Which Is Better: Flat-Rate or Salary - BodyShop Business
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Which Is Better: Flat-Rate or Salary

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David Rowe,
Shop Manager
Johnson Ford, Inc.
Kingston, N.Y.

We chose the flat-rate pay system because it has a built-in incentive program for technicians. It seems to work the best.

We’ve tried a “team pay” plan. The idea was to get the cars in and out more quickly. We’d put three or four technicians on a team for whatever work came into the shop. The hours of the job would be pooled and divided equally among the team members so everybody had the same amount of hours for the day. The idea was you’d get cars in and out quicker because you had more people working on the car at once. The incentive was that you’d be able to do more vehicles in a shorter amount of time. But it didn’t work because the stronger technicians felt they were carrying the weight of the weaker technicians. John Doe said, “Why do I gotta carry him when I could do it twice as quick myself?” There was a lot of discord among the technicians. The shop worked with that plan for about a year. Then we got rid of it and went back to flat rate.

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There’s incentive for the flat-rate plan. If the technician does good, quality work in a shorter period of time than what he’s allowed, he moves on to the next job. And more pay. For our shop and my technicians, it works fantastic.

A quality-conscience, motivated tech has unlimited earning potential with this type of pay plan. A tech can work as many hours as he wants. If he’s good at what he does, he can keep cranking out the work. I have guys who literally put 40 hours in the building per week and walk away with 100-hour checks. And it works out very well. I have a young guy – he’s a go-getter – who doesn’t take coffee breaks and doesn’t sit on his butt. He’s a hustler and he’s motivated to work. He does very good work, and he’s covering 100 hours worth of repair work in a 40-hour week because he just chews it up and gets it done.

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Hiring is very important. I’ve learned that anyone can sell himself on paper. But a rŽsumŽ, in a lot of cases, is only as good as the paper it’s written on. On paper, I can make myself look like the greatest thing since sliced bread. But you have to see if what’s on paper comes out of a person’s hands. I believe fully that you cannot judge a book by its cover. You have to get a person in the shop. Anybody who comes into my shop is on a three-month temporary basis. After 90 days, there’s a review. In those 90 days, I watch his skills to make sure what he’s told me on paper he can actually do with his hands. I’ve been through quite a few people throughout my career whom I’ve hired [because] of their rŽsumŽ. Then I ended up letting them go because they can’t do what they said they could do. It’s a learning situation, and you have to work with the person.

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Managing is important, too. A manager has to be quality conscious. He has to know what the customer wants. He has to make sure the quality of work that goes out is completely satisfying to the customer. We even take care of dings and chips in adjacent panels that have nothing to do with an accident because that’s the first thing that’s going to catch a person’s eye. You need people who care about that – not just the money in their pocket.

With flat rate, a lower dollar-per-hour rate is paid, increasing your gross. A technician who can do the job properly can make the money on volume. Of course, then your shop volume goes up, which increases your income. Opponents of the flat-rate system say techs have no incentive to produce quality work – that they’re paid to produce but not to produce quality. I don’t agree with this mind set. This is where the owner/manager must know the abilities of his or her people and hire only quality-minded techs.

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He has to hire the right caliber of people for the shop. I’ve literally had people come here to Johnson Ford because they heard we pay flat rate. I got a painter from Massachusetts and a bodyman from Long Island who came here because they wanted to earn more. One guy was making $22 per hour salary in his shop as a bodyman, and he wasn’t making the money he’s making now on flat rate. And his work is excellent. He cares about what he does. That’s why he left the other place – he couldn’t grow. He couldn’t better himself where he was. If a technician isn’t quality concerned from the start, no pay plan will change that. This is a characteristic that the employee must bring with him or her. I think [the mindset] is an argument for a weak or unmotivated tech. If an estimator does the proper job and you have quality-minded personnel, you’ll have a quality repair and make a profit.

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[Some say the flat-rate system encourages shortcutting.] There are shortcuts that can be done. A good technician can take a car apart using shortcuts he’s learned over time that don’t compromise quality. If a flat-rate tech experiences a comeback, that tech will learn the motivation behind a first-time quality repair.

We run an incentive program for quality, and it makes a big difference. Our customer service satisfaction index is at a certain percentage for quality repairs. We have key questions – is the customer completely satisfied with the quality of the repairs. We track that by technician. When it gets into a certain range, they get extra commission with their pay.

