Drive Excellence with Performance-Based Pay: Part 1
Does it feel like you’re paying for hours worked rather than results delivered?
Implementing a pay structure based on merit doesn’t just change compensation structure, it changes your culture. You inspire your team to take ownership, perform at a higher level, and align their goals with the mission of your business. Performance-based pay isn’t about going all-in on commission or locking into a salary, it’s a balanced system designed to reward efficient and quality work.
In this week’s episode of Cracking the Code, Weldon Long and Gary Elekes break down what it takes to implement performance-based pay the right way. This pay structure requires solid operational processes, fair benchmarks, and alignment across your team. With the right systems and support in place, performance-based pay turns speed and quality into a competitive edge that helps everyone be more successful!
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Audio Transcription (in beta, please be wary of typos)
00:00:00:00 – 00:00:09:14
Why should we use performance based pay? Learn all about it on today’s show.
00:00:09:16 – 00:00:32:02
Now, there are a lot of different ways you can structure your employees pay. Today is yours truly and Mr. Gary Alex are going to discuss performance based pay and how it can drive great results for you and your company. Take it away, Gary. So, Jim, before we get started, we’re going to start with understanding the basics. But well, what’s kind of your over arching thoughts on the importance of performance base pay.
00:00:32:02 – 00:00:48:23
And you know, is it even optional these days. Well of course it’s optional. I mean, I think anybody can do whatever they want in their own companies. I mean, let’s be honest, you’re an entrepreneur. Part of being an operator is you get to do what you want. So if I want to lose money, I can ignore. If I don’t want to work for the man, I can work for myself and myself.
00:00:48:23 – 00:01:12:17
You know I can. I can do what I want. So I think the question is very relevant, which is, is performance based pay or some merit based pay plan, you know, worthy of consideration? Given that your objective as a business, you know, is to optimize client experience and produce cash flow that’s optimized as well. So revenues nice, but profitability and cash flow are where the game is really played.
00:01:12:17 – 00:01:31:21
So, you know, the client experience and the culture trumps everything. But you know, performance based pay as a way, as a mechanism to make sure that productivity and efficiency, those two items are in sync and in alignment. And I think so the bigger question, you know, I think for a lot of companies is, is timing of performance based pay and how to do it.
00:01:31:21 – 00:01:48:09
And so it’s not a question of, I mean, we we stole this idea from the auto industry in the 70s. They started doing flat rate and task based pay in the 70s. So they’ve been doing a lot longer than we have. It wasn’t until really the 90s, and I’m sure there were some companies in the 80s doing it, but in the 90s, well, I know there was.
00:01:48:09 – 00:02:09:13
I used to call on a couple of companies in Chicago, so it just wasn’t mainstream. Now, today, you know, for me as a business and I’ve said this in every seminar I’ve ever done on this is I would never own a company that didn’t have performance based pay in all the positions of the organization for alignment purposes. So that’s not the same, as saying that we’re trying to reduce pay.
00:02:09:15 – 00:02:26:22
So a lot of times people come to work for you or me from another organization, and they’ve been in a company that was trying to use performance based pay as a weaponized version of reducing pay against sales. That’s really the opposite of what we’re doing. We’re looking at basically allowing people to earn prosperity. As we win, they win.
00:02:26:24 – 00:02:43:13
Awesome. And, you know, one of the things, you and I were discussing this yesterday and one of the things I, one of the biggest misconceptions, I think, for me at least when it comes to performance based pay, is that it’s kind of an all or nothing deal, right? Like straight commission or nothing. Right? Straight commission or hourly or salary.
00:02:43:15 – 00:02:58:14
One of the things we’re going to learn from Gary today is that you can blend this thing, right. There can be some component of base pay or hourly with a, with a component of incentivized, options. And so that’s going to be really interesting to find out the details of what it is and how we implement it.
00:02:58:16 – 00:03:18:08
So let’s talk about understanding performance based pay. Right. You talk very much in everything you teach. One of the hallmarks of Gary Alex’s teachings, frankly, is alignment and everything he teaches. He’ll always come back to this concept of alignment. And so Gary talked to us about that. What do you mean when you say the pay has to be aligned with the behaviors and the results that we expect?
