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February 18, 2002 01:00 AM

Does your firm get what it pays for?

Mary Miles <P>
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    Tire dealers and tire industry management have just finished compiling last year's financial statements. I have one question: Are you satisfied that you are getting an adequate rate of return from your investment in salaries and associated employment costs?

    At this time of year, it is prudent to critically evaluate your compensation programs because, let's face it, that is exactly what your employees are doing. All over the tire industry, employees are receiving their W-2's and they are having one or more thoughts:

    * This was a great year for the dealership and I am proud of my contribution. I know my boss appreciates me, and I am looking forward to improving this year.

    * I have been with the dealership so long that there is no way I can make more money because I am at the top of my salary range.

    * I can't believe that, regardless of how hard I work, I can only make the same amount as the other employees who don't work nearly as hard as I do.

    * I did fine but I hear the company isn't doing very well. I hope I have a job this time next year.

    * Well, last year went pretty well considering the economy. I wonder what management is going to do with our pay this year?

    We all want our employees to be motivated, appreciated, productive and focused on the company's objectives. However, many of us overlook the obvious opportunity: the company's compensation program. There are three components of a compensation program:

    1. An employee's base pay;

    2. An employee's variable pay; and

    3. An employee's benefits.

    For purposes of this column, we will focus in broad terms on the base and variable portion of an employee's salary. Additional columns will provide more details on these areas and will explore benefit programs.

    The first question for management to ask itself is: ``What is the purpose of our compensation program?'' Traditional answers include:

    * Payment of an equitable salary for a position as compared to the marketplace.

    * A competitive salary for a position that creates internal company equity.

    * To keep our employees current with the cost of living.

    * To have our employees progress up the company's promotional ladder.

    * To set up a system of compensating our employees that complies with the company's budget and systematizes the payment of all employees.

    While all of these answers are true, greater returns should be obtained from what, in many instances, is your greatest expenditure of capital.

    Often we spend hours analyzing the return on investment from a service vehicle but hardly any time calculating the return we're receiving on our service personnel. Therefore, management has an opportunity to expand the purpose of their compensation program by exploring the following key elements:

    ``Empowerment, ownership, equity-based, profitability-based compensation.'' Call it what you will, a company can only achieve maximum profitability by closing the chasm between how the owner views the company and how their employees view the company.

    This is accomplished when the employees know the profitability goals of the company and their compensation is based, in part, on the achievement of the company's goals. Tying an employee's wage to the profitability of his job, area, department, store or company instills a level of responsibility that no other form of payment can achieve.

    Designing a program that breaks down the varied level of employees' positions into measurable profitability goals requires ingenuity and analysis of the business. However, designing a program that supports the company's goals-which is measurable and will motivate your employee-is well worth the effort.

    Even if you have employees who cannot directly move the profitability needle on a daily basis, tying a small variable portion of their pay to the profitability of the store will make them more conscious of how they spend the company's money.

    Remember, salaries are forever and bonuses come and go. Be creative with your variable compensation. Design a program where every employee in your dealership is focused on their job and your overall goals.

    Compensation program communication. An effective program will be tailored to the specific organization's current challenges and needs. Consistency in the majority of an employees program is essential.

    Succinctly review your organization's business objectives and then design your employees' programs around the portion of the plan they can influence.

    The key goals of an employee's job should not change every year. Adding a particular goal specific to this year-such as improving retread sales or increasing sales in a new product line-can be achieved with the correct reward system.

    An employee's mind will be working for your company around the clock if the way he makes money also makes the company money. If this is not true, there is a flaw in the program. And finally, a successful communication program will be easily understood, rapidly adaptable to the ever-changing tire business and designed so that your employees will have easy access to the information/results on which they are being measured.

    Now, you may say: ``I don't want my employees to really know how the dealership is doing because in the good times they will want a greater piece of the action and in the bad times they might get nervous and leave.''

    But this has not been my experience or the experience of many businesses that keep their employees informed. My experience has shown that if your employees are paid fairly during the good times, that will build loyalty which will help weather the storm during the lean years.

    External competitiveness and internal equity. It's important to be cognizant of the compensation programs in the marketing area from which you draw your employees.

    Deciding the caliber of employee you want in each position effects your compensation program. One very profitable tire business owner, for example, views his market for his retread and service employees as his entire metropolitan area. He views his sales personnel market as the entire state. He views his key management personnel as his entire four-state geographic region.

    He hires the best employees in each category and is known for paying ``top dollar'' for the best performers. He has very little turnover and always has available candidates for hire. This works well for him but most employers have a smaller view of the marketplace from which their employees are hired.

    There are many nationwide and local salary surveys that are available. Decide where your company most successfully obtains its employees and attract them with a competitive program.

    Once an employee is hired, it is imperative that the company's compensation has at least some broad-based internal equity. Multiple levels and stringent systems are not required to achieve internal equity. Your management group knows which positions have similar accountability.

    Management must make sure similar positions have similar compensation potential-regardless of race, gender, age etc.-and your employees will be treated fairly.

    A plan that is flexible, adaptive and innovative. For years compensation programs were narrow, inflexible policies that ignored the fact different people had different needs.

    Fortunately, in most organizations those times have changed. Twenty years ago when a person began working, they would only work for four to six different employers before retiring. Graduates in 2002 will work for from 11 to 17 different employers.

    To entice and retain a productive workforce, creativity and flexibility is critical. Consider the following variable pay or creative motivators: lump sum increases; deferred compensation; hotel/restaurant/travel/gift catalog vouchers; paid time off; personal preference/family trips; or even just letting an employee buy an extra week of vacation.

    Avoid yesteryears' mistakes like:

    * Not being able to give someone an increase because they ``are at the top of their range.'' If a person is truly making the maximum amount you are willing to pay for their position, just be honest and tell them. Then, give the problem to them. Ask them for suggestions on ways they could make an extra contribution to the business that you could reward.

    * Being limited by the compensation policy as far as what percent increase can be rewarded to an exceptional performer.

    * Using words like ``cost of living increase'' or ``general wage increase'' when you reward your employees with an increase in pay. Employees want to feel like they earned their increases. Therefore, link any increase in their pay to their performance.

    * Writing a program with compensation limits. Make sure your top performers aren't ``capping out'' on their earnings potential in October and coasting the rest of the year. A healthy compensation design will keep employees driving towards meeting both yours and their objectives through to the end of the year.

    * Writing a program that is a policy that MUST be followed. Instead, use words that provide guidelines instead of rules. This is your program-make it work for you.

    A compensation plan that recognizes the professional worth and accomplishments of employees, while giving them economic security and a chance for prosperity, will help your dealership get its ``money's worth'' from your compensation plan.

    If you have personnel-related questions you'd like Ms. Miles to address in future columns, you can contact her by e-mailing [email protected] or using the ``Speak Up" card in most issues.

    Mary Miles has 22 years of experience as a human resource professional, including 16 years at Tire Centers L.L.C.

    Letter
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    Do you have an opinion about this story? Do you have some thoughts you'd like to share with our readers? Tire Business would love to hear from you. Email your letter to Editor Don Detore at [email protected].

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