Technician Compensation

A West Coast Perspective
by Tom Holmes
(Editor’s Note: The following article is the basis of a presentation by Tom Holmes, owner of Holmes Auto Body in Pasadena, CA at the Technician Compensation Panel Discussion held at the NACE show in December, 1997 in Las Vegas, NV.)

I’ve been in the business since the early ’70s, long before owning my own shop. When I started, it was as a combination man. All technicians did all the jobs, including the painting - a lot of you guys remember that. As techs, we used to work on 50-50. Whatever labor dollars were on the estimate, the boss would split it with us right down the middle.

Well as time went on, shop owners needed more front desk staffing, customer service people, etc. And the 50-50 programs pretty much turned into 45-55 plans. These led to 40-60 plans, then flat rate plans where the technicians make a dollar rate per hour.

These changes have led to some problems over the years. Number one, there are huge inequities. You may have an office manager in one of your stores that’s doing payroll, payables, is accountable for the bank balance, and carries a lot of the business decisions, and we’ve got body men and painters making three and four times what she does. Is it fair? I don’t think so. Probably everybody in the room has experience with technicians making $80, $90, $100 thousand a year. Given these rates, what happens when you want to fill your pipeline into your estimating and management positions? We’ve got guys making this huge money; you can’t pay to estimate cars what they were making on the floor. They have to take a cut in pay, sometimes half of what they used to make, creating some real problems.

Another problem that everybody faces is the overtime issue. Just because we’re on flat rate or commission does not exempt any of us from paying overtime.

We started taking a look at some of these different issues. I’ve been to Japan, Europe, Germany, and Holland visiting shops. What I found was the labor rate charge out is usually four times what they’re paying the technicians. For example, if the labor rate is $40 an hour, they’d be paying $10 an hour to the technicians. So their shops got a 4 to 1 return which translates to a 75 percent base GPM for the shop.

The other big difference that I saw was that it’s typical in other countries for the shops to buy all the tools and equipment. In the United States, that’s not the typical way it’s done. One of the results is that you wind up with technicians that have an attitude of every man for himself. It’s difficult to build a team work situation because you have guys with these big roll-away toolboxes, that you can’t even see into the top drawer without a step ladder. These techs have some bucks involved in buying these tools and I respect them for it, but you know the minute your shop gets slow or they don’t like your sheet, here comes the pickup truck backing up to your shop and there goes the roll-away. See ya.

We started to take a hard look at it and hit upon something that we’re rolling in little by little. We call it a 40-40-20 pay plan. It’ s 40 percent base pay, 40 percent commission, and 20 percent bonuses. The 40 percent base pay is an hourly wage, depending on the technician’s ability, the 40 percent commission is based on a very low, $2 or $3 per hour, flat rate situation. Finally, the technician is also eligible for a 20 percent bonus.

We have tried to figure something to use as a target for the bonus that always focuses on the needs of the customer whether it’s quality or CSI - it has to be a customer focused bonus.

A key element in the new "tech package" is to also supply the technician’s tools. We’ve bought tools for each of the technicians on the 40-40-20 plan, every single thing needed from A-Z, the sockets, screw drivers, air tools - everything. In essence, we’ve created a complete metal department work station.

How has the plan worked? Have we found technicians willing to try this new approach? What we’ve found is a tremendous labor pool out there of guys that are kind of mid-level technicians, not the guys with the $30,000 worth of tools- the top earners, but guys that are hard workers and want to learn. We’ve created these work stations that have all the tools in them, find guys that really and truly want to learn and work and get one of the other guys in the shop that’s been a long-term journeyman technician to supervise and teach. We are now beginning to see success with this approach.

The next thing we did is say if this pay plan works, why shouldn’t everybody’s pay in our stores be based more or less on the same similar concept 40-40-20, base pay, commission, and bonus. So we’ve looked at it all the way from the managers on down and tried to create in each case an equitable pay plan.

