The question: Should I pay techs on percentage instead of hourly?
Steve’s answer: There is much more involved here than just “numbers”. For example…
I am re-analyzing my financials based on what I learned in the SFS: Business Transformation seminar. So I’m considering switching my techs over to a percentage. (Versus paying them hourly.) I think paying on commission will be an easier way to track salaries. What do you recommend?
Analyzing in Albany
Congratulations, Analyzing! It is great that you are focusing on financial analysis. As Chuck Violand reminds every SFS: Business Transformation class: “Every number tells a story”! Good to know you were listening!
The whole hourly versus commission is a common question. Regarding ANY compensation changes, Analyzing, I always urge “going slow”. Why? Because it is never just percentages and numbers but also A) logistics and B) emotions! Huh?
For example, when you pay techs on commission the first question to any work assignment is, “So how much will I make?” IF you are ONLY doing commercial work then commission may be great. But I was constantly switching my techs between residential to commercial to cleaning contents for a fire loss. (I mean, how the heck do you pay commission on contents cleaning?)
Plus other times I just wanted an employee to run an errand or even clean up the shop. And of course their first question back to me was… (You get the idea!) So for me at least I found a “commission only” compensation structure to be very limiting logistically.
NOTE: Another challenge with a “commission only” pay plan it encourages techs to ONLY focus on production and speed! But after attending SFS your “obsession” (correctly) should be on Making the Cheerleader! Instead, with my “blended compensation approach” (more on this later) your techs will have the freedom to take their time! (And do whatever it takes to delight their client.)
Don’t forget, Analyzing, any compensation changes you WILL be met with a degree of suspicion and distrust. (This is true even when you are sincerely trying to help your employees!)
So be absolutely positive that your compensation changes are a) needed, b) what you want and c) ready to go without any bookkeeping problems. Then clearly explain your new plan and HOW employees can benefit. (We are all interested in “What’s In It For Me”!)
CAUTION: It destroys morale and introduces a lot of suspicion and “turbulence” when management is constantly “tweaking” employee pay and benefits.
So let me share my “Blended Compensation” approach. I tried to pay techs at or above the “going wage” in their base hourly pay. But then I also compensated them extra by paying a percentage (usually 20%) for Additional Service Options they sold.
I also paid a bonus (usually 10%) on PROFITABLE commercial accounts an employee referred to us. We also paid a bonus on any good workers our staff referred to us. And finally I introduced a “Employee Efficiency Bonus” plan. This was a huge help because it held my employees “accountable”.
NOTE: I’m a huge believer in “Shared Accountability”! This means when the company makes a profit the people involved also make more money. And when your business loses money when employees make bone-headed mistakes well… 🙂
Implement these suggestions, Analyzing, and let me know how things go for you!