Employee wages are one of the biggest expense of any dealership. This is especially true in the service department. Attracting quality talent and paying them what they are worth are essential to the success of any service department. But how do you ensure that the money you spend on service technicians is translating into production and profits?

There are really only three ways to pay technicians. You can pay them a straight salary, you can pay them hourly for punching a clock, or you can pay them flat rate for the billable work performed.

There are many opinions as to the validity of each of these methods, but as with any pay structure, it is important to understand what drives people to perform. Some do well with incentives and high earning potential. Others do better with security and consistency.

Every employee and every situation is unique, so there is probably not a one-size-fits-all pay structure solution for every dealership. In order to help you make better decisions, let’s take a look at all three options and examine the pros and cons of each.

Salary

With a salary, you are rewarding your technicians for their intrinsic value, and not necessarily for performance. With a straight salary, there is little incentive to work harder or longer. It does, however, provide stability and security for the employee that values these qualities.

A salary is probably not a good idea for a fresh hire who is unproven. However, it might work as an incentive for a tenured technician with a proven track record that needs a little more stability.

Hourlytechnicians

When paying technicians an hourly rate, you are rewarding them for showing up and punching a clock. Unlike the salaried technician, the hourly tech will get paid more for working longer hours. This can be good with employees who are conscientious about their use of time, but can be a huge drain with employees that are prone to time-wasting.

Flat Rate

With flat rate, you are rewarding technicians for the work they perform and the efficiency with which it is performed. Under a flat rate pay structure, technicians can make significantly more money than under an hourly or salaried plan. If technicians have effectively learned to complete jobs under the pay rated hours, then they can make more money in less time. The kicker is that technicians need to be efficient and hungry to work, or flat rate can be discouraging and depressing.

A recent survey of 35,000 dealership technicians by automotive consulting firm Carlisle and Co. found that the flat rate system is a prime reason for job dissatisfaction among techs and a key motivator for them to consider leaving dealership shops for other fields.

Despite complaints, however, flat rate remains the most popular and the most efficient pay structure. History shows that the best technicians are typically very motivated by a dangling carrot, and there is no better carrot to dangle than the prospect of getting paid more for working less.

The Best of All Worlds

Again, it is important to understand that different things motivate different technicians. If we work off the supposition that flat rate has been determined the absolute best way to compensate technicians, it does not mean that you cannot still incorporate some of the advantages from hourly and salaried pay plans.

Here are some ideas to consider:

  • Offer a guaranteed number of hours or number of tickets per week. This strategy can help to satisfy employees looking more stability and consistency. This also forces the dealership to take accountability for hiring and training the right amount of technicians to keep them busy and also handle the workload.

  • Give raises based on performance, but don’t overlook tenure. In the current job market, it can be very difficult to retain good technicians. Make sure your pay structure allows for raises based primarily on performance, but also on loyalty.

  • Give bonuses for high performers. For example, if a tech flags up to 40 hours in a 40-hour week, they will earn their regular rate per hour, but if they flag 45 hours, that rate could go up a few bucks.

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