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Should I change over and pay commission?

The question: Should I change over to base pay plus a commission? If so, how do I do it?

Steve’s answer: Slow down and think carefully WHY you want to do this. And then…

Hi Steve, I’m toying with the idea of offering a percentage to my techs. I don’t have a clue how that works. I’m thinking base pay plus commission. Is commission based on money made after hitting a minimum? What is the industry standard? If you have anything that would explain it to me that would be helpful! Thanks! Pondering in Portland

Good morning, Pondering!

commission or salaryYou’ve already got some good ideas from asking this question on our Strategies for Success: Growing Your Business Facebook Group. Let me chime in with a few more observations:

1. Start with the ‘end in mind’- As in, ask yourself ‘WHY do I want to do this’? Remember that  ‘monkeying around’ with employee’s compensation (even with the very best of intentions) can increase suspicion and stress in your company.

So analyze WHY you want to do this and WHAT are your goals? To increase productivity as in motivating your people to ‘work harder’? Or to reduce forgotten items/ reduce tardiness? To get people to ‘buy in’ to your company? Or maybe to increase employee’s pay while helping you the owner make more profits? All worthwhile goals, Pondering, but it’s good to analyze and set your priorities with these changes. All this means you must…

2. Take your time! Given the inevitable upheaval changing the pay structure in your business causes do NOT do this impulsively! Sloooow down, get lot’s of input and suggestions (thanks for reaching out to me!) and ponder on #1 above. Once you’re decided IF you should change compensation be sure to…

3. Make sure your compensation ideas are legal! That’s right, check any compensation changes with your attorney or at least check with your state’s labor department. Why? Because many changes that appear totally logical to you and me as entrepreneurs may very well be ILLEGAL in your state. (Oregon can be tough!)

4.  Clearly explain your new (hopefully simple!) pay structure.  Put it in writing with all ramification clearly explained. Trust me, your employees (and their spouses) will be all over it! The most important part of your explanation should be…

5. WIIFM? As you draft the new compensation plan focus on the ‘What’s In It For Me?’ question as you look through your ‘Employee’s Eyeglasses’. If this new pay structure does not help your employee’s (with reasonable effort) make more money or otherwise improve their lives don’t do it. Also remember to focus on…

6. ‘WIIFM’ as in “ME’! (You!) Some of our SFS graduates ‘pendulum over’ into being too generous and giving away too much to their employees. The big problem here? Once you have given something it is very difficult (and super demoralizing) to take away! You don’t want to confess, “OOPS! Sorry, guys! I shouldn’t have done this! So here is your new (and less generous) pay structure!” OUCH! To echo #5 above: If changing employee compensation won’t make YOU more money or otherwise improve your life (less stress, employee’s taking more responsibility, etc) don’t do it!

7. There is no ‘standard’. Pondering, you asked ‘What is the industry standard’? As far as I know there isn’t one! (And if there is one it will have little value in YOUR operation!) I know Chuck Violand in our SFS: Business Transformation suggests keeping total compensation of production employees to 20% of their gross output. This is a good goal but it leads to one of my favorite compensation questions…

8. Percentage of WHAT? Here’s the deal, Pondering: The only numbers worse than no numbers are bad numbers! So when well-meaning cleaning and restoration contractors start throwing you THEIR pay percentages your big question should be  “Percentage of WHAT?” Your company’s pricing (which is totally outside of a given employee’s control) will dramatically affect your tech’s take home pay when you compensate them by percentage. So my final suggestion is to…

9. Focus on the ‘What happens if I… ?’ question. Remember you’re playing with your employee’s lives here. So do NOT arbitrarily change their pay just because you read some other cleaner pays XX! Work your numbers and (once again) then ask what are you trying to accomplish here! Sooo, cut to the chase time…

In conclusion …

I (and many of our SFS Training grads) find a combination of base pay (at least 20% more than your staff can make locally doing comparable work) along with Goal Directed Bonuses (what do you want them to do more of?) works well. As an example, we paid our people well and then when our techs (gently) sold and performed Additional Service Options (services not on the work order) they received 20% of those ASO’s. (Most often this was re-applying carpet protector.)

I also implemented a company wide Employee Efficiency Bonus plan. The advantage of a bonus plan is when an employee screws up they can have money taken out of a bonus but in most states you can NOT deduct money from a worker’s base pay! (As always, check with a local labor attorney!)

So, ‘ponder’ on these commission vs salary options and then get back to our SFS Facebook Group and me with more questions. As I always say, “We’re all in this together!”

Steve

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