AKRON—Billable hours, training and employee compensation are three areas of keen interest to most tire dealers and automotive service shop owners.
Tire Business recently discussed those and other concerns with Bob Cooper, founder and president of Elite Worldwide Inc., a San Diego-based automotive consultation firm offering one-on-one coaching in areas such as shop management and service training. (This question-answer session has been edited for brevity and clarity.)
Q: In the tire and automotive service business, what would you say are the most common types of payment plans for technicians that you've come across? Can you give me an overview?
A: “I can, and this is where it's going to get complicated—because we could spend a lot of time there—but the most common ones are the wrong ones. The most common ones are where they pay people either a salary or an hourly rate. And what they're rewarding there is for people to show up and breath. That has nothing to do with productivity.
“If you want to build a great business, the first thing you always have to ask yourself is what is the behavior—the very specific behavior—that you're looking to incentivize, and hourly pay does not incentivize any particular behavior other than showing up and punching in.
“What you always need to incentivize with technicians is going to be three things. No. 1, billed hours. That's always going to be No. 1. That's their job—getting the cars fixed and getting that service sold. No. 2 is going to be happy cars, and what I mean by happy cars is no comebacks. (Technicians) need to control their comebacks. No. 3, the third thing you need to incentivize is happy people, meaning happy customers.
“There are two kinds of comebacks. The first I mentioned, happy cars, means they don't come back with a part that was installed wrong or something was broken or not done correctly. The second one I mentioned, or happy people, that refers to, for example, there wasn't a grease spot on the carpet. The client's happy in the fact that the car was not only done right but clean.”
Q: What are the advantages of billable hours vs. salary or hourly rate?
A: “They only get paid if they produce. If you come to work at Elite Auto Repair and you're paid for billable hours and you get paid $25 per billable hour and here's a car and I'm gonna charge for an hour to fix it and it takes you three hours to fix it, you're only going to be paid for the one hour. You're only going to be paid for the booked time on that service. I charge Mr. Customer one hour—I charge him $90 for the one hour—your rate of pay is $25 an hour. You're going to get $25 for that whether you get it done in 45 minutes or four hours and 45 minutes.”
Q: How do you balance that and at the same time try to avoid comebacks?
A: “Well, that's being a professional. How do doctors do it? How do dentists do it? How do attourneys do it? How does an accountant do it? That's what every professional needs to do. They need to be as productive as they can while still managing their other responsibilities. Happy customers, happy cars—that's their job.”
Q: Is it more of an issue of training on the technicians' part then?
A: “Always. Always, they have to be well trained. I wouldn't say it's more of an issue of training, but they always have to be well-trained. The better trained they are, the more skilled they are and the more productive they typically can be.”
Q: Are there ways to hybridize billable hours with some of the other plans that exist?
A: “Sure you can. You can give a salary or a guarantee, but you've got to be careful because if you start weighting it too much with salary, then the guy or gal might get lazy on you. You can hybridize. I'll give you, instead of $25 an hour flat rate, I'll give you $10 an hour, but you're also going to get this flat rate in addition for every billed hour. But you've got to be careful that it doesn't turn into a crutch.”
Q: How should shops determine how much to actually compensate their technicians?
A: “As funny as it sounds, that's a backwards approach. By that I mean, most shop owners say, 'That's all I can afford to pay you Mr. Technician.'
“That's not how you build a business. You build a business by asking yourself, 'What does a technician have to earn—a really great technician, not a good technician—to be able to live a decent lifestyle in this particular community?'
“If I conclude that a really great technician has to earn $70,000 a year, then I need to price out my services accordingly. Most guys don't do that. Most guys say, 'I'm going to charge $80 an hour, and this is all I can afford to pay you.' I'm using that as an example, but that's a mistake. They'll never be able to afford to hire the right people that way.”
Q: Is there a one-size-fits-all formula for creating a payment plan, or does it need to be tailored to your business?
A: “No, and the reason not is because state laws vary tremendously as well. A lot of labor laws come into play, so there're a lot of things that need to be considered. Whatever they put together, they really need to talk to their local attorney—an attorney that's familiar with their state labor laws—and make sure their compensation meets the requirements of the law.”
Q: What are some ways in which the laws are different?