Anytime you try to change something it could be a nightmare. Nobody wants to change; everybody wants to cling to the old ways.

From personal experience, my recommendation is that any new plan must be thoroughly customer focused. Everybody, from the manager all the way down - the estimators, the office managers, the technicians, the painters, the helpers - should be bonused on the same types of things, so that you have an alignment in your company with the needs and wants of the customers. You take a look at the internal customers, and reward all levels. You begin having discussions with all your people.

Mistakes I have personally made in the past include having great ideas about a pay plan and throwing it out there and saying "Here. Here’s your new program." Without the proper presentation and consensus building among the staff, the program always got thrown right back at me.

What I’ve found is that the best way is to involve people at an early stage. Have them define what’s great performance on their part for their customers and then try to come up with an equitable plan that deals with these issues. We’re only half way there; we’re still working on it.

Well, like I said before, what we’re doing is bringing in new guys that aren’t full journeymen. We bring them in to learn and we put them on a new pay plan as they come in. We also furnish their tools and I would not go back tomorrow and just change everybody’s pay plan. Boom like that. It wouldn’t make good business sense to me. It might make sense for somebody in another area, but for us I don’t think that would work.

(Editor’s Note: At Tom’s NACE presentation, there were several questions from the floor. They included:)

Question: How do you handle overtime with your 40-40-20 plan?
Answer: What we do whether it’s the 40-40-20 plan or the regular flat rate, (Most of our shop is still on flat rate.) we tell everybody that they are hourly employees and what we do is figure out the flat rate that they made for a two week pay period. They’ll punch the clock during that two week pay period, we have their hours, we know what their overtime is, we convert the flat rate dollars into a new hourly rate. So each employee virtually has a different hourly rate every pay period. And we do pay overtime.

Question: What do you bring in the mid-level guys on as a compensation rate? What do they get on a monthly basis?
Answer: They’re averaging about $2500 a month.

Question: What percentage is that compared to one of your techs on a straight flat rate plan?
Answer: Most of our technicians are making $50,000, which is about average in our area. There’s a huge disparity range of what technicians can make. You know, you have guys that are working right beside each other-same job, same tools, same everything, and one guy’s making double what the other guy makes.

Question: Do you want to comment on the difference between flat rate and salary, other than being a little more costly? Are there any other negative points you want to point out about flat rate?
Answer: I think I already did. You know, straight flat rate can develop inequities between a salaried person in the office and a guy in the shop. Overtime issues get complicated. A lot of shops want teamwork, but they reward people on an individual basis. So it’s just a bunch of words. It creates an every man for himself scenario. I agree that you must measure what a guy does and flat rate’s part of that, but it shouldn’t be the whole entire pay.

Question: Do you own the tools for the newcomers, in a training program? Do they own the tools when they leave? How do you manage that? What happens if they’re stolen?
Answer: It’s real simple - we own the tools. The guy that sold us the tools inventories the tools monthly. If they’ve lost anything, it’s on the technician. But we’ve bought tools that all have lifetime warranties so if anything’s broken, it just gets taken care of under that plan. If they leave, we keep the tools.
Another thing - the people I’ve put on this tool program, they’re not entry level. They’re guys closer to mid-level. They’ve been a helper or they’ve been kind of a wannabe body man. But they don’t have their own tools. Or maybe they have all the skills, but half their tools are homemade.
And, you know, we’ve found that the guys, the mid-level guys who get their tools from us, produce nearly the same hours as our other guys do just because their tools are better. And we haven’t run into it yet and as long as they’re my tools, that’s the pay program. Now we will increase the hourly rate as they get better - you have to reward people. But at least it’s not a runaway thing.
If you start looking at straight commission or flat rate, as the hours produced go up, the gross profit of the shop travels along the same line on a graph. If you look at a salary plus bonus or plus commission, it’s a much lower increase as volume goes up. Then the net profit or gross profit of the shop goes up faster and you don’t have a runaway program.