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Letter to the Editor

Who Pays... How?

A Look at How Shops Compensate Employees

During the SCRS-sponsored Collision Concepts last month, five shop owners on a panel were asked if they had developed a way to compensate office staff in order to offer some incentive for improved business performance.

All five answered; each of the five had a different method than the others.

As that example proves, there's no shortage of compensation plans in the collision repair industry, and as a follow-up to INSIGHT'S popular "Who Pays for What?" survey on insurer reimbursement, we turn this month to the various systems shops have in place to compensate their employees.

Technician Compensation

Before returning to the issue of office staff, let's start out in the shop. As INSIGHT reported last summer, technician wages are keeping up with the cost of living - and shop employee benefits are also improving.

Although there is a wide spread in technician annual incomes, the industry average for technicians over 20 years old is $41,268, according to a survey of 400 shops (which had an average of about eight employees) conducted by the I-CAR Education Foundation.

"From 1995 to 1998, we saw about an 11 percent increase in that average, and from 1998 to 2001 about another nine percent," Ron Ray, executive director of the Foundation, said. "So it's keeping up with the cost of living or inflation."

Ray said the top ten percent of the nearly 1,900 technicians represented in the survey averaged $72,000 in annual income.

Just over half the shops surveyed paid technicians either using an hourly or an hourly with bonus system; about 45 percent used the flat rate method. Only two percent reported using a team plan similar to that described at Collision Concepts by Dan Greenwald who operates two shops in the San Diego area.

"We pay 45 percent [of door rate] to our tech teams, and all of that team is paid out of that," said Greenwald, who teams a journeyman technician with up to four lower-tech workers. "They can work out a number of ways to split that up, paying the lower-techs an hourly wage, or a percentage, say two to three percent of each labor hour."

Greenwald said low-techs in his shop can progress through a five-level system in about five years to become a journeyman tech. He has run into problems, however, with other shops hiring away his Level 2 or Level 3 techs, offering them immediate journeyman positions.

"Now as we develop a new technician, we don't teach them anything about framework or [body filler] application until they get to Level 4," Greenwald said. "So until they get to Level 4, they don't have the skills they need to leave. They can do everything else. But realistically, where are you going to make most of your money? Where are you going to drive labor hours to the bottom line?

"If you put a low-tech on an eight-hour Bondo job, and he takes 16 hours to do that job, you really haven't been very efficient. If you put your high-tech man on that job and he does it in three hours, he's just put eight hours onto that team's payroll. But at the same time, there's no way my high-tech guy will ever touch a frame clamp. He doesn't put the cars on the machine, he doesn't take them off, he doesn't set up the measuring. He walks over once all that's been done, he does the measuring, he does the pulls, and then the low-techs go back onto it."

Greenwald said he is considering consolidating his teams, putting as many as seven or eight people on a team.

Gene Hamilton of the multi-location Sports & Imports in the Atlanta area, also teams some apprentices up with his experienced techs, who are required to handle many of the assignments other shops sublet out or assign to specialized techs: airbags, framework, electrical, etc.

He pays the apprentices' hourly wage - about $10 an hour - for the first 60-90 days, after which it comes out of the mentor's wages, which are generally in the range of $15-$16 per flat rate hour. Once trained, the apprentice shares ten percent of his wages with the mentor for a full year.

Jim Keller of Motorcar Collision in Milwaukee, Wisconsin, said his shop pays 40 percent to metal technicians, and 32 percent to the paint department, from which an hourly wage for the paint helper is deducted and the remainder goes to the painter.

Marco Grossi, who owns seven shops in the Detroit area, said the commission percentage his techs are paid ranges from 30-45 percent based on their level of experience.

Office staff pay plans

Turning to office staff, shop owners seem to vary widely in terms of pay plans and expectations, especially for estimators.

Keller, who had sold to consolidator CARA Collision & Glass and who is now rebuilding his business in a single location of which he retained ownership following CARA's closure, said one estimator handles the approximately $100,000 in monthly sales the shop now produces. (A parts and production manager is used as a back-up when the estimator is away.) Although that estimator is technically knowledgeable, Keller said he was selected just as much for his sales ability.

"To us, the objective is to close every one we can," Keller said. "The majority of your insurance jobs are going to have a supplement anyway, so to be to the penny on the estimate probably isn't as important as closing the customer."

Keller said the estimator and each of the other two office employees receive a salary plus five percent (each) of monthly net profit.

