The Flat Rate Pay System has been revisited in recent years by management looking for a better way to compensate technicians. The technicians want their current compensation, say $50,000 annually, on a non-incentive pay system. This would amount to a $25 per clock hour rate plus resulting overtime pay (over 40 hours per week or 8 hours per day). A salary pay system is the easiest for service management to manage but will increase the cost of labor sold since productivity will normally be much lower. This increase would require a reduction in technician pay rates or an increase in the labor charges to the customer to cover the resultant expense structure. The technicians will change jobs or the customers will go elsewhere to get their work done if either of these events happen in a market driven economy. I have found that shops with non-incentive pay systems will normally have productivity rates from 65% to 85%.
To make a salaried pay system work you need truly empowered theory "Y" participative management familiar with computer systems, monitoring productivity and cost of labor sold weekly. This requires a shift of typical dealership's current corporate culture and a paradigm shift for typical service and dealership management. This pay system was tried in the past, 1965-1975 era, with mixed results and was subsequently discontinued.
Much that has been written on salary type technician pay systems in dealerships today is based on manufacturing processes. In manufacturing, the production line drives productivity, not the technician. In most manufacturing production systems, the work is presented to the worker on a time interval based on the speed of the production line. The worker must accomplish their highly repetitive task while the work is at their station. If not, the system stops or parts are left off.
In all non-repetitive repair work such as in dealership service and body shops, the worker (technician) drives productivity since normally a second job is not given until the first is completed. Dealership management must understand the problems created when considering a move away from flat rate pay and billing concepts.
Some new parameters have been added in recent years. The advent of unit replacements such as engines, transmissions, alternators, etc., with little or no overhauling being done at the dealerships reduces the need for large numbers of highly skilled technicians and will also reduce the parts number count in inventory. The pressure on the unit replacement concept along with the increased self-diagnosis that is being built, or will be built, into the vehicles will only further this problem. It is also important to remember that, with the coming of electric vehicles and more common parts within a product line unit, replacement will become the rule.
QUALITY IS NOT
INFLUENCED
BY THE PAY SYSTEM
I am a seasoned Industrial Engineer consulting in industry since 1965 and the automobile industry since 1978. No pay system that I know of drives the quality of work or raises the quality of work; not salary, flat rate, group, team pay systems or even mixed pay systems (bonus plus one of the basic pay systems). Ultimately, management's attitude and actions control quality. Management must track comebacks and individual productivity, train employees, track individual technician costs of labor and have third party follow-up quality control telephone calls. Analyzing the results will normally highlight problem areas that need attention.
PRODUCTIVITY IS NORMALLY LOWER IN CLOCK HOUR
PAY SHOPS
Consistently the lowest productivity numbers I have measured have been in clock hour pay shops. In these shops, management must push enough work through to generate the earnings needed to achieve a given gross profit. In clock hour pay shops, overhead costs and technician pay is "fixed" and must be overcome with volume.
Productivity suffers when it is not rewarded. Monetary pay is the primary system of rewards. Not enough pay will hamper productivity - excess pay will not get excess productivity. The pay system must be simple, consistent, fair and understandable. The acid test of any pay system is, "Can the employee understand it enough to be able to explain it to their spouse?"
Recognition is another form of incentive to increase productivity and status. Evaluate the titles of bank employees and you will find a large number of manager and vice president titles. Remember skill levels must be recognized and rewarded. All of your technicians are usually not equal in skills or worth the same in labor pay to the dealership.
It is interesting to note that Ford has discontinued its experiment with clock hour pay for warranty work. Apparently it failed in comeback reduction, productivity (flat rate incentives) and customer satisfaction improvement. These were the original suggested reasons for the experiment. I have found that clock hour pay is not the solution.
Consider what happens when the customer is billed on a flat rate system and the technician is paid on a clock hour system. There is no incentive for the technician to increase productivity and produce "gain time." In these systems the technician decides what productivity is fair to the dealership and basically stops producing. I have had technicians infer that they plan on not producing any more work because the dealer makes enough profit already. Other technicians have stated that they are not paid enough to produce any more.
RECOMMENDATIONS
· Go to or stay on a flat rate billing and pay system. Remember to charge the customer accordingly for extra equipment installed on the vehicle, broken bolts, cleaning mud or dirt from the vehicle, etc.
· Use the factory's flat rate times. This stops the argument that a warranty job does not pay enough.
· Monitor the pay and billing system.
· Evaluate delays that hamper productivity such as:
-Lack of special tools
-Service advisor delays
· Reduce delays at the parts counter
· Remember that parts counter staff are paid clock hours - the technicians are paid flat rate times, a dynamic conflict.
· Pay your service parts counter people on service shop productivity. Some suggestions:
-Pre-pull parts
-Have parts counter people deliver the parts to the technicians. Lost technician time is lost parts sales.
-Strive for a first time parts fill rate of 90+% from your inventory
-Log and analyze all lost sales (parts not available when a technician first asks for the part, sold out of your inventory, not someone else's, etc.)
SUMMARY
The flat rate system offers fairness to the customers, uniformity in billing, overall consistency in pay and rewards and a standard by which to compare productivity (flat rate hours vs. clock hours). Note this definition of productivity has been used by Industrial Engineers since the '30s.
As in any billing system, the flat rate must be applied honestly (management's attitude) and with no overlaps in billing (double charging of flat rate times). The time billed must agree with the work done, not choosing flat rate times for a "tune up" when only spark plugs were changed.
Flat rate pay systems are not the problem. If management relies on pay systems to manage automatically then this becomes the real problem. No pay system can accomplish the job of management or there would be no need for managers.