Is Flat Rate Compensation Ruining Our Service Business?

There’s a consensus in the industry that there’s a serious shortage of automotive technicians able to work on today’s advanced cars and trucks.

Now, some analysts and experts say that simply recruiting more technicians will not help. Dealerships today are losing technicians too fast for recruitment to make up the emerging gap.

The numbers are staggering. Two of the major domestic brands estimate there will be a need for 15,000 plus new technicians for their U.S. dealerships over the next five years. The North American shortfall at more than 25,000 in that same time period means that there are not enough training institutions in the U.S. to keep up with the impending shortage.

Most of the recent reports pertaining to service technicians and advisers found that an ongoing industry average sees 20 percent of luxury-brand mechanics and 25 percent of volume-brand mechanics leave their jobs each year. Many may be leaving to go to work at another dealership, to an independent retailer or leave the industry altogether. Every departure is expensive and creates a disruption not only for customers but also to the health of the business.

One of the most controversial points in a dealership are the compensation plans for the technicians. Most of the technicians I have interviewed over the last 4 years feel as if they are not being compensated in a fair manner, due to what they feel is an outdated structure. With technicians being so hard to recruit and keep in the industry, why do owners and managers continue to force what most consider an outdated compensation plan on them?

Dealer Principals, Fixed Operation Managers and Service Managers for years have either ignored the need for an updated compensation plan or lacked direction on how to design and implement a compensation plan that works for technicians and addresses the following:

  • Drives production
  • Offers adequate compensation
  • Allows the dealership to remain competitive in pricing and profitability
  • Encourages the technicians to help each other and work together as a team
  • Offers support for our junior and older technicians
  • Promotes employee (ESI) satisfaction

The argument I always hear from management concerning moving away from a flat rate compensation structure is, “If I pay my technicians hourly, they will not be productive and may play on their phones all day.” While this a viable consideration when discussing technician compensation, we cannot allow a pay plan to manage our staff.

Even though this has been a topic of discussion for years, the feedback we receive from both management and technicians indicates we are getting farther apart from a resolution rather than closer to a workable solution. Listed below are some of the reasons there is such a dis-satisfaction with flat rate among today’s technicians:

  • Enables favoritism and feeding techs.
  • Enables service writers and managers to starve out techs they either do not like or do not go along with the politics of the shop.
  • Creates an environment where technicians will avoid drawing a job while waiting on an upcoming gravy job (i.e. brake jobs, fluid flushes, tune ups, etc.) instead of taking care of the next job in que to meet a committed completion time.
  • Creates situations where technicians will rush through jobs and cut corners to get things done faster. This normally results in ineffective repairs and poor workmanship (e.g., cutting or bending a bracket out of the way instead of properly removing it).
  • Selling work customers do not need (e.g., a brake job when the pads are 5mm or greater or a 30,000-mile service when the vehicle only has 24,000 miles). Have you ever wondered why a lot of customers do not trust dealerships?
  • Discourages techs from helping each other and at times sabotaging other technicians which can lead to customer dis-satisfaction.
  • Encourages management to unload their losses onto the technicians. (e.g., “you didn’t diagnosis the vehicle correctly the first time; now you get to fix it for free).
  • Creates a cutthroat, undermining work environment (e.g., the favorite technician gets all the gravy work and the rest of the technicians get whatever is left over).
  • Creates an environment where the technicians slam through the jobs always in a hurry to grab the next one instead of taking the time to perform a proper multi-point vehicle inspection.
  • Finally, when a technician asks for a raise and is told, “If you want a raise, turn more hours.” This can and will create an environment where the quantity of flat rate hours overshadows the quality of repairs.

So we’ve talked about how and why today’s technicians are unhappy with the flat rate compensation structure. Let’s discuss other options for technicians’ compensation. I have a few progressive clients we have been working with that are developing and implementing plans that have increased technician satisfaction.

These plans are what I like to call a “Hybrid Technician Compensation Plan.” There are many ways to construct a compensation plan to meet the needs of technicians. When working with a dealership’s management staff I encourage them to be creative, find what will work for their store. I like to take a multitude of variables into consideration, some of them being:

  • What is important to your technicians?
    • Interview them and listen
  • The amount of work you have coming into your dealership?
    • Work mix and work types
      • Maintenance, competitive or heavy repairs
  • The type of work coming into your dealership
    • Customer, warranty or internal
  • What is the skillset of your technicians?
    • Master, B, C or maintenance technicians
  • Average technician production performance

While these are just a few of the considerations when developing a hybrid technician compensation plan, they offer some insight into how we begin the process of developing a plan tailored to your service department.

Written by Kemp Evans

This is the kind of expertise that M5 Management Inc. specializes in. If you are interested in more information on how to set your dealership apart from your competition, contact me at (205)-603-1996 or

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