Story by MAX REID
If there is one thing that makes the collision repair industry lucky, it’s that, when compared to many other industries, many who run collision repair businesses once worked the trade themselves.
Far less often in our field will you find a shop manager without any conception of the sweat and toil required to complete even the most basic dent repair job. Further, the sense of helplessness brought on by less-than-stellar labour rates is a feeling not lost on the best of today’s business leaders.
Treat your techs like veterans, and veterans they will become
Story by MAX REID
If there is one thing that makes the collision repair industry lucky, it’s that, when compared to many other industries, many who run collision repair businesses once worked the trade themselves.
Far less often in our field will you find a shop manager without any conception of the sweat and toil required to complete even the most basic dent repair job. Further, the sense of helplessness brought on by less-than-stellar labour rates is a feeling not lost on the best of today’s business leaders.
To that end, many of these top-performing managers will devise extra ways to reward their highly skilled staff for their labour. Some may choose a group retirement plan, where the staff agrees to have a portion of their wage set aside into a tax-free trust account that will accumulate interest if the employee stays with the company. Other businesses put in place more complex profit-sharing models that aim to promote and reward accountability and quality work through tiered bonus systems.
While both these models have proven effective across numerous industries, there are a few things to keep in mind before you dive whole hog into opening the books with your staff. That last point is arguably the most important as you need to be ready for all that full financial transparency with your staff entails.
To instil the feeling of ownership and job security intended by a profit-sharing scheme, you need to be prepared to start treating your team as partial owners of your business, and opening up your books is the only way to start. If you are a shop manager who can’t bear the thought of your technicians knowing the details of your finances—think long and hard about who really keeps the lights on in your office. To be fair, however, the issues that most often arise out of profit sharing schemes tend to be rooted in some amount of financial illiteracy on the part of technicians with no experience in business ownership, so as with any relationship, patience is a prerequisite for both sides.
Put in its simplest terms, a profit sharing system typically implements monthly or quarterly goals and distributes set bonuses from an agreed upon bonus pool to staff when those goals are met.
For example, let’s say a collision repair centre of ten technicians sets aside 10 percent of its quarterly profit to reward staff upon hitting a $20,000 profit goal for that period. If the team hits the goal, each of the ten technicians gets a $2,000 bonus for the quarter, on top of usual pay.
This sort of model usually includes an additional annual bonus, where even if some individual bonus periods don’t meet profit goals, techs still receive a payout so long as the total year-end profit exceeds the set annual goal. That way, when Q1 wildly outperforms Q3 profits, as long as the shop surpasses, say $80,000 for the year, technicians will still receive their Q3 bonus.
But wait, that’s not all, as the implementation of a truly productive profit-sharing plan is not so simple as creating a spreadsheet and writing a few extra cheques.
Managers must understand not just how to operate their profit sharing system, but why they are doing so in the first place. To touch again on financial literacy; when your staff misses out on their quarterly bonus because an expensive, but necessary, equipment purchase cut into their profits, what will you tell them? And more importantly, will they be understanding?
To that end, many financial advisors and business planners recommend managers have a picture of where things are heading, expense-wise. If you know you have a list of profit-eating purchases to make, maybe now isn’t the best time to try and split up the remainder and call it a bonus—that is a proven path to resentment from your staff.
The Business Development Bank of Canada (BDC) recommends businesses looking to implement profit sharing plans make use of the “SMART” method for success.
Specific:
Clearly establish the roles and specific responsibilities of those you wish to include in the program. There should be no ambiguity as to what qualifies a staff member for being included in the program.
Measurable:
Set goals for staff that are easy to measure, using metrics like quantity, cost, time, etc. Attempting to assign bonuses based on the perception of effort is a recipe for jealousy and disunity among the team.
Achievable:
This is where the past experience of managers comes in handy. You must ensure that the goals put in place by the program are realistic for your staff. It is generally agreed that the most baseline bonus tier should be achievable from a relatively average workflow for your shop. If your team is struggling to reap the rewards of even the lowest bonus tier, then are they really being set up to actually share profits?
