Pay For Performance: Decommission the Commission

Let’s take a look at Commission/Pay for Performance. I will first touch on the Pros and Cons of this model.

For the owners, on the surface this looks like a good idea. After all, if business is slow, payroll will be lower. In theory, this sounds great, right? So now, let’s take a look at the true cost of this.

Pro: You are paying people for what they do.

Con: Now they only do what they get paid for. They are getting paid for quantity, not quality. Product quality suffers and there is also inconsistency in product. This leads to lost sales, unnecessary credits and returns, and lost profit. The thing to remember here is that credits and returns are the silent thief. For lost sales, you did all of the work to not make the sale, not to mention unhappy customers.

Pro: When business is down, payroll is less. From the owner’s viewpoint, this looks like a good idea. After all, a business’ biggest expense is labor.

Con: For the employee, this creates insecurity and uncertainty. We all have bills to pay. Just as the boss needs enough revenue to meet expenses, so do the employees. After all, when business is down, it is most likely due to factors or reasons that are beyond the employee’s control.

Pro: Increases sales.

Con: A sale is a sale, good or bad, profitable or not. Decisions are being made, not on what is best for the company, but on what is best for the salesperson at that time. If you are an owner or boss, and there is a 50-50 chance of that deal going bad, I would like to think that you are probably not going to make it. However, if you are a commission-based salesperson, you will. After all, it’s a 50-50 chance that you’ll get paid. Commission-based salespeople also have a much higher return rate than those who are paid a regular wage.

I have touched on salespeople, now let’s look at the rest of the staff.

Dismantlers, parts pullers:
Pro: They are getting paid for what they are doing, which is dismantling and pulling parts, correct?

Con: They are being paid for quantity, not quality. The quality aspect of your process suffers and these issues always appear at the time of sale, (lost parts, bad or damaged parts).

The same applies for your warehouse people. They will try to get through their job as fast as possible, and this usually means cutting corners and sloppy work.

The reason I find most amusing about pay for performance; these same consultants promoting it have said that pay for performance system can be used as a means to make poor performers leave. If this is the case, shouldn’t the owner have known and acted on this already? If not, then maybe the boss is a poor performer too.

Pay for performance is not a tool to manage your employees. It is actually the opposite. It creates more work for the boss and means employees and their jobs have to be more closely monitored.

It has been well-documented that in most sectors, commission-based pay is a bad model. It promotes and rewards only self-achievement. It can destroy teamwork and it creates tension, uncertainty, and hostility among fellow employees competing for the same dollar.

I do agree that you need a motivated, hard-working crew. However, I believe there are better ways to achieve this.

  1. Recognize and reward people for doing a good job. Instead of commission, try positive reinforcement. Pay an ample salary with a monthly or quarterly bonus for hitting certain benchmarks or goals as a company, not individually, in order to promote a sense of teamwork.
  2. Fair compensation – Pay what the job is worth. This usually means that you are paying enough when the issue of money is not on the table.
  3. Make your employees feel that they are relevant and appreciated. Besides ample compensation, everyone has a need for self-fulfillment.
  4. Provide your employees with the training, resources, tools, and whatever else is necessary for them to be successful.

A Deal is a Deal
I personally don’t feel that commission (pay for performance) is a good model for our industry, but I will say this: If you agree to pay someone a percentage based on what they do, once you set the rules, you should not change them. A deal is a deal. Good or bad, you must honor it and stand behind it. After all, if you have an hourly employee, and you’re paying him $20 per hour, do you go to this employee later and tell him he is making too much and you want to pay him less? If you did, that employee probably wouldn’t stay, or he would leave at the first opportunity available.

Any business that has a short-sighted approach and trims costs at their employees’ expense will most certainly realize that this was a bad decision. This will also have a bad effect on the company’s bottom line. In this day and age, they say that people aren’t loyal. I disagree. Ask yourself this, “why should an employee be dedicated and loyal to a company when the company does not do the same for them?”

These are the ingredients needed to build a good team: Strong, honest, hard-working leadership, responsibility, dependability, dedication, respect, and a sense of teamwork. Remember, it all starts at the top.

The best leaders lead by example.

Stick to the basics, keep it simple, focus on proper, consistent execution of your fundamentals.

Marty Hollingshead

ARA Secretary · Northlake Auto Recyclers — Hammond, IN

Hollingshead has been in the professional automotive recycling industry for 45 years, including 34 years as President/Owner of Northlake Auto Recyclers, one of the industry’s leading facilities. Hollingshead prides himself on taking a hands-on approach in the business, employing the use of checks and balances for quality control to ensure customers only receive the highest quality parts. Northlake was one of the first automotive recycling facilities in the state of Indiana to receive from the Indiana Department of Environmental Management the Indiana Clean Yard – Gold Level Certification in 2009. Northlake was certified as one of the Indiana Certified Automotive Recycler Exemplary Standards (INCARES) program’s inaugural medalists and was the highest scoring facility in Indiana in 2014, 2015, 2016, 2017, and tied for first place in 2018. Northlake was also the recipient of the 2016 ARA Certified Automotive Recycler of the Year award, having been nominated by his peers in the industry.