A: “If the technician owns his own tools, he has to be paid a higher base rate than if he doesn't have tools. A technician who supplies his own tools has to be paid a higher rate in some states. Overtime laws are going to vary tremendously from state to state.”
Q: Is it beneficial to create a competitive atmosphere within your group of technicians, or is it best to steer clear of that?
A: “Everybody has a different stroke on that, and I believe that every employee needs to compete against themselves—not against one another. I know some facilities, some shop owners will have their employees compete against one another for billed hours, as an example, and I think that's ludicrous. That is absolute insanity.
“If you have five technicians who are competing against one another, and some management trainer says you need to post that where all the technicians can see how well they're doing that pay period, that's silly to me. That means there're five guys and they're all going to have different flagged hours by the end of the week.
“And you know what? I can make you a promise of at the end of that week that there's going to be one winner. You know what else there's going to be? Four losers.... And after a while you're going to find out with that kind of business model there are two guys who are consistently at the top—the winners—and three guys who are consistently failures.
“What you need to do is set performance goals for each of the employees and let them compete against themselves for performance goals. I'm really big on that and I'm really big on team incentives as well.”
Q: What kind of incentives would you suggest?
A: “There are a lot of different incentives you can put into place, and they don't all have to be financial incentives. You can learn what's important to each individual employee and incentivize that way.
“If somebody has small children at home and there's a theme park close by, you might want to incentivize them with a trip to the theme park that's close by their house. If they're building a new home or remodeling their home you might incentivize them with Home Depot rewards. There are clubs, sporting clubs. If they're involved in sports you can incentivize them with season tickets to the ball game or something of that nature.
“The best incentives are the ones that really are tailored to each employee. I call them 'go home' incentives. It needs to reach Mary, not just Larry.”
Q: By that you mean their spouse?
A: “Yes, their family. That's the best incentive.”
Q: With dealers you've consulted with over the years, in general what are some of the biggest hurdles that they have in developing pay plans?
A: “The biggest hurdle that they have is they don't understand what has to go into a really great compensation program. No. 1, the first thing you have to put into every one, includes things like vacation, competitive pay, uniforms, ongoing training. Those are the things that fall under the heading of basic compensation. This is giving (technicians) the air that they need to breath.
“The second thing that you need to provide every employee is what we call opportunitistic income. Opportunistic income is where you give the person the opportunity to earn more money, and that can be from flagged hours or whatever it is.
“The third one is what we refer to as an exemplary performance reward. That's whenever they do something that is outside of their purview. They need to be rewarded for that. So you're a technician, you work for me, you're a very good technician and you come to me and say, 'Hey Cooper, I got an idea on how we can bring in more new customers.' I like your idea, I apply it and it works. You're going to be rewarded for it, even though that's not a part of your job.
“The fourth one that goes into the mix is security. You've got to give all of them security, and it's as simple as it sounds. It's business cards for everybody who works with you.... They all really need to have business cards so that they know they're part of the family.
“No. 5, you need to reward people for tenure. 401K programs are a great way of doing that. A birthday cake is a great way of doing that.
“The last one, No. 6 on the list, is leadership. You have to provide leadership to every employee. I think where most business owners get in trouble is they try to throw money at people and they forget about those other elements.”
Q: When it comes to increasing pay for employees, is it best to do it through base pay, bonuses or by some other means?
A: “I'll sound like a complete fool when I say this, but I have to say it anyway and it's not the first time I've said this: At Elite we don't give pay raises. When I was in the auto repair business I did not get pay raises. And don't misunderstand, of course I'll give raises for cost-of-living increases, but just to give raises for tenure is silly.
“That's what happened to Ford Motor Co. twice. That's what happened to all the major airlines. You wind up with all these legacy expenses.
“You wind up paying a person who works on the assembly line $75 an hour because they've been with your company 25 years, where you could hire somebody who could do the same job for $50 an hour. So I don't believe in rewarding somebody just for legacy by giving them a raise.
“Can they earn more money? Of course they can, by being more productive.
“If an employee comes to you...and can demonstrably show you they've been more productive last year than the year before, then yeah, you should consider giving that worker a raise—but not just for tenure. That's where guys get in trouble. That's how you put yourself out of business.”
To reach this reporter: [email protected]; 330-865-6148; Twitter: @Will_Schertz