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The only other way I’d pay a couple of people here would be – if I could sell it to my management – salary at a set hourly rate. I do have one technician who I don’t have to worry about. His work is quality. He’s not a ball of fire, but I don’t ever have to worry about his work coming back. He’s an ideal candidate for salary because I know I’d get what I paid for.

Salary


Gene Hamilton, owner
Sports & Imports
Collision, Inc.
Atlanta, Ga.

Salary allows the tech to take the time to perform quality work. You either drive the business from a quality side or from a motivation side. There’s more motivation to shortcut on the flat-rate side. [With flat rate], the more I push through and shortchange, the more I make. I get paid for an operation, and I do half of it and push it out the door. I’ve made double what I should have in a flat-rate system. You don’t have the tendency to sit there and say, “I want it perfect.” Now with salary, the guy who wants it perfect can sit there and fiddle with it ’till the cows come home. Salary encourages consistent 40-hour performance. The largest benefit of salary or hourly is the quality; the technicians will take more time to do things because they’re not paid for performance. They don’t have to get it in and get it out.

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Salary isn’t as hard to manage as flat rate. I don’t think either one of them is easy to manage. But I think employee contentment is probably higher and more easily managed on the hourly side because techs know what they’re going to make. The problem for management becomes how to draw the line and keep content employees. On the flat-rate side, you’re managing by pushing the cars through. Techs are motivated for commission, but then you’re having to slow it down and say this isn’t good enough. With a salary position, you’re getting good work but you’re trying to push a good balance of quality and time. Salary is almost a demoter for volume but a promoter of quality.

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Offering a bonus for hourly people can overcome that. A bonus is a way to promote a balance of quality and output. The comfort level is the big thing. You know what you’re going to make every week. You don’t have to worry about the work or how fast it goes out.

Managing salary employees is important. Management must set expectations and monitor that production is done on time. I don’t like the word lazy [which is how salary opponents describe salary techs]. I’d say they’re content or de-motivated. We’ve already got enough major negative words in the collision industry.

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It’s about management focus. You have to stay on top of what’s happening. You have to set expectations and get commitments. I have to hand you the keys to a car and say this has 10 hours on it and should be done by noon tomorrow – and then expect it to happen in a quality fashion. Where in the other situation (flat rate), I’m handing you the keys, you’re getting it out by noon tomorrow and I’m having to check the quality because you’re in a hurry to get to the next car.

It’s managing employee expectations and fitting his needs, for one. For two, it’s the style of management that’s required to motivate. You’ve got to be a very careful blend of pushing and staying within an employee’s comfort level because if you’ve got a comfortable salary but the tech is miserable all day long, it’s still not enough motivation to keep him.

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It’s not all about how you pay your techs. Management must monitor any pay method. Culture of the company is what decides quality or the lack of it. The standard you set for quality will be the benchmark. The quality of the people will decide if your shop reaches that benchmark. Quality people can perform when paid for what they do. The climate they work in is more important than the method of pay. I think there’s possibly a higher quality job done out of salary. But it still depends on management.

From a business standpoint, salary gives you a predictable fixed overhead. It’s no different than the rent factor or the lights. You always know what it’s going to be. I know what my overhead is going to be for the month. It kind of becomes a fixed expense rather than a percentage of gross profit.

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When I book a job, I know what I’m going to make on it because I know what salary is after break even. I can tell you what my break even is the first day of the month by the number of people I have in the shop. Because the number of the people in the shop on commission doesn’t tell me what they’ll produce, I can’t tell what my revenues are going to be.

But that also means salary employees can be more prone to layoffs. If there’s no work out there, how can I pay these guys? I’ve committed them to a salary. If I have commission people out there and spread out the work so everybody gets a little income, they may say, “This happens every year and I’m used to it.” But with salary, there’s a comfort level of what you’re going to have every week.

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I always know what my output has to be rather than the percentage of output. If I’m going to do $100,000 and retain 60 percent, I know I have $60,000 to spend on overhead. If I know that I’ve got six guys out there at $1,000 per week, that’s $24,000 worth of overhead [per month]. It’s a given, and I know what the true cost of labor is. It becomes a fixed expense.

Now I know I have to pull through X number of dollars to break even. I know what my overhead and salary is, and I have to make sure that I produce it with salary. I don’t know what my overhead factor is going to be until I produce it if I’m flat rate or commissioned.

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