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3 Advantages of Implementing Multi-Level Pay Plans for Technicians

By:
M5 Management Services, Inc.

Labor Management, Service Department Efficiency, Technician Productivity

Dealerships must continually adapt to changing market conditions and customer expectations. One crucial aspect of running a successful service department is ensuring that auto technicians are efficiently utilized and fairly compensated with appropriate pay plans. Implementing a multi-level pay plan for auto technicians can be a game-changer for dealerships, leading to increased profitability, improved technician retention, and enhanced customer satisfaction. In this article, we’ll explore three compelling reasons why dealerships should consider adopting this innovative approach.

1. Adapting to Industry Changes

The automotive industry has undergone significant changes in recent years, with vehicle quality vastly improving and the focus shifting towards maintenance work. As a result, the dependency on skilled technicians for heavy repairs has lessened, while the demand for maintenance-type labor has grown exponentially. Pre-paid and complimentary maintenance packages now account for up to 60 percent of a dealership’s service business – a complete reversal from the past.

To remain competitive in this new landscape, dealerships must be flexible in their approach to technician compensation. Multi-level pay plans allow dealerships to adapt to these changes by assigning different pay rates based on the skill level required for each task. By categorizing work into A, B, and C levels, dealerships can ensure that technicians are paid appropriately for their expertise while maintaining overall profitability.

2. Improving Gross Profit and Cost Control

In the past, the accepted norm for labor gross profit in dealerships was 65% to 70%. However, expectations have shifted, with 75% or higher now considered the standard. Many managers have been striving to reach this level, and multi-level pay plans can play a crucial role in achieving this goal.

By implementing a multi-level pay plan, dealerships can better control the rate paid for each job. Each labor operation code can be assigned a skill level, allowing managers to systematically pay a rate based on the task’s complexity. This approach helps lower the cost of sales per hour by paying higher-skilled technicians a lower rate for maintenance work and a higher rate for jobs requiring advanced expertise.

Additionally, multi-level pay plans can help dealerships avoid the common pitfall of disqualifying skilled technicians from certain tasks due to their high hourly rates. These technicians, who have often invested significant time and money in perfecting their trade, should not be penalized for their expertise. By offering a tiered pay structure, dealerships can ensure that all technicians have the opportunity to perform a variety of work while maintaining their overall earnings.

3. Enhancing Technician Satisfaction and Retention with Multi-Level Pay Plans

In addition to improving profitability and cost control, multi-level pay plans can have a profound impact on technician satisfaction and retention. In an industry where skilled technicians are in high demand, it’s essential for dealerships to create a work environment that values and rewards their expertise.

By implementing a multi-level pay plan, dealerships demonstrate their commitment to fair compensation and career growth for their technicians. This approach recognizes the value of technicians’ skills and experience, providing them with opportunities to perform a wide range of work while maintaining a stable income. As a result, technicians are more likely to feel valued and engaged in their work, leading to increased job satisfaction and loyalty to the dealership.

In addition, multi-level pay plans can help dealerships attract top talent in a competitive job market. By offering a comprehensive compensation package that rewards expertise and performance, dealerships can differentiate themselves from competitors and attract the most skilled and experienced technicians in the industry.

Implementing a Multi-Level Pay Plan: A Step-by-Step Approach To successfully implement a multi-level pay plan for auto technicians, dealerships should follow a step-by-step approach. First, managers should review labor operations and assign each technician a skill level based on their expertise and experience. Next, a study of hours produced and weekly or monthly earnings should be conducted to establish a baseline for compensation.

Once the groundwork has been laid, managers can establish three levels of pay based on the skill level required for each task. For example, A-level work, which requires advanced diagnostic and repair skills, may be compensated at $23 per hour, while B-level work, such as brakes and alignments, may be paid at $16 per hour. C-level work, which includes routine tasks like oil changes and tire rotations, may be compensated at $14 per hour.

To ensure the success of the multi-level pay plan, managers should determine the contribution from each level and convert it to a percentage. This data can then be used to project the results of the change, including potential increases in gross profit and technician production. By monitoring and adjusting the plan as needed, dealerships can continually optimize their compensation structure to meet the evolving needs of their business and their technicians.

Implementing a multi-level pay plan for auto technicians is a strategic move that can help dealerships adapt to industry changes, improve profitability, and enhance technician satisfaction and retention. By recognizing the value of technicians’ skills and experience, dealerships can create a work environment that fosters growth, engagement, and loyalty.

As the automotive industry continues to evolve, dealerships that embrace innovative approaches to compensation and talent management will be well-positioned for success. By implementing a multi-level pay plan, dealerships can harness the full potential of their service departments, driving profitability, customer satisfaction, and long-term growth.

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