The best ways to pay employees

Benchmarking Your Business Report - 2017 Benchmarking Your Business Report

Owners share how their pay and incentive programs drive performance.

October 31, 2017

© z_wei | Thinkstock

Employee pay can be a sticking point for workers. If one technician feels he’s working harder than another and not getting compensated – well, that’s not great for morale. And if workers figure they can get paid better by another company in town, then you could have some serious retention problems. For owners, the issue gets even more complex: compensating people fairly for production, efficiency, quality and an overall contribution to the company’s profitability.

What’s the best way to pay people and how do you incentivize them with meaningful bonuses that inspire camaraderie (not contention) and drive quality production vs. more hours for more pay? Michael Hornung, president at ValleyGreen in Sartell, Minnesota, focuses on paying at the higher end of the market so he can attract and retain the best people possible. His bonus program promotes teamwork and rewards senior technicians for training up the new talent.

Hornung implemented the system in 2003, and has tweaked it a bit over time. It’s based on efficiency per hour, service calls and callbacks. He calculated what technicians should produce per hour and per week. For example, new technicians are expected to make about $125/hour, or $5,000 in production per week. With this efficiency and zero callbacks, a technician could make $2 to $3 per hour more as a bonus. This is rewarded per paycheck. (Hornung says the bonus per hour ranges, but he uses this standard as an example.)

Measuring callbacks allows Hornung to follow up and make that connection with clients. Hornung says the production expectation isn’t lofty because he wants quality to be the main priority. That said, without efficiency, the company will not be profitable, and he wants his people to share in the reward of working smart. When they know their pay picks up when they reach goals, they remain motivated.

Also built into the program is an incentive for experienced technicians to take on trainees. (All new techs spend up to three weeks training with a veteran tech.) “Some experienced techs used to say, ‘I don’t want to help the new guy because the route is out of my area,’ and so on,” Hornung says. “But, now, when they go help that new salesperson, they can hit their production hours based on what they did on their own route. That has put our experienced technicians in a position where they feel like they are not being dragged down by helping the new person, and the new person isn’t afraid to ask for help.”

Pay programs.

At Lawn Cure in Sellersburg, Indiana, employees work four 10-hour days at the lawn care operation and must meet weekly spray goals. “Anything they spray over their goal, they get ‘banked hours,’” says Missy Fromme, co-owner. “They can use those banked hours as paid time off or they can be paid out.”

The banked hours are figured per week, so they could earn an hour off or an hour of pay every paycheck. And, if technicians sell a service while they are in the field, they can earn a commission on that sale for the full season, Fromme says. “If they sign the person up that day and spray the lawn that day, they get a 15 percent commission for all six rounds they sell,” she says. “If they just pick up the customer but don’t spray the lawn that day, they get 10 percent of the sale for the full-year program.”

“Say you’re picking apples at 35 cents per bushel. If you want to make more money, you’ve got to pick more apples.” Jim Huston, J.R. Consulting

Not every technician has a sales mentality or desire to bring in new business. And that’s OK, Fromme says. “But, this does incentivize technicians,” she says.

Meanwhile, because Lawn Cure lays off employees for six weeks from the end of December until mid-February, they are paid a year-end bonus that essentially makes up for the time they are off. “It’s like they are paid for the six weeks while they are off work,” Fromme says.

At Country Club Lawn and Tree Specialists in South Roxana, Illinois, employees are incentivized based on three criteria: production volume, cancellations and attendance. Owner Mark Black calls it a “performance bonus” because he doesn’t want employees to be overly focused on volume. And, he sets realistic goals. “I can’t make the goals any easier,” he says. “The minimum goal is $12,000 a month in billing, that’s $600 per day. The maximum percentage bonus is $18,000, which is $850 per day.”

For every cancellation, a technician loses 3 percent of his or her bonus. As for attendance, technicians who are late to work lose 2 percent that month, and 4 percent for missing work.

Employees can make up to $1,500 per month in bonus dollars if they work diligently, Black says. He doesn’t want to micromanage, but if modest production goals are not being hit, he will dig deeper. He can find out through a mobile GPS app how long a truck was sitting on a property. “If we see that there are several houses in a row where the truck is sitting for 45 minutes, that’s costing us $5,000, so we’ll call the technician out,” he says. The reality is, workers can sit in the truck for an extra 10 minutes and check their personal mobile devices and cruise through social media updates.

At For-Shore Weed Control in New Jersey, owner Mike Matthews felt the bonus system was too personal, so he brought on Jim Huston of J.R. Huston Consulting to help create a fair program. “How I felt about an individual employee was a distraction for me,” Matthews says.

For-Shore now has a program that measures how much money a technician brings into the company vs. the cost of earning that money. The company sets a threshold, and dollars earned per technician beyond that goal can be used as a bonus. “Technicians can earn a percent of the gross beyond that threshold,” says Nathaniel Matthews, partner in the business.

Bonuses range from $4,000 to $15,000, and the program is explained at spring training each year. The system allows For-Shore to spot “sleepers” or employees who aren’t tooting their own horns but are doing a knock-out job with production. “There are people who clock in, work and go home, and then you see their production and quality numbers and they’re the ones going home with the $15,000 bonus,” Matthews says.

A piece-rate approach.

Huston is an advocate of a piece pay rate system that focuses employees on productivity vs. hours. It’s not only a compensation system; it’s a reward program, too, and pay plus bonuses are tied to production. “Say you’re picking apples at 35 cents per bushel – well, probably 35 cents an apple these days,” Huston says. “If you want to make more money, you’ve got to pick more apples – be more productive, more efficient.” In landscaping, owners first must know their expenses and how much a crew “costs” per day. Say the per-crew billing goal is $1,000 per day. And the crew gets paid 30 percent of what the company bills.

“Now, you have to maintain quality standards, but laborers realize if they want to take home more money, they can’t drag a 10-hour project out to 12 hours,”Huston says. “With this model, the employee is focused on producing more work.”

This is how other industries measure performance and assign pay. For example, take an automobile service technician. Each repair task is assigned a standardized rate, say three hours for a brake repair. “If the job takes two hours, the technician gets paid for three,” Huston says. “If the job takes four hours, he still gets paid for three. So, if a technician wants to make more money, the formula is to perform more work at an acceptable quality standard.”

When you assign a piece rate for a task or per crew, and offer a percentage of the gross if a task or crew comes in under budget, employees get the monetary benefit of working smarter. “It’s an incentive built right into the pay structure,” Huston says. “People can see the direct correlation between how they perform and what they get paid.”

When employees are focused on working more hours for more pay, it cuts into a company’s profitability because it increases the labor rate without addressing efficiency.