As workshop owners and managers, we are all tasked with making countless management decisions every day, and for the most part, most of us get it right most of the time since most of us have been in business for many years. However, it must be said that we do not always realise how some of our executive decisions affect our employees, and especially how some of the decisions we make affect the wages we pay our technicians. Thus, in this article, we will take a closer look at the topic of our management decisions vs. technicians’ wages, and particularly in terms of how we calculate our individual technicians’ contribution to the profitability of our businesses, starting with this question-
Obviously, how productive a technician is plays and should play, a major role in determining how much to pay that technician. However, we would like to suggest that if any given technicians’ contribution to revenue, and hence his wage or salary, is based purely on how many hours that technician had billed as a percentage of the total billed hours for all mechanics and technicians for say, a month, that technician many not be paid a fair wage.
Consider the following example. You have a technician that spent say, seven hours fixing a laundry list of faults, issues, and problems on a single vehicle. So, let us imagine that your technician spent the day performing a major service that included a timing belt replacement, as well as other work that included replacing a front wheel bearing, and replacing, adjusting, and calibrating a DSG clutch actuator. Finally, the technician spent the last hour of the day resetting and/or reprogramming several control modules that had lost some programming as the result of a failed battery.
Since determining how much this technician is worth to you is your prerogative as the owner or manager of the business, how would you calculate the contribution this technician had made to the workshops’ total billable hours for that day?
Given that the jobs the technician had performed required skills and knowledge that ranged from basic to advanced, would you assess each component of his days’ labour at different rates that reflect different skill levels, or would you assign a simple hourly-based rate to his contribution for that day? Let us look at this in some detail-
Suppose you have 7 technicians that billed a total of 7 hours each on that day; therefore, you billed a total of 49 hours at your basic labour rate. However, some of your 7 technicians also performed some electronic diagnostics, and two technicians, one of which is our hero technician, also performed reprogramming and/or resetting tasks on control modules. If you only charge a basic hourly rate for all work done, the calculation would be easy, to wit- 7 technicians produced 49 hours of labour at your hourly labour rate.
However, if you charge differential labour rates, such as an R-R-R (Remove-Replace-Repair) rate at “X” dollars/hour, a higher diagnostic rate at “Y” dollars/hour, and a still higher reprogramming/re-flashing rate at “Z” dollars/hour, the calculation becomes little more complex. In such a case, each hour billed for each technician would be combination of different rates, which we would suggest is a more equitable way of determining what each technician is worth to a business.
Nonetheless, the calculation is not complete. We also recommend calculating the profits in terms of lubricants, cleaning materials/consumables, and parts each technician had generated during each job, and then adding that value to his calculated labour contribution. The practical advantage of making the management decision to change how you calculate productivity levels is that over time, you get a complete picture of each individual technician’s contribution to your total gross profits.
One further complication is that sometimes, we as managers or owners of workshops decide to give some customers discounts. We need not discuss the reasons why we do this here, but suffice to say that unless we record such discounts, whether these relate purely to labour charges or parts mark-ups against the “productivity account” of the technician who did the discounted job, that technician’s overall value to the business might become skewed over time. In fact, if we base a technician’s wages purely on his productivity and we don’t keep track of discounts, repeated discounts on work performed by a given technician could create the impression that some technicians are “worth” less than others are in terms of the labour component of their contribution to gross profits.
The point of all of the above is that it is we, the owners, and managers of workshops that make the management decisions that sometimes bear negatively on our technicians’ take-home pay. We are not suggesting that every owner or manager reading this should now suddenly give out double-digit pay increases, but we are suggesting that since the average tenure of mechanics and technicians is less than five years and sometimes considerably less than five years, the way we determine pay rates could bear revision. Thus, let us take a closer look at three pay theories that could be applied to most workshops, starting with-
The thought bubble in this cartoon is perhaps best left blank, but the graphs in the cartoon perfectly captures the notion that many mechanics have, which is that their efforts are not equitably rewarded.
Nonetheless, the equity theory is concerned with the relationship between remuneration and effort. In short, this means that employees will a), compare the effort they put into their jobs with the wages they receive, and b), that they will compare the wages they receive for their efforts with the wages and efforts of other employees. Therefore, if technician A believes that he is being paid less than technician B who technician A thinks puts in less effort than himself, the inevitable result is that technician A will become de-motivated, and may even leave your employ, which could be blow to your workshop if technician A has skills and knowledge that other technicians in your business do not possess.
The key aspects to remember here are that the human condition is a frail thing, and that to some people perception is reality. Moreover, as managers and owners we also need to understand that there are two forms of pay equity- internal equity, and external equity. Internal equity refers to how some people see their pay rates as compared to colleagues in the same workshop, while external equity refers to how people see their pay rates compared to those that obtain in other, similar workshops.
