Is Performance-based Pay the Proper Choice for HVAC Owners?
There is no shortage of action items out there that are universally good for HVACR company owners and managers. When implemented, these things help grow their companies and make them more profitable. Many of these things are taken for granted or fail to gain a second thought, because owners know they’re going to positively impact the business.
Performance-based pay (PBP), or piece-rate pay, is not one of them.
Most simply put, PBP is a wage payment system that pays installers by the quantity of equipment they install rather than by the hour. The idea is that quality installers who want to hustle will be rewarded with a much higher hourly rate and that companies will gain by employing installers who will implement more equipment over time than their peers who are paid hourly. Companies that have an install crew that puts in two pieces of equipment instead of one every day as a result of PBP have effectively added an additional truck to their fleet without buying and outfitting another vehicle or adding a single new employee. Installers who are on PBP are very unlikely to intentionally take longer on their jobs to get their eight hours a day or 40 hours a week, which frees up their production manager to be much less concerned with how long installers are taking on their jobs or how much time they spend hanging out at the supply house, etc. Estimators can also directly account for labor before the quote is given, which reduces the number of jobs companies lose money on as a result of labor unexpectedly running out of control.
PBP can be one of the greatest things to ever happen to a business, but it can also be a very costly and divisive thing, as well. Any business must proceed with caution if it decides to implement PBP and may only do so after answering a few very important questions and preparing to put in a lot of work to both create and support the program.
Like most things in your business, the potential success of PBP rests on your people and processes. As great of a program as PBP is for companies that are prepared to implement it correctly, it can have disastrous effects on companies that aren’t. To get an idea of whether or not your company would be a good candidate for PBP, assess your readiness by honestly answering the following questions:
• Are you prepared to address the likelihood that your installers will start to rush on their jobs, which could lead to decreased quality of work?
• Have you given careful consideration to each and every aspect of an installation job and set your wage schedule accordingly?
• Is the payroll department prepared to take on the additional work necessary to support the program?
• Is the team willing to embrace this model and make more money?
• Does the business have the operational systems in place that can guarantee the success of the program?
If company administrators were able to answer “yes” to all five of these questions, PBP may be the right pay system for the business. The team’s capacity to install will go through the roof without having to add any more trucks or installers, the installation team will be able to make more money, which should translate to increased job satisfaction and reduced turnover, customers will experience a shorter lead time between purchase and install completion, and the company’s estimators will be able to correctly account for labor before the job even starts, which will drastically impact your profitability.
In closing, the roll-out of a new performance-based pay program is an incredibly daunting and complicated task, but well worth the effort for companies that are ready and able to embrace it.
Publication date: 5/9/2016