COLORADO SPRINGS, Colo. - “You really want to put a system in place that rewards people for doing the right things,” said Dr. Ron Collier during a panel discussion held at the 40th Annual Conference and Indoor Expo of the Air Conditioning Contractors of America.

His comment makes perfect sense, but implementing a compensation system in a contracting business is never quite as easy as it seems.

Collier shared the dais with Steve Saunders, a residential new construction contractor from the Dallas area. Kyle Gargaro, managing editor of The NEWS, moderated the discussion and directed questions from audience members during the 90-minute session.

Things started off with a bang as one audience member got a bit annoyed with one of Saunder’s early remarks during the session. Saunders quickly apologized and deftly explained that he was merely getting everyone’s attention with a very simple, but misunderstood fact regarding compensation systems - many contracting firms are unwittingly using illegal compensation practices and can find themselves in a court of law, if not in prison for such violations.

PERFORMANCE-BASED PAY

To begin the session, Collier clarified what is considered legal and what is not. The defining factor is that the total compensation divided by the total hours worked must be at least at the level of minimum wage. Though some attendees with obvious raised eyebrows were concerned about the legality of their own current pay plans, others in the room were more interested in whether performance-based pay actually enhances the quality and productivity of employees.

One of the basic tenets of performance-based pay plans is that callbacks are unpaid time. For example, if a technician is called back to a job, that time is essentially unbillable, and therefore nonpaid. Performance-based pay plans are often accompanied by flat-rate pricing programs. If a job is estimated to be performed in two hours and the total pay to the technician for the job is $100, then whether the job takes one hour or three, the tech still is paid $100.

As an answer to the quality and productivity question, Saunders mentioned that he has discovered that the best time to assign a difficult task is often on a Friday afternoon.

“It works,” he said. “Nobody wants to get called back on Friday night to fix a mistake; the quality and productivity are great on Friday afternoons.” The expectation of a performance-based pay plan can be likened to having a lot of Friday afternoons on the work schedule.

Collier suggested the best way to implement performance-based pay is to set up the system to run in the background for a while. Compare the efficiencies the plan would yield compared to your current billing and payment plan. Then, bring your best employee in for a discussion. Put him on the plan for 30 days to see if it is feasible. When the program works for your best employee, it will work for everyone. “The system will actually weed out ineffective workers,” said Collier.

Saunders said, “We give new employees the choice of going on performance-based pay or regular hourly wage. Within a month they all switch over.”

Publication Date: 03/17/2008