Compensation Plans: The Pros and Cons of Each
I have met many shop owners in the industry, and we have frequently talked about compensating employees. In this article, I want to break down the compensation plans I have seen over the years. Keep in mind that the plans and positions vary, and there is no one perfect solution. I recommend that owners/managers consider the pros and cons of each and tailor the plans according to their business model.
I will detail the various plans I regularly see and when and where they might apply.
• I generally prefer commission-based payment or a variation of this. I don’t like to babysit employees. The reasoning for a commission is that you pay an installer a percentage of the job (could be either the total price of the job—considered the “ticket”—or a percentage of the job minus material). If the installer goes faster or slower, they affect how much they make.
• Additionally, they aren’t compensated for re-doing work they messed up, so the onus falls on the installer. The faster and better an installer performs, the more they will make. The most common structure I see is 15%-25% of the ticket.
• Re-do’s for poor installation are free (installer isn’t paid). I recommend a shop has tiers if it has a commission payment structure. This allows for progression and movement within the company to eventually hit the “top” tier. Tiers could be based on skillset, tenure, minimizing film waste, etc.
Commission with Guarantee
• This comp structure would be the same as above but with a weekly (depending on pay frequency) guarantee, meaning that the installer makes the greater of the two for a pay period. E.g., it was a slow week, and the installer only made $800 when totaling up commissions, but there is a guarantee in place of $1,000, so the installer gets paid $1,000 for that week.
• I recommend this structure when shops go through significant ebbs and flows of work. During a slow week when the opportunity isn’t there for the installer to work as much as they can, the guarantee supplements the installer’s pay. Over the years, I always told my installers that my job as an owner was to provide an opportunity for them to make as much money as they wanted (I paid commission).
• If it is a slow week, that is my fault and not the installer’s, so offering them a guarantee keeps them on board while you drum up business. If doing a guarantee, I recommend that the guarantee be sufficient for the installer to pay bills and live but not too high so that they are not motivated to work beyond the guaranteed amount.
• A flat rate is a form of commission in that the installer is still paid based on their performance. The more they install, the more they will make. The difference is that it is a fixed amount paid for a job to the installer versus a percentage.
• Paying commission with a percentage works great if the ticket/job price reflects/coincides with the difficulty or work the installer has to do (so the installer makes more because it is a harder, more involved job).
• The flat rate works well when you have situations where the ticket amount of the job doesn’t reflect the work put into the job (e.g., wholesale work, upgrades in film like ceramic tint, etc.).
• An example of a flat rate is a front end in PPF that pays $400 regardless of car, film or ticket price (wholesale/retail); or a two-door coupe tint that pays $70 regardless if it is a dyed or ceramic film (same amount of work required for the installer despite the different ticket amount).
• Hourly is one of my least favorite comp plans for installers as I have to babysit how fast the installer is working or what they are doing. The only case I have seen where this made sense was when the installer did many ancillary duties like talking to customers and porting cars to a dealership.
• These ancillary jobs are hard to quantify, so an hourly makes sense. Preferably, if an installer has to do these ancillary duties, a shop hires an hourly employee to perform these duties, freeing up the installer (who is worth much more for this skill set). I generally prefer hourly for entry-level positions such as preppers, front desk employees and porters.
• Salary is generally for those employees that have a broader description and objectives, such as store manager, front desk person and accountant. These jobs are based on an overall objective and are not necessarily tied to a specific task.
• For example, a store manager’s goals are to run the shop and generate revenue/profits. It doesn’t matter if they work 30 hours or 60 hours—you are looking at the end goal they were hired for. I prefer to pay a store manager a salary plus a commission on revenue so that they are incentivized to generate profits.
• Bonuses are great for all positions. These should be used to motivate/compensate based on achieving specific objectives. Bonuses can be a fixed amount if they hit a specific target or a percentage of revenue generated. They can be individual or even team structured to encourage employees to work together to achieve certain objectives.
In conclusion, when generating compensation plans, I prefer to ensure I compensate fairly and accordingly—usually 5-10% above the competition. I don’t want anyone to leave because I am paying them less than they are worth. This also allows me to create a top-tier team because I am paying a premium.
Employees are integral to scaling your business—ensure you have the proper payment plans.