00:03:18:11 – 00:03:34:29
Yeah. I mean, as a business owner, you’re basically the ultimate performance based pay specimen. You win and lose based on the profitability of the company. And if the company is not making profit, you have to write a paid in capital check, or you might have to go take a loan. Either one of those is a bad idea. It’s a bad outcome.
00:03:35:01 – 00:03:55:07
So you’re at the top of the pyramid or the bottom of the pyramid, depending on, you know, which leadership paradigm you want to use. But at the end of that, you know, so we have sales, we have customer service. You know, you’ve got installation, you’ve got service techs, maintenance techs, you know, plumbers, etc. electricians, all of those folks are required to produce a product or service.
00:03:55:09 – 00:04:22:01
So what we’re looking for is alignment with your success pattern that you want from a budget and from the goals of a business, both growth and profitability, client experience included. How do you get everybody lined up so that when that happens, they prosper? And when it doesn’t happen, they don’t prosper as much so that, you know, everybody looks at it and says, well, if we want the best reward system we can get, we have to do it the way the company has outlined it to be done.
00:04:22:01 – 00:04:40:08
So as long as that structure is there and that’s a conversation we’re going to have later. I always talk to people about performance based pay as being one of the very last things that we do in a business plan. So if I buy a company, and I’m involved with a company in new Jersey right now, you know, they want a good performance based pay right away.
00:04:40:08 – 00:05:01:14
I’m like, no, you don’t have the processes in place. So what you don’t want to do is implement a system that harms the employee community in and disallows them to earn up because your systems and processes are in the way. So the alignment process is, well, let’s get our business practices and machinery set up properly that match the business plan.
00:05:01:16 – 00:05:16:22
And then let’s reward people for doing those things. Yeah that’s that’s a great point. And I think one that’s worth kind of focusing on for just a moment, what Gary saying here, I think is what you’re saying. This might be an example of it. We all want to go to performance based pay because we know it’s better financially for the company.
00:05:16:25 – 00:05:31:12
But if I go to performance based pay, for example, on service, but I don’t have any service calls, I haven’t done the marketing. I haven’t laid the groundwork to have the opportunity. Then that’s where it’s going to cause a lot of problems. Right. So I think what you’re saying, Gary, and maybe you can just kind of expand on that a little bit.
00:05:31:14 – 00:05:49:08
If I’m going to go on performance based pay, I better be sure I have the other systems marketing, whatever. I need sales in place to provide the opportunities. Otherwise it really is not a it’s not going to be an alignment. It’s not going to be fair. Yeah. That’s exactly what I’m saying. And I would extend it. It’s it’s it’s all aspects of the business planning.
00:05:49:08 – 00:06:13:01
So I mean, we do this in the bootcamps when we do the company planning, and the finance platforms, we do a benchmark analysis on any business. The company in the room does the benchmark analysis on themselves. About 375 business processes. You’re going to want to look at things like inventory. You know, if 85% first time call completion is something that we want out of our service business, the service managers, performance based pay, the service technician would be, performance based pay.
00:06:13:01 – 00:06:36:02
Both of those people would be harmed if we didn’t have an inventory system that supported 85% first time call completion. If our pricing is wrong, there’s not enough beet juice in the beet to serve the beet juice, right? You can’t squeeze what’s not there. So the concept of alignment is performance based. Pay is absolutely one of those steps inside of the chain of getting the business to a real prosperous position.
00:06:36:05 – 00:06:57:12
But you want to do it in a way that allows for alignment on the top end processes. So sales and marketing are part of that, but also operations process, production process, customer experience. What’s expected of me? How long do you own me on the call? You know, if you have performance based pay and you want your technician to spend a little time and talk to a homeowner about options in the home, and you’re not paying them for that, they’re they’re in out of alignment.
