours of time and you had one tech that you paid to work for 160 hours last month (40 hours per week for 4 weeks) your shop would be recovering at 100%. You should be happy because you are going to make money.

On the other hand, if you find that you billed out 160 hours of time but had two techs each who were paid for 160 hours, then you paid for 320 hours but only recovered 160. Your recovery rate is 50%. Regardless of what you find, you now have a baseline to help you measure whether your compensation program is working.

Evaluate Your Processes

Once you have measured your current recovery rate, you are forced to think about the “killers” of time that plague a service department. Time wasters become time killers because of the lack of strong processes. If you take nothing out of this but the understanding of the importance of strong processes, then I will have succeeded in moving both you and your techs toward a higher level of efficiency and profitability. The better and more refined your processes, the faster you will move equipment through your service department, the happier your service customers will be and the more profitable both your dealership and your employees will become.

Your process of billing time is one of the most important factors in helping your dealership achieve a higher level of recovery and in improving your ability to pay your techs more for the work they are producing. One of the easiest ways to improve billing efficiency is through a process call “flat rating.”

Most of you are already doing some form of flat rating for your shops. For example, if a set of blades comes in to be sharpened, you have a “flat rate” that you would charge for that set of blades. Or, if I brought in my mower for a basic service, most of you would have a flat rate for what I would be charged to have you perform that service. Some of you would include parts, while others of you would have the service flat rated but charge more for parts. Either way, you are flat rating your shop time.  

Now, before you run back to your shop and begin telling your techs you are going to start flat rating all the jobs in the shop, understand their perception of flat rating will be different than my perception. In other industries, say like the automotive industry, most all of the work is flat rated and the techs are paid off of the flat rate time. It’s sort of like being on straight commission for a sales person. So, rather than making so much per hour, the tech gets a percentage of the job. In my system, we flat rate the job, like the auto industry, but the tech still gets paid by the hour. The difference in our compensation program is that they also will get a bonus based upon their efficiency in meeting or beating the flat rate time that was established on the work order for the job to be performed.

One of the most important things to remember when it comes to creating a compensation program for anyone in your organization, whether it is for the techs, parts people or a sales person, is that simple is always better. If you have a compensation program that no one can understand, then it can demotivate your employees and hurt their performance.  It’s also important to evaluate your processes and minimize the hurdles that your people have to jump over that keep them from reducing the amount of time it takes them to complete a job.

That’s the great thing about flat rating. The less hurdles, the less time it takes to complete a job and the more efficient your tech will become. You make more and have the ability to pay the tech a bonus off the increased profits.

Based upon my many years of setting up compensation programs for dealerships —everyone is money motivated —each for a different reason, but they all like to make more money. So they will take advantage of anything you offer that will give them control over their ability to increase their take home pay. It’s the perfect world for a dealer. As long as you have your program tied to performance and the quality of work that is produced, your people will work hard to make more money and in the process make you more money. If you just give bonuses on increased productivity, then the quality of work will drop, so you have to make sure you tie both elements together.

Create a High Performance Dealership with Bob Clements is a new series brought to you by Yanmar.

More from Bob Clements

Yanmar — Don’t settle for less when you can have more. For example, Yanmar makes all its compact tractors’ major drivetrain components – the Yanmar engine, transmission, and axles — in-house. Because they’re made to work perfectly together, you and your customers get a hardworking machine with more usable horsepower, less power loss, and a smoother, more comfortable ride. Yanmar’s tractors are designed to work as hard as you do for a lifetime. Strengthen your dealership with Yanmar today: AgMarketing@yanmar.com or call 770-877-9894.