Why do our employees, on average, get up five days a week, get dressed in work clothes, leave their families and drive to work to spend roughly 40 hours of their lives in our businesses? These employees use, for the most part, the best hours of their week working. In the 1940s, the American psychologist Abraham Maslow advanced the idea that human motivation is broken down into a five-level pyramid he called the "Hierarchy of Needs." Starting at the bottom, Level 1 is physiological needs: food, water, warmth & rest. Level 2 is safety and security needs. Level 3 is belongingness and love needs: intimate relationships and friendships. Level 4 is esteem needs: prestige and the feeling of accomplishment. At the top is Level 5, self-actualization: achieving one’s full potential, including creative activities.
Most anyone reading this column has heard, “there is more to work than just money.” Unfortunately, here is the reality. Statistics show that 60% of Americans live paycheck to paycheck and the average family has less than $5000 in savings. So, even though there are five levels to Maslow’s pyramid, the bottom two (physiological needs and safety needs) are still a very big deal to our employees’ motivation to return to work every day.
When I first purchased my shop back in 2000 from my uncles, we had three employees including myself. We ran with just a straight clock hour plus overtime pay system. With some coaching after a few years, we started to grow and add employees. We then went to a flat rate pay system for the technicians. Even though the business grew along with profits, I grew to hate the flat-rate system. This was due to the stress that came with figuring out who would get what hours.
In 2013, I received some in depth Lean training and we kicked out flat rate to focus on quality in everything we did. We resorted back to the clock hour pay system with daily targets we needed to meet. In a flat-rate world, it is hard to have in-depth discussions on ways to improve, while technicians are so distracted about how they are going to make their weekly/bi-weekly paycheck.
In September of 2018, I was looking at our numbers and we were at a plateau in sales and profit. In prior years, I had always given out a very nice Christmas bonus. After doing some math, I sat all the employees down and laid out the monthly/daily goals we would need to reach as a team by Dec. 15 for all to receive the bonus. So, Oct. 1 we started the plan. Through some blood, sweat and triumphs, we made an amazing goal by Dec. 15.
Up until this point, I had never seen the synergy in my team that I saw in the fall of 2018. Now my wheels were spinning over the holidays that year. I ran through every number imaginable with cars per day, hours per day, refinish hours per RO, etc. I was trying to figure out the best bonus system for the entire team in the soon coming new year and I knew we needed to start Jan. 1, 2019. Without diving deep into the math, we just used the backwards flat rate compensation for the additional hours necessary to give every employee a $10,000 bonus per year or $833.33 per month per employee front to back. We started the program in the beginning of 2019, and it was like wildfire. Through continuous improvement of processes from engagement of all employees the last four plus years, we have made strides I never imagined. For the core group that was here when we started the bonus system, if we can hit the 2023 goals, each will make $40,000 more than they did Dec. 31, 2018.
At the end of the day, whether we run a clock hour or flat rate compensation plan, either can be successful. The key is, we must have a bonus system that promotes teamwork. I have seen shops that have all these complicated compensation and bonus plans for each department. This even includes bookkeeping for, say, AR or estimators for gross sales & gross profit, then each technician for what they each produce. When I see these pay plans, it makes me want to go just lay in the middle of the road! These types of pay plans really promote silos or individuals to just look out for what is best for themselves. If independent shops want to be like MSOs, just pay like MSOs and you will get your wish.
Back to Maslow’s Hierarchy of Needs: When a shop implements a global bonus program, this enables each employee (no matter what the level) to get the same dollar amount each month. Every level of Maslow’s pyramid is covered. On top of that, business profitability skyrockets due to surpassing their breakeven even farther than before a global bonus system. Reach out to me if you need more clarity.
