I so often hear theories about why pay for performance doesn’t work in the auto recycling business. In my over 25 years of consulting, I’ve heard more reasons than I can count. In that same 25 years, I can honestly say that I haven’t seen any yard do it that didn’t get large increases in both sales and profits while paying their staff more. Over the years, I’ve heard many operators say they just couldn’t do it. Sadly, most of them are gone.
I am one of the “old timers”, that saw gross margins of 90 percent and costs of goods of 10 percent move to gross margins of 45 percent and costs of goods of 55 percent. Imagine, at one time, for every dollar you spent on cars, you got $10 dollars in sales. Spend $20,000, and get $200,000 in sales. Those are real numbers from 1980. Today, for every $5,500 in purchases, you will get $10,000 in sales if you are handling late model cars.
This article is about that compression in costs and profits, and how we have evolved and survived in a business that is far different from what it was in 1980.
Making the change to pay for performance takes guts and perseverance but it is worth it.
Salespeople
PRO – Sales will go up. When I first introduced sales commissions, many of my salespeople were anxious. Over a 90 day period in 1985, our sales (which had never been above $100k in a month), went to $140k the second month and doubled to $200k in the third. We had seven sales persons, and three of them left (the ones that couldn’t sell enough to make their prior salary). In those days, everyone made at least $700 per week, regardless of what they sold. All made considerably more, and I didn’t care! Our percentage of returns did not change after we moved to pay for performance.
CON – Salespeople sell things that benefit them, for prices that make the product move. Well, yes, of course, if you let them. This isn’t a pay-for-performance comment; it’s a lack of management issue. In the old days, we let the salesperson guess or rely on their intuition to set prices. Today, you have to set prices and hold people accountable.
Dismantlers
PRO – When we started paying by the car, production increased 80 percent. We designed the plan where our dismantlers made a fair amount per car (much less than our unit cost under our old plan), and they dramatically increased the number of cars they processed. Forty percent of the dismantlers quit, but the ones who stayed zoomed to $900 per week, double what they had been making. They loved it.
CON – Quality will suffer. Of course, it did – for a month. Then we did what leaders do. We instituted a penalty if parts were damaged. They hated it, but we explained why quality was important, and we bought another forklift, so our dismantlers didn’t have to wait to use one, and we built carts and equipment that made storing, moving and stocking the parts faster and reduced the chance of them getting damaged. The ones that stayed were in love with the new compensation program.
Delivery Drivers
PRO – When you pay by the stop, you get more stops. This was in the mid-1990s.
CON – Drivers will be rude and damage parts, and not be willing to wait at the customer’s shop. Again, we installed measures to prevent these things from happening. We had different rates for different routes because some routes had more traffic or windshield time than others. The staff loved it. If they finished all their deliveries, they got to go home early, and if they had enough parts to work them for the full day, they made a lot more money.
Some have suggested that you must learn how to motivate and reward people without pay for performance, and then you can get the same results. Nothing could be further from the truth, at least in our industry. The shift to performance-based pay is just one more change that has come to our industry, and must be done in addition to proper leadership.
To find and keep great employees, you must:
•Recognize and reward people for doing a great job.
•Offer fair compensation (Pay for performance will pay your people more than the normal rate, allowing you to attract the best employees)
•Make your employees feel relevant and appreciated.
•Provide training, resources and tools to be their best.
A deal isn’t always a deal – You should be continually fine tuning your programs, especially sales programs, to get the best results. When you couple those changes with good leadership and treat everyone like a king or a queen, you will indeed have a loyal crew. These insights are based on my own experiences implementing pay for performance with a company that grew dramatically year over year and from my consulting experience helping dozens of clients achieve similar results. There simply isn’t any other way to overcome the margin loss and price compaction we’ve endured over the last 40 years.
Remember, only you can make BUSINESS GREAT!
This article was provided by autosalvageconsultant.com, which was formed in 2001 by recyclers for recyclers, to help them improve their businesses.
Published in the October 2021 Edition