Grossi said his company's locations also average $100,000 each in monthly sales, with an estimator and a customer service rep at each shop. The customer service rep greets the customer and pre-qualifies them through a questionnaire, passing them off to the estimator as they finish. Estimators receive a base salary of $36,000-$40,000 plus a monthly bonus (one-quarter of a percent of parts and labor once a $75,000 monthly minimum is hit).

Newly-elected chairman of SCRS Joel Lofton, of Barnett's Body Shop in Ridgeland, Miss., said estimators at his company's three locations each handle $60,000-$110,000 in monthly sales. They are eligible for a weekly draw but no base salary, and receive 13 percent of gross profit sales.

Greenwald reports that his estimators handle $60,000-$80,000 a month in sales, and receive a weekly salary plus one to two percent of body (or in the case of the team leader, body and paint) labor sales. Thanks to a suggestion by one of his employees, all customers are assigned a letter (A, B, or C) that helps ensure the office staff keeps up with customer follow-up. All A customers are called on Monday, B on Tuesdays, etc., so that each customer gets updated every 72 hours.

Hamilton, as he admits, breaks the mold, only recently adding a second estimator to help handle a whopping $300,000-$350,000 in monthly sales.

Because the business has no DRP agreements - his operation works only on Mercedes and Lexus vehicles - the office prepares estimates only on customer-pay jobs. But the estimator - who Hamilton said is paid a percentage of total sales and often works 55-hour weeks - meets the customer and performs all follow-up, and does all supplement paperwork. He follows the job through the process but does not order parts or oversee production.

Ideas and insights

As upward trends in combined ratios have insurers - and in turn collision repairers - seeking opportunities to reduce costs, INSIGHT contacted shop owners and consultants around the industry for advice on shop employee compensation plans and labor costs. We close this month with a few other ideas and highlights from what we heard:

• Rather than offering a third week of vacation time, try instead paying for a long-term employee's vacation - not just the vacation time pay, but actually purchasing a vacation package. It reduces the amount of time that employee is away from the shop, ensures the employee gets a needed rest, and "buys" reinforced support from the family for the employee's work at the shop.
• "The flat rate system has got to go," one California shop owner who has made the switch said. "It creates huge inequities. You can have an office manager in one of your stores that is doing payroll and billables and is accountable for the bank balance and carries a lot of the business decisions, and you have a body man making three and four times what she does. Is that fair? It makes it tough to move a tech into an office position because they'd have to take a cut in pay. And a lot of shops say they want teamwork, but [the flat rate system] rewards people on an individual basis so it creates an 'every-man-for himself' scenario. You have to measure what a guy does, and flat rate is part of that, but it shouldn't be the entire basis of the pay plan."
• Several shops have successfully attracted new techs with a guaranteed income if they turn a certain number of flat rate hours each month; a bonus is paid for each flat rate hour above the minimum that is completed in a pay period.

"The shop owner is taking a risk, because if you get slow, you've still committed to pay people a salary," one shop owner, who asked not to be identified, said. "But some technicians see that and are willing to give a little. The cost of sales per labor under a flat rate system usually runs from 40 to 48 percent. With this plan, even with bonuses, it drops down closer to 38 percent. But they're trading that percentage for stability and consistency. Every week they know how much money they're going to take home. That helps stabilize their lives, and I know their families appreciate that."

I-CAR Study Finds Employee Benefits Packages Improving

Georgia shop owner Gene Hamilton said the Christmas club benefit he provides employees also offers a bit of a barometer about his employees' plans.

"If they put in $15 a week into the plan, I add $10 per month to it when they get it the first week of December," Hamilton said. "If someone draws their Christmas Club money mid-year, I know they're fixin' to leave because otherwise they'd have a $900 check for Christmas."

Benefits such as these continue to improve in the collision repair industry, according to the latest survey conducted by the I-CAR Education Foundation.

The survey found increases in the number of shops offering such benefits as paid vacations (more than 80 percent), health insurance (more than 60 percent), retirement packages (more than 30 percent) and paid tuition for training (more than 25 percent).

"Back in 1995, about 20 percent of the workforce received none of these benefits," the Foundation's Ron Ray said. "Now it's less than 10 percent just six years later."

A summary of the findings on wages, benefits and turnover within the industry is available through the I-CAR Education Foundation website, or a detailed version is available by calling the Foundation at (888) 722-3787, ext. 283.   o

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