One question that comes up regularly in industry roundtables is “How do I pay my people?” Whether they're wondering about paying installers for their productivity or which compensation programs will work best for their sales staff, the questions are the same and so are the issues: How do you develop a compensation program that rewards outstanding performance while not breaking the bank by paying your poor performers too much? How do you balance great customer service in the form of work produced, while not rewarding lackadaisical jobsite performance?
Don't worry, I'm not going to rehash Economics 101, but I will provide insight on some of the issues and possible solutions.
Let's look at installers. There are generally two schools of thought on paying installers for work performed: piece rate and hourly. Both have upsides and downsides.
By their very nature, piece-rate plans are geared toward increased productivity. But the bad news is that in many cases, quality suffers. I've seen installers work very well under this plan if controls are put into place to ensure high quality standards for the finished product, such as requiring the installers to repair any faulty work without bonus compensation. Without such controls, the installers tend to have visions of dollar signs in their eyes, regardless of quality concerns. Additionally, if you're not careful your piece-rate plan may not comply with wage and hour regulations for your employees. Ensure that the base hourly rate is equal to, or slightly more than, minimum wage—in most cases $5.50 to $6 an hour base, plus “bonus.”
Hourly pay is not a perfect scenario, either. If business is slow, your installers will drag out a one-day job into a week-long event just to ensure a decent paycheck on Friday. In this situation, there seems to be no motivation that works and all the ranting and raving in the world won't move them off the dime to better performance. Installation quality may be good, but productivity suffers.
So what's the solution? Meet in the middle: a combination of hourly pay to provide benefits and a living wage for your employees, and an incentive plan based on productivity that provides a reason to excel. Also include a qualifier that poor performance is not rewarded but rather is charged back to the installers.
Here's how it works: Establish an estimated labor cost to complete a particular job. Let's say you're doing a siding job, and you estimate your labor cost at $1,200. You have a crew of two installers and further estimate that it will take four days to finish the job. You are paying $9 an hour for the lead installer and $7 an hour for the helper. Eight hours a day for four days gives you a rough “cost” $512 for the job, leaving you with $688. Use that amount as your incentive pay. If they get the job completed in the allotted time and up to your quality standards, the balance of labor cost ($688) is split equally between the two installers. So in effect they are now making $19.75 and $17.75 an hour, respectively.
However, if they run over on time, that's counted against the “incentive.” So if they take five days to do the job, you charge another 16 man-hours against the cost, thus lowering their potential hourly wage. Also, if they have a callback from a previous job, they do that work at their base wage and don't have a chance to generate any incentive pay.
With this plan there's no benefit to your installers if they drag out a job (they hurt their chance of getting more work), and working faster but with poor workmanship will ding them in the future. It can truly be a win-win for you, your installers, and your customers, with the same fixed operating cost.
Mike Butts is director of installation services for United Building Centers. 507.457.8453. E-mail: mike.butts@unitedbuilding centers.com