Most fabricators pay hourly rates and it works out very well! But what if you’ve been considering an alternative way to incentivize your employees and increase efficiency? Here we’ll discuss the less common method of paying your employees based on performance rather than hourly, as well as the benefits and pitfalls to changing your business to this approach.
What Is Performance-Based Pay?
Performance-based pay is exactly what it sounds like. Instead of paying your employees an hourly rate or salary, you pay them based on their performance. If they’re outstanding employees who produce like superheroes, they get a superhero-level paycheck. If an employee can’t keep up with demand, they won’t earn as much as their higher-performing coworkers.
This pay style is commonly used in departments like sales where it’s easy to determine pay based on commissions, but it can be applied to so much more! You can use performance-based pay for all your teams like templating, installation, management, accounting, and yes, of course – sales. You just need a system in place to extract the right data and metrics to track each department’s performance.
Benefits of Performance-Based Pay
Switching to performance-based pay has been shown to provide several benefits for business. According to the Harvard Business Review, just over 80% of the top performing companies use some kind of performance-based pay to keep margins high, boost productivity and efficiency, and outpace competitors. Sounds great, right?
Here are just a few of the benefits performance-based pay can bring to your countertop fabrication business:
Motivate Your Team
The main benefit of switching to a performance-based pay structure is the additional motivation it brings to your team. When people have something to work for, they work harder.
An hourly wage or salary doesn’t incentivize employees to work harder. Whether they’re working hard or scrolling through Facebook on their phone, they’re making the same amount of money.
However, if they get paid per template created, customer contacted, or countertop cut, they’re more eager to stay away from time-wasting activities and produce as much as possible to maximize that paycheck.
Boost Shop Efficiency
With higher employee productivity and less wasted time, your shop will quickly start to see more efficiency overall. Most obviously, you’re going to be able to produce countertops at a faster rate because of your motivated workforce. But there’s another efficiency benefit to performance-based pay that shouldn’t be overlooked.
Let’s face it: not every employee is perfect. Some might slack off or not be very good at what they do. But, if you swap to a performance-based pay model, it doesn’t matter if new-hire Johnny isn’t a rockstar fabricator. You’re not losing money on his slow rate of work. Johnny’s countertops cost the same to produce as his amazing coworkers, keeping your bottom line nice and low. Your shop can cut the expense of wasted time and maintain your margins to save money as well as boost production efficiency. Win, win!
Build the Best Possible Team
Remember good old Johnny from the last example? Because he’s not a very good team player, he’s not going to earn as high of a paycheck as his fellow employees. After a while, he’s probably going to get fed up and find another hourly job where he can slack off and still make some money. While turnover isn’t typically considered a good thing, Johnny leaving will give you an opportunity to replace him with someone much more motivated, building a stronger team.
As an added bonus, performance-based pay makes it easy for management to identify areas of improvement by just looking at a payroll sheet. If someone isn’t earning as much money as their coworkers, you know they’re probably underperforming.
Increase Employee Retention
While performance-based pay is great for weeding out the low-performing employees, it’s also good at boosting high-performing employee retention. Something we all need during this labor shortage!
People always like to chase higher and higher goals. If an employee earns a killer paycheck one week, they’re going to want to beat their record the next. Because they’re always chasing new goals, good employees tend to stick around longer with performance-based pay.
Sets Clear Expectations
“What do I need to do to get a raise?” How many hours are spent every year talking to employees about their performance and negotiating salaries? The company doesn’t want to overspend on labor and watch their already low margins vanish into thin air, but they also want to pay their employees a fair wage and keep them around. It’s a tricky line to walk, unless you use a performance-based pay structure.
With performance-based pay, all employees have clear expectations about what they need to do to earn more money. They can increase their wages whenever they want by boosting their performance. This reduces chances of miscommunication between workers and management and brings in a level of transparency regarding compensation.
Some Things to Consider
Nothing in this world is perfect, and even with all the amazing benefits performance-based pay can bring to your countertop fabricating operation, there are some downsides that you should consider:
- Can cause a “quantity over quality” mentality – When employees need to perform to earn a paycheck, some might choose quantity over quality. After all, they’re not getting paid for how many projects they complete well, just how many projects they complete total. If you implement a performance-based pay structure, make sure to keep an eye on quality.
- Could negatively impact teamwork – Performance-based pay is an individual sport. Employees are less interested in working together because their coworker’s performance doesn’t help them earn a paycheck. Come up with incentives to promote and foster more teamwork if you choose to implement performance-based pay.
- Increases stress – Only getting paid for what you can produce can be stressful. If someone has an off day, their paycheck suffers. Employees have to be on it all day every day if they want to earn good money. When you swap to performance-based pay, make sure to provide employees ways to manage stress and not focus solely on production.
- Difficult to change – Once you implement performance-based pay, it’s very difficult to switch back to hourly or salary pay. It’s hard to convince your top-performing workers to take a pay cut without causing them to leave and find new jobs. Do your research and make absolutely certain performance-based pay is right for your operation before you switch. It’s not something to “just try out for a while.”
Tips to Implement Pay Based on Performance
Making such a major change is never easy. Here are a few tips to help you transition to a performance-based pay structure:
It’s All About the Data
The key to implementing performance-based pay is having access to the right data. Obviously, “performance” means something totally different for a fabricator than it does for an accountant. If everyone got paid based on how many countertops they cut per day, the poor accountants would go home empty handed!
Before ditching your hourly pay structure, make sure you have a system in place that lets you track key metrics and create dashboards. With the power of data at your fingertips, you can build a commission structure based on whatever metric you find works best for each position.
For example, if you know how many good reviews an installer gets and how many square feet of countertop they install per week, you can create a commission structure based on the number of reviews and total installations. That’ll help you maintain productivity and quality.
Make Information Public
When working with an hourly pay rate, most employers don’t like employees talking about their paychecks. Someone might realize a coworker who does the same job might earn more than them, even if they feel they’re the better employee. This could cause issues with management and the overall team.
For performance-based pay, it’s a good idea to do the exact opposite. Display public dashboards that show company-wide employee performance. Not only does this add a bit of competition (because no employee wants to be at the bottom of the list), but it also shows under-performing workers where they could improve. It’ll help you boost overall efficiency and build the best team possible.
Provide Employee Training
Getting paid strictly based on performance could make employees feel like they’re on their own, but it doesn’t have to be that way. Insight from a recent ISFA workshop shows