The main take away from the above is that large pay disparities should be avoided, and especially between technicians that on average, do the same types of work. Of course, there will always be disparities based on skill levels, qualifications, seniority, and levels of responsibility, but one way to address these disparities over time is to give all mechanics and technicians the opportunities to obtain improved qualifications and/or to assume more responsibility. This will not only maintain staff morale; it will also raise the overall skill level of your business.
This theory holds that employees will generally only put as much effort into their jobs as they expect to be paid for those efforts. Therefore, if technician A perceives that he will be paid fairly for his efforts, skills, and knowledge, he will put in the effort required to match his expectations. Conversely, if technician A begins to see that his efforts do not match his expectations in terms of take-home pay, he may reduce his efforts to match what he does receive, or he may look for greener pastures elsewhere.
The reinforcement theory states that if exceptional effort by an employee is acknowledged and suitably rewarded, it is almost certain that the rewarded employee will repeat his high performance when it is required of him. Conversely, if exceptional effort by an employee is not acknowledged and rewarded, it is almost certain that that employee will not repeat his high performance, even if it is required of him.
However, it should be borne in mind that this theory works best when it is applied in the form of occasional bonuses, and NOT as a guaranteed part of a normal salary or wage package. Used in this way, bonuses for exceptional performance can both drive desired behaviour, and serve as suitable compensation for that desired behaviour, such as working overtime on say, a Friday night.
Of course, not all of the above pay theories will apply, or can be made to apply to all workshops, but even though they are stripped to the proverbial bone, they should provide sufficient information on which to base management decisions that could increase the wages your technicians receive without bankrupting you, which leaves us with-
There are many reasons why so many workshops are struggling to keep their heads above water; some could be facing tough trading conditions in depressed local economies, others could be over burdened by debt, and still others could be poorly managed. Whatever the reason though, many, if not most workshops could be returned to profitability by well thought out, and properly motivated management decisions that are based on sound business principles and guidelines.
However, each business is unique and what works for one may not work for another, but despite that, there are some things that are common to all successful workshops. This common factor is a set of business guidelines that are designed to make it easier to both run the business, and to keep track of how much each employee contributes to gross profits.
Sadly, limited space precludes a comprehensive discussion on the topic of business guidelines, but what we can do is to focus on two issues that can cause especially new workshops to fail in fairly short order if they don’t pay proper attention to them, starting with-
One way to establish such a relationship is to calculate the amount of money an individual technician produces in terms of his total labour contribution, and then to express that value as a percentage of your gross profit. For instance, and if we accept that the labour charge per hour billed against say technician A includes the profits from parts, lubricants, materials, and consumables, that value should ideally constitute about 30% - 35% of the total gross profit produced by that technician over a given time period.
Thus, if your measurement or payment period stretches over a normal workweek, technician A’s gross wage for the pay period should ideally be between 30% and 35% of the total gross profit value technician A had produced over the pay period. This method of calculating wages is found to be one of the most accurate ways of compensating technicians fairly for the value they bring to a workshop.
Of course, a value of 30% to 35% may not be practicable for all workshops, and your proverbial mileage may vary. Nonetheless, the point is that the lack of a business guideline that determines pay scales could indicate a failure to understand the nature of the independent repair industry, or a failure to understand the human condition as it relates to fair compensation, or worse, a failure in management.
While all these issues can be easily corrected, doing so requires that an owner or manager of a workshop make some tough business decisions and the implementation of new operating systems that have to be communicated to all employees clearly if they are to work as designed, which brings us to the need to-
The biggest part of your job as a workshop owner or manager is to decide how much to charge customers, and while we understand this is not always easy, we do recommend that you always charge all customers the same rate for the same work.
For instance, if you want to track the productivity of each individual technician, we recommend that you change your work order forms so that it becomes easy for technicians to record the time they spend on different types of work accurately. There are many ways of doing this, but a technician should not have to figure out how to record say, 18 minutes he spent on an oil change, 27 minutes to change brake pads, 51 minutes to reset an alternator control module, 21 minutes to do a diagnostic test drive, or 26 minutes reprogramming two ignition keys.
If times spent on different types of work are recorded accurately, it becomes easy to calculate standard rates for different types of work. Therefore, if you decide to implement differential labour charges, the result will be that all customers will always pay the same amount (per hour) for the same type of work, which will have the further advantage that you can more easily track and manage the different income streams in your business.
Let’s face it; it is your responsibility to determine labour charges, and how you decide to do it has a direct bearing on how much more than minimum wage you can afford to pay your technicians, which leaves us with this-
We all know that there is only so much good talent available, and that attracting and retaining highly skilled technicians can sometimes be challenging. Therefore, we could perhaps all benefit from a short lesson in economics in general, and how we can use established economic principles to develop new strategies to ensure our technicians are paid what they are truly worth to us, in particular.