Relevant:
Set goals need to be directly relevant to those who can actually affect them. Things can get complex here, as to make a profit sharing scheme applicable to an entire business, multiple systems may be required to ensure that reward and responsibility remain equal. For example, if you want your front-end staff involved in your program, don’t make their bonuses dependent on production floor work that is beyond their control. Establish specific and relevant goals for all involved in the sharing of profit.
Time-bound:
While a profit sharing scheme and the culture around it are by no means required to have an expiration date, experts recommend that goals be reassessed on a departmental basis every year, or at least, when a significant change to the business’ finances is expected. In doing so, managers can be kept up to date with whether their team is meeting goals and what changes need to be implemented if they aren’t. At this time, managers should also be transparent about expenses they expect to incur, such as equipment purchases that may have an effect on employee bonuses. If there is any one thing you want your profit sharing plan to be, it is predictable.
While studies on the efficacy of profit sharing programs in the Canadian skilled trades industry, much less the collision repair sector specifically, are sparse to say the least, a great deal has been written on the concept of employee ownership and the insights it can it provide into employee behaviour when labourers drive their own profits. A May 2022 global report published by private German research firm, IZA World of Labor, found that of 56, 984 firms studied, those that use an employee ownership system tend to experience “a small but significant positive relation, on average, with firm performance.” “The positive relation exists across firm size, and has increased in studies over time, possibly because firms are learning to implement employee ownership more effectively,” reads an excerpt from the report.
When it comes to questions of when—not if—an employee tries to take a free ride on the hard work their co-workers are putting in to meet bonus goals, shop owners are right to be hesitant about giving their staff such power. However, in the previously mentioned report, it was found that businesses with an employee ownership system are actually highly effective in countering what is known as the free-rider phenomenon, with many respondents to a corresponding survey reporting that they would take action if they saw a co-worker impeding staff bonus goals.
Lower staff turnover, reduced absenteeism and increased company pride have also been identified as trends within businesses that operate under an employee ownership model. Simplicity Car Care president Domenic Ieraci says his company makes an effort to ensure everyone involved in their corporate profit-sharing model doesn’t just feel like an equity owner but learns to think like one as well.
“Even if you are an independent collision repair centre, it’s good to always have your staff, whether it be the technicians or the front office, be aligned to the goals of the centre and be incentivized to support the profitability of that business,” he said over a phone call with Collision Repair.
On the flip side, it is important for managers be open with technicians about their potential impact on a shop’s profitability, through both good and poor performance, and help guide their habits to be efficient and profit-forward.
“If an auto body shop wants to improve its profitability, it can always implement a balanced scorecard or profit-sharing model. Even if they are not making a profit, by motivating employees in the right manner and encouraging the right things, you might see a positive impact on losses, or potentially even profits.”
— Amit Ashani, CPA
Amit Ashari, an Ontario-based CPA who has worked with several body shops to implement profit sharing programs, says that part of financial literacy for technicians involves understanding aspects of the job where potential profit is being sacrificed. If explained correctly, he says that profit sharing can be a highly effective motivating factor for staff. “If an auto body shop wants to improve its profitability, it can always implement a balanced scorecard or profit-sharing model. Even if they are not making a profit, you might see a positive impact on losses—potentially even profits—by motivating employees in the right manner and encouraging the right things,” said Ashani.
Your technicians may rightly feel frustrated if they are positioned to never hit their goals, however, so Ashani recommends managers be strategic about when and why they choose to start profit sharing at a given time.
“In the first year, it would definitely be difficult. But once a company is not a start-up anymore, and has some level of standardized output, then it is always a good time.” In the aim of inspiring support and solidarity among team members, some repair facilities employ a less formal “peer-awarded bonus” system.
Under this system, technicians are allowed to issue a set number of bonuses throughout the year to their co-workers. For example, if a tech sees a peer do good work on a repair, they can tell their manager and that technician will be marked to receive a small individual bonus.
Some businesses even use the bonuses as credits for a year-end auction where staff can bid on prizes purchased by the manager. Systems like this can do wonders for cementing a supportive culture around a bodyshop. Whether you are serious about building a robust profit sharing system, or simply want another way to show appreciation for your staff, there are many ways managers can spread the wealth around, and ideally, build healthy, worker-supportive businesses across the country.
If you are curious, talk to your CPA or business advisor—your technicians will be around to thank you for years to come.