Let’s explore the pros and cons of the Flat Rate Pay System
Dealers are always looking for creative ways to drive profitability.
This is especially true in fixed operations, where your service department generates approximately 70 per cent of the total gross profit earned in your organization.
You can slice and dice the data as much as you want, but the truth remains that the success of your fixed operations depends entirely on the throughput in your shop and technician’s productivity levels. It’s that simple.
So, the question is — what can you do as a leader to drive your repair technician’s performance?
The answer is, and always was, to tie performance to their pay plans.
To that end, the ultimate decision a dealer must make is whether to pay technicians under the Hourly Rate or Flat Rate Pay System. Both are actively used today, and can be successful if done right, but the flat rate system is by far the most common one. Let’s take a deeper look at the pros and cons of the flat rate system.
Flat Rate Pay System
This system somewhat depends on the technician’s experience, certification, training and other performance related factors. It should always be tied to current industry time standards to complete jobs.
In this system, service professionals are paid by job instead of a salary or per hour. It will naturally create an environment where they are motivated to finish as many repairs as possible each day.
Advantages
- Promotes productivity. Techs want to maximize their earnings so they will be self-incentivized to complete as many jobs as possible. Since dealers benefit from closing as many ROs as possible, this creates a true win-win scenario in your fixed operations department;
- Cost predictability. Dealers will always know how much they are paying in technician cost and therefore guarantee themselves to make a consistent gross profit on each RO;
- Techs can’t dispute pay. The hourly rate system creates the possibility of dispute over hours worked and market value pay. In the flat rate system, workers get to “eat what they kill.” There is no grounds for employees to argue about how long jobs take or for dealers to question why they are paying employees for various tasks. It is a clear and unquestionable payment system.
Disadvantages
- Could lead to sloppy work; quality being sacrificed for speed. Techs have an incentive to finish repairs quickly leaving quality checks to supervisors. If they can get away with turning a wrench 3 times instead of 4, they will, but this could create a bunch of other issues your management team must deal with in the future;
- Complexity of defining market rates. Some jobs are difficult to set a proper flat rate for. The system only works if time standards are fair for both employee and employer, so your Service Manager must revisit rates consistently. To that end, their role will quickly become very administrative in nature rather than customer focused;
- Shift coverage problems. Techs only get paid for the jobs they complete so they’ll be motivated to work during hours where the pool of ROs is the greatest. Since less service ROs get closed during weekday afternoon and evening shifts, it will be difficult to staff your repair shop with top mechanics during off-peak times. This is counter intuitive to the customer retail experience that dealerships promise to offer.
Consider all aspects of the compensation system you select; how it motivates staff and its implications to your dealership’s profitability.
Be fair, equitable and realistic in market rates and job times. Remember, you are in the customer retail business, so, at the end of the day, you are responsible to provide quality repair services. To do this, your technicians must feel like they are getting paid for the hard work they do.
Fair pay equals quality work. Full stop.
