When I mention multi-level or skill-level pay plans for dealership auto technicians, I often hear, “We tried that before and it didn’t work.”
Of the stores that unsuccessfully attempted it, many did so during a much different time in our industry. They flat-out failed. But let’s look at what has changed.
Vehicle quality has greatly improved, in turn reducing the amount of heavy-repair labor at service departments. Warranty work has become a smaller percentage of total labor.
This has lessened the dependency on skilled technicians. Because vehicles break down less often, maintenance-type labor has grown. Pre-paid and complimentary maintenance packages have grown to 60% percent of the business. That is a complete 180-degree change from when some managers said they tried multi-level pay plans that ended up not working.
Back when those managers tried such pay plans and failed, the accepted norm for labor gross profit was 65% to 70%. The expectations have changed: 75% and higher now is the expected norm. Many managers have been fighting to reach this level.
Express service has been a welcomed change in many stores, but some have thrown it out, citing an erosion of gross profit.
Dealer-management systems now perform on a much higher level. We can now better control the rate paid for a job. Each labor-op code can be assigned a skill level that allows the manager to systematically pay a rate based on that.
Often higher-skilled technicians are disqualified from certain work because of their hourly rates of pay. The excuse is: “We can’t make any money if the skilled technician does oil changes.”
These technicians typically have been with your organization for years and have invested lots of money in tools to perfect their trade. Now they are not allowed to do the easy type work? This blows my mind.
What would you do if the parts department, saying it would lose money, refuses to deliver a $2 lens cover to a local wholesale customer who typically buys $75,000 a month in parts from you?
Attempting to manage the incremental sales is an intense process that often yields minor benefits, and putting someone in the position to make this decision with every work order is difficult at best. My experience is the customer suffers. (The subject of another article.)
Multi-level pay rates are worthy of consideration. They allow the manager to lower costs of sales per hour by paying the higher rate technicians a lower rate on maintenance work and a higher rate on jobs requiring a higher level of skill.
If structured correctly, the pay plan allows the technician to make the same money. Here’s how.
The manager would review labor operations and code each technician with a skill level. Let’s say A-level work requires a higher skilled level of diagnosis and repair. B level is high-skilled maintenance work such as brakes and alignments. C level is lower-skilled work such as oil changes, cabin air-filter replacements and tire rotations.
Next, the manager does a study of hours produced and the weekly or monthly earnings. Let’s assume the technician has an hourly flat rate of $18.50 an hour and produces 48 hours a week. The weekly earnings would be $888. The manager would establish three levels of pay. For example: A level at $23, B at $16 and C at $14.
Determine the contribution from each and convert to a percent, then project the results of the change.
In the chart, Start Up/ Current Performance is the information needed to get started. It reflects no changes to the cost of sales or pay rate for the technician.
The chart’s Start Up/ Projected column reflects the new multi-level rates of pay.
The Extended column is the assumption and projection of increased production in the B-level work of additional hours per day or five added hours per week. “Projected” in the Extended column represents the same work mix with the multi-level pay applied.
As you can see, projected gross profit would increase slightly, and the dispatch could be opened up without anyone having to decide which work should be given to the technician. This plan all but eliminated what I call the “victim of knowledge.”
The plan will pay larger dividends to the dealership and the technician. The growth would come in the maintenance-work area. The increase in production would lower the cost of sales and increase the gross profit.
I have developed a worksheet for this pay plan. I’d be glad to share it. Just email me your request at firstname.lastname@example.org.
Fixed-operations consultant Lee Harkins heads M5 Management Services based in Pelham, AL. He can be reached at 205-358-8717 at email@example.com.