00:06:57:15 – 00:07:10:00
I mean, from their point of view, they’re saying, well, hey, wait a minute, you don’t really pay me to do that. You pay me to actually fix things. So you got to sequence all that stuff. And that has to be a big time conversation where you spend a lot of time talking about that. Well, and that’s that’s the cornerstone of this work.
00:07:10:02 – 00:07:26:05
So the plan itself is easy. I mean, I can go as simple as, hey, I’ll pay you as a plumber 24% of the ticket. We’re done. Right? And you’re like, this is great, let’s go. But are we doing the right thing for the customer? Are we creating quality control problems? Are we handling our warranty? You know, I mean, there’s a million things where you can screw up the customer relationships.
00:07:26:07 – 00:07:42:13
So we want our business to function at the highest level. And so performance based pay is one of those dots. It’s just a dot that’s behind a couple other dots. Yeah. And it’s just so important. You mentioned you have to have operation alignment. If you put your folks out there in a flat rate, they have no inventory in their van, and they got to spend half their day in the house.
00:07:42:15 – 00:08:12:18
That’s not alignment. Again, that’s not equitable. Hi, I’m Darryl, you shouldn’t ski. Hey, I’m Bob Larkin. Many of our contractors meet with us monthly. And you chances are I’ve met with us monthly. We found that members have deeper and greater needs. So we came up with next level coaching, which is we meet a lot more often. And there is accountability to deal with some of the issues of money growth, finding employees, having an exit strategy to get off this roller coaster.
00:08:12:19 – 00:08:39:19
These are the issues the contractors want answers to, and we can provide those answers. The next little coaching. When you join next level coaching, you’re going to find solutions that are easy to implement and logical. Most importantly, we hold you accountable to specifics. We’re going to meet twice a month and have specific to do’s. And with those specific to do’s, we’re going to discuss and dive into your financials in a very granular way.
00:08:39:24 – 00:09:05:28
You’re going to have a clear budget. We’ll be able to establish pricing. We’re going to help you create leadership programs to build your people. We’re going to help you find people. You may think of differing ways to engage employees that will keep them more involved by joining next level coaching. So if you’re interested in making more money, growing your company, finding good employees, and developing an exit strategy, you have Dale on our call.
00:09:06:04 – 00:09:35:20
We’d be happy to talk to you about next level coaching, and we’re going to see you on the next level. Now, as you mentioned, Gary, we think about performance makes me really easily when it comes to salespeople, for example, and the owner, because obviously we’re on the ultimate performance based pay system. Right. But what I find really interesting about this discussion that you’re going to have over the next few hours is it’s more difficult for us to figure out what are the benchmarks, what are the performance based pay things based on when there’s not dollars directly involved?
00:09:35:21 – 00:09:55:29
As a service manager, you know, as as a warehouse manager, as an install manager. So what’s really going to be interesting? I think, for all of us to see today is how do we calculate the performance based pay when there’s not just a simple dollar percentage we can get give or incentivize? But, some of those areas are a little bit, a little bit, less less clear.
00:09:55:29 – 00:10:14:26
Right. They’re a little murky. I murky when you’re looking for the word market. That’s the big 20% we’re word for there. And you mentioned down here this is worth repeating. Compensation alone does not change the behavior. And I think that’s what you’re getting at, that everything else has got to be changing with it. Yeah, 100%. There’s no amount of compensation that will long term change behavior short term.
00:10:15:02 – 00:10:33:01
It will change behavior pattern short term. Right. So we throw money at a problem and it will short term change. But long term people will go right back to their behavior pattern. So we have to be thinking about is how do we actually get people to behave properly and then reward and incent them around that. So it’s a combination of things that that JPY is or 24 I it got you
00:10:33:03 – 00:10:51:13
Yeah. Murky murky a little murky today. Thanks to Jim. And it’s a lot of fun in that with Gary. But there are certain downside consequences. Not very few downside consequences. I think it’s worth, kind of discussing here. There’s a lot of different types of performance based pay. And I think this is where some of us get hung up.
00:10:51:20 – 00:11:06:18
We think about it strictly, as Gary mentioned, a percentage of the ticket or percentage of the the sale. But fortunately or unfortunately, depending how you look at it, it’s a little more complex than that. It’s a little more nuanced than all that. And that’s what I’m looking forward to understanding, is apply that to these other roles.
00:11:06:18 – 00:11:26:24
So what are the types of variations kind of elaborate on these different types. Yeah. So there’s four types up there but there’s innumerable types. You can create any number of combinations. I think it’s based on the level of comfort that the business owner might have, in relationship to, have to deal with the individuals that are part of the performance based pay system or merit based pay.
00:11:26:27 – 00:11:42:07
I think it comes down to accounting capabilities. There are some companies that say, well, my accountant is just not gonna be able to do well with that. So I want something simpler. I want something that’s cleaner. I’ve had people say, look, I’m just going to pay a percentage of the ticket. That’s the simplest method. Well, guess right.
00:11:42:07 – 00:12:02:14
Keep it simple. That gets right down to the accountant. Doesn’t have to think too much, so that’s okay. So we can do any kind of combination of hourly wage. I know that’s something that you’re doing right now where you’re still paying somebody a wage against the actual workflow. But you’re also creating a bonus that’s tied to performance off the ticket or off of the job.
00:12:02:16 – 00:12:23:23
So we certainly see that, you know, with sales professionals that have a base wage or base salary, hourly either way, and then some sort of a compensation based on commission. So there’s the task based pay system, which is something that we use in our service business, I should say Hvac service business, because the plumbing side is, is less of that.
00:12:23:25 – 00:12:40:15
So there’s a task and there’s an hourly rate attached to it. And so if we can beat the task, meaning it’s a two hour task and we do it an hour, we’ll pay the two hours. So we’re paying it based on the task time, not necessarily based on the wage itself. So $30 an hour I finish in an hour.
00:12:40:15 – 00:13:02:23
But it’s a two hour task. I get paid $60 against that particular task. So that’s all tied to a flat rate system. And so you’ll see that out there. And then there’s the managerial side. Customer service dispatch, supervisory positions. You got to really think through the alignment on that wall. And so, you know, I’ve given the plans for, for everybody, you know what we have written in the past, I’m not saying those are right.
00:13:02:23 – 00:13:27:16
I’m saying those are examples for you guys then to customize. But everybody in my company is paid off gross profit. So I’m not interested in the sales revenue because it’s entirely possible, as you know, to sell something and still lose money. So it’s not okay to lose money in a business. It’s not going to work long term. So what we want is we want to have a gross profit target, which is one of the reasons I gave everybody the budget.
00:13:27:18 – 00:13:46:03
And I would recommend everybody come to a financial planning or the company planning workshop where you’re laying out the budget and you’re looking at the gross profit numbers for each of the business segments. So my service manager would have a gross profit. Tiger wall. So they’re going to get paid a salary. And that’s merit based. You know they’re going to have to do certain workflows against the role description.
00:13:46:05 – 00:14:09:25
But there’s going to be an incentive tied to the gross profit. So every month that individual will get some portion of the gross profit that’s produced, more gross profit, more compensation, less gross profit, less compensation. But there’s also an incremental process that attaches to that. You’ll see in that plan, which says that you have a target. And if you surpass that target, the company has one.
00:14:09:27 – 00:14:34:09
Therefore, we will share prosperity with you based on the idea that you have brought us to a place where we’re happy as a business. So you typically don’t control overhead. So that’s why we focus on gross profit. Now, there’s a there’s a fourth layer in here which isn’t even listed here. And I really only talk about this for very sophisticated businesses, people that are, you know, have are in the top 5%, we pay performance based pay on controllable income.
00:14:34:12 – 00:14:54:25
That’s an entirely different animal. You I, we haven’t even sat down and talked about that. That’s where your financial system is very, very well organized. And I can take, the idea that maybe I want to. Maybe I want to drive that Ferrari that you have in your garage for a beautiful car, by the way. Or perhaps I want to take a vacation, you know, and maybe I want to expense that on the company.
00:14:54:25 – 00:15:11:17
For example, you might want to come to the Cayman bootcamp. There you go. Where for four hours we work, and for 20 hours we play. But it’s a it’s a real, you know, bootcamp. So it can be expense. And you might want to bring your wife and maybe you bring your son and you know, so those are expenses.
00:15:11:17 – 00:15:30:05
Now if you’re the service manager and you’re paid on profit, you would be asking the question like I did in my Linux days. Hey, wait a minute. Why is that corporate jet being an expense to me? I’m not flying on that corporate jet. I understand that you’re flying on the corporate jet. That’s fantastic. Good for you. But you’re harming my compensation.
00:15:30:05 – 00:15:55:26
That’s not alignment, right? And I used to question all the time why am I getting these expenses. So the concept of control income is very simple. We put all those below into what we call a corporate overhead line. So sales is minus cost of goods sold gives me gross profit. That’s a method to pay a service manager. But the next level stuff is, controllable overhead items that the service manager would control.
00:15:55:26 – 00:16:12:14
Do you want to buy a new truck? Great. Depreciation counts. You’re going to put gasoline in it. Fantastic. You’ll own the relationship with GPS in the mileage and making sure the fleet is taken care of. You’ll on the relationship with some level of marketing. So you want to do some service marketing. You want to send out a coupon.
00:16:12:14 – 00:16:34:15
Great. You own that relationship. So all the controllable expenses are there. And so what’s left over from gross profit minus control of overhead is control wind come. And that’s going to be a bigger number than Ebit. So we would we could absolutely target and pay that. So that’s where I want to go as a business. I want to get to that level where I’m paying people based on the controllable income they produce.
00:16:34:17 – 00:16:49:18
They don’t got to worry about you or me, our lifestyle that might be underneath that, that we’re taking, you know, company expenses that don’t really apply to their world. Because I know what I would say, I it was where I set Linux, I didn’t expense I didn’t, you know, fly the corporate jet. I don’t want the corporate jet.
00:16:49:18 – 00:17:09:06
You guys sell the corporate jet. I’ll take the profit and their answer as well. Yeah. We’re not going to do that. So you know and I understand but it’s out of alignment right. And so as a as an employee I’m just not happy about it. So you’ve created a problem. You know highly motivated, highly trained, highly educated person who wants to win for you.
00:17:09:08 – 00:17:28:16
I’m starting to get, you know, the, the concept that well, are they really do they really want me to earn based on my merit, or do they just want to talk about it? So that’s the culture versus the actual representation of what happens. So lots of different ways to skin the cat. And I’m happy to answer questions on all these things.
00:17:28:16 – 00:17:47:26
So we’ve, we’ve got all of these operating in different businesses and they all work. It all comes down to communication and making sure people feel real good about, understanding how they’re paid. They go home, sit down with their spouse and talk about it. And the discussions are constructive and so we’ve got a lot of different ways that we can attack that particular situation.
00:17:47:26 – 00:18:03:27
Yeah. You know, you see here at the bottom here, this is really about getting everybody rolling the same direction. And I want to give you a quick example of my company, from challenges that we’ve had, we’ve played around with various forms of performance based pay. We’ve had people that were straight percentage. Then we went to an hourly plus a percentage.
00:18:03:29 – 00:18:23:06
But I will tell you, you have to be so careful because like in our case, I think our hourly is way too high, like it’s too high. Right. And so as an example of how that can be very detrimental, we’re doing some training, a week or two ago in my company and through a scheduling issue, and the tech needed to be there for some training.
00:18:23:08 – 00:18:42:15
Basically, he had ended up at the shop for five hours. Now, it wasn’t really his fault because he was scheduled to be at the training. Nobody booked him a call, but he ended up being there for five hours at 30 bucks an hour, and if he were on a smaller hourly, maybe 15 or 20 bucks with a bigger percentage for what he does, he wouldn’t sit around for five hours.
00:18:42:15 – 00:19:00:04
He’d say, hey, give me a call to run, man, I can’t sit here for five hours. I’m trying to make some money, but we incentivize the behavior that we don’t want by giving such a a, a high hourly that, of course, he’s happy to sit around for five hours. Why not? I can have some coffee, shoot the breeze, flirt with the girls in the office, and I can make 150 bucks doing it right.
00:19:00:04 – 00:19:21:11
So as we go into the nuances of this, it’s not just conceptually. It’s got to be, you know, maybe a salary plus commission. You got to talk about what that salary, what that hourly is because you’ll end up like we did, incentivizing behaviors that we don’t want anything to do with. So let’s talk about the behaviors and those concepts as we kind of move down the road here in this performance based pay conversation.
00:19:21:15 – 00:19:45:11
Yeah. I want everybody to maybe just make some notes. So I think, you know, the first thing you want to have is you want to have a culture document. So I put that in the materials for you today. Let’s just let’s, let’s re mention that because I think the audio wasn’t working when I said that earlier. Gary has put together a comprehensive, extremely valuable series of files, electronic files on how to do all this stuff, the forms you’ll need, the the education you need.
00:19:45:11 – 00:20:10:20
So if you didn’t, if the audio wasn’t working earlier, which I don’t think it was, you’re going to be getting that after this training. And that’s really, really important because he’s going to give you all the stuff, the material you need to make this stuff happen. Yeah. Appreciate the reinforcement on that. So the culture document for us, you know, outlines the client experience and what we expect in terms of behavior patterns, like how we’re going to treat each other, but how we’re going to treat the client, how we’re going to treat vendors, how we expect vendors to treat us.
00:20:10:22 – 00:20:33:12
All of that is outlined. So it’s behavioral. And so it’s difficult for you to ask somebody to behave a particular way if you’ve come from a different company or you came from a different place, maybe you came from a different marketplace, you know, how that, culture was developed for you, your belief systems that was organized long before you ever came to me as a potential teammate.
00:20:33:15 – 00:20:49:20
So what we need to do is recognize that each individual is going to have a belief system and a culture, and the company is going to have a belief system in the culture. Gary, who owns the company while he owns the company, you’re going to have a belief system and a culture. And so you got a Venn diagram.
00:20:49:20 – 00:21:07:16
You got three circles that are intersecting. And so what you want to do is you want to make sure that the company culture is defined. You know, what makes for company culture is moonlighting okay or not? Maybe it is. Maybe it is. And I’m not commenting on that. I’m just saying, you know, as a business, we would identify that as a behavior.
00:21:07:19 – 00:21:26:11
So we focus on the behaviors, not the outcomes. And so when we reward people, we want to reward people for behavior patterns that we have said are constructive towards client experience, producing optimum profitability. Cash flow. Those are the things that we’re going to focus on. If you don’t have that defined, I would contend it’s what we call ad hoc.
00:21:26:13 – 00:21:41:15
You’ll do what you think is right. I’ll do what I think is right. Andy and Denison, who are rock stars, who produce this stuff for us back there, they’re going to do what they think is right? Right. Jessica, who’s running the meeting here? You know, and and she’s fantastic. She’s going to do what she thinks is right.
00:21:41:17 – 00:22:00:18
Unfortunately, between the 5 or 6 of us, we we may have very different opinions about what that is. You can’t have that. So you got to have consistency. Did you write a book? I heard consistency, actually. I did that New York Times bestseller. Thank you. So and I’ve had all my kids read that book and, you know, they’re like, wow, that’s an amazing story.
00:22:00:18 – 00:22:21:27
What what an incredible concept. I’m like, yeah, this it’s amazing that you can preach that to your company and to your kids. And somebody takes a book or somebody that’s outside. It’s kind of an important discussion because behaviors are are going to be what change the outcomes of profitability and performance. So the accountability, Wally, I think is also one of those things that we talk about.
00:22:21:29 – 00:22:39:11
You know, I want people to do workflows that are specific, if there’s a problem, I’d like them to identify that. We can just talk about that in terms of inventory. You know, we want our guys to finish 85% first time call completion, which means we got to have the right part on the truck that matches what’s going on in the world.
00:22:39:14 – 00:22:59:12
If we’re not doing that, that has to be measured. But think about that now. If you’re performance based pay and you’ve if you don’t have the right inventory on the truck, you’re damaging the technician’s ability to earn if you’re paying them based on that task, that you pay him based on the hourly and they’re $30 an hour, or Wally in your case, maybe he doesn’t care.
00:22:59:14 – 00:23:16:13
Maybe he’s like, you know what? I’m getting paid. It’s fine. The company sucks, I don’t care. You know? I’m just going to keep doing what I’m doing. If you’re paid $15 an hour, that’s not enough to be happy or comfortable, right? So now you start caring, right? So I think what you want to do is you want to create a reward system that creates accountability.
00:23:16:15 – 00:23:36:07
And I will tell you that I think, it’s more difficult today to hire people that want to be accountable. But I think they’re out there. And I think the culture of the business will attract that. Had a conversation this morning with company in Carolina, South Carolina. And he’s like, you know, when I was small and I was 1 or 2 men, it was a lot harder to hire people.
00:23:36:09 – 00:23:56:27
He’s a guy now. He’s like, my trucks are everywhere. You know, we’re a big company. We’re on the radio, we’re on billboards. People see us and they come in. They go, hey, we want to work for your company. So the brand and the image does matter, right? So I think when you’re talking about systems and rewards 4.3 there, I think you want to reward your performers and they’re going to be out there talking about your company and why it’s cool to work here.
00:23:57:04 – 00:24:21:28
Right? So, in my 17 years at Lennox, I had 13 different compensation plans. And, that’s not a happy point of view. That’s a pain point for me, because 13 times I felt like I had to go back and figure out how to support what the company wanted to do. And so the system of rewarding performers, they were constantly reducing my income.
00:24:22:00 – 00:24:39:15
I was producing exactly what they wanted, right? Doing it exactly the way they told me to do it to a better standard than they asked. And every year they came back and they removed compensation. And so after a while it’s like, well, wait a minute, I’m a performer, I know I’m performer. They know I’m former, you know, I’m a former.
00:24:39:17 – 00:24:59:13
Why is this happening? And the reason they’re happening is because they didn’t want to pay the performers. So it’s actually the opposite bullet point three is you guys need to be thinking about how to absolutely reward your peak performers to the highest degree. Celebrate that. And those people that aren’t performers, they may or may not win as much.
00:24:59:15 – 00:25:23:11
But at the end of the day, why is that a problem? If if your culture of your business is based on merit, there’s some level of competition that exists there, and I think you’re going to have to ask yourself, what kind of a culture do you want? Do you want people who enjoy that? Or do you want people who are going to sit around and do social media, and not do the maintenance right, which I had a guy in Columbus do that one time that he was down there reading a book.
00:25:23:11 – 00:25:42:20
He’s reading poetry instead. Doing the maintenance customer came down, caught him. And, he’s been paid hourly, though. Yeah. Of course. Yeah. You know, I love this concept that you’re outlining here, that there’s a standard that we have to expect, and there’s the base pay. The hourly pay is based on hitting that standard and the extra stuff comes in when that’s exceeded.
00:25:42:23 – 00:26:01:03
And I will use my company as an example. I’ll share the good stuff, the bad stuff and the ugly stuff. I think that our hourly was kind of an arbitrary number. In fact, I know it was. And part of this was because my company was built on installs. The first four years all we did was install. So we had a couple of service guys to do our service on our installs, but that was it.
00:26:01:05 – 00:26:16:07
The plan was to find a company eventually with a service department to buy it, and we did that in May and June. Well, it was it was the beginning of summer. It was crazy busy all these new people. It was insane. And so we had a hard time getting the new people on our performance based pay. So we made a mistake and we relented.
00:26:16:07 – 00:26:31:13
Instead of just doing a better job in managing, we we gave in to the demand, right? It was the beginning of summer. We just had all these new techs. We didn’t want to lose them so that 30 bucks an hour was chosen. The problem is we never said, okay, what is the revenue expectation for you to keep this 30 bucks an hour?
00:26:31:15 – 00:26:48:13
Right? The 30 bucks an hour is fine if you say, okay, that that’s what you earn. If you if you put up $10,000 a week or whatever, $5,000 a week, and then if you get more than additional bonuses, kick in. So we never tied the standard to the hourly. It was an arbitrary number without the measurement on the other end.
00:26:48:13 – 00:27:04:10
And I will tell you it is cause some problems in our company. We are actively fixing that right now. Between now and the end of the year, it will be completely remedied. But it’s interesting. You know, most of what I’ve learned in my life always is on mistakes and screw ups, right? When things go well and I succeed, like at the time, I’m like, wow, how did that happen?
00:27:04:17 – 00:27:21:10
But when I screw up and we do something dumb and we do something wrong, and we look back and we can see the consequences, man, you talk about the pain point, right? So we’re really embracing this stuff and understanding. And this describes what I was thinking. You know, like we did not set the standard to get that 30 bucks an hour.
00:27:21:10 – 00:27:40:12
We just said you get 30 bucks an hour plus x percentage of what you sell, right? Was never tied to a standard. And that has cost us significantly. Yeah. So, was, hoping that the folks would write some things out. So the first one is to have a culture document that’s defined. Right. We want to know what the expectations are for behaviors within the company, what line is not okay across.
00:27:40:12 – 00:27:56:18
Like you can’t, you know, steal from the company. Right. So moonlighting would be a bad thing if that’s our example. The second thing that I would ask, you know, the folks to write down is you got to have a clear, defined set of role description activities. What’s the what’s the role supposed to do? What’s the job itself?
00:27:56:18 – 00:28:21:18
So I put it in the materials. Jessica is going to send you there’s probably at least 30, maybe 40 documents that are coming out, a role descriptions for each of position. So service tech, plumbing tech, plumbing supervisor service manager, you know, general managers, all those people are all important in this particular relationship. But how the role description sets up for what activities are required, begins to talk about how we’re going to reward people.
00:28:21:20 – 00:28:39:07
So the next thing I want you to write down is they got to have KPIs. There has to be a set of measurements for each one of these roles. That’s a company scorecard, but it’s also an individual scorecard. What is the average ticket supposed to be for a service technician? You’ve got pricing set up. I think yesterday you told me it was 475.
00:28:39:09 – 00:29:00:09
Okay. So at 475, based on an hour type call, your average ticket might be pretty close to $500 or above that. So if a technician is not billing all the repairs and doing workflows to support the idea that maybe he doesn’t want to be the bad guy in front of the homeowner. So he’s not creating a billable event, okay?
00:29:00:09 – 00:29:18:15
And he’s not paid based on the billable event. The company is losing revenue, gross profit. You’re paying him wage against that. He’s doing a favor for the homeowner. He looks like the hero. He looks like a rock star. Homeowners happy, technicians happy because you get paid. But you’re the one that didn’t get paid, right? You’re out of alignment.
00:29:18:17 – 00:29:35:22
So, you know, when you start thinking about that in terms of KPIs, that would show up in my world. Yeah, the scorecard would identify that. Now you can get me for a week, but you won’t get me for more than a week, right? At some point, that piece of information is going to float up, and the service manager is also tied to that.
00:29:35:22 – 00:29:54:05
We just talked about that idea. You’re on gross profit. So when if I’m the service tech and my metric is Adeline, the service technician is going to be have to be accountable to the service manager from the GPC side. He’s looking into that, asking the question why is that number not right? The problem we have in most companies is we don’t have the KPIs set.
00:29:54:06 – 00:30:09:17
We don’t have a scorecard. So we got to do that. We got to get that in place. Awesome content right there as always. Now listen, if you like this content, please share it with your friends via Facebook. If you’re not a member, go ahead and click the button below to get a free trial of our entire contract university platform.
00:30:09:23 – 00:30:39:10
There’s an awful lot there and you’ll get it for free. We’ll see you next time, folks. Until then, bye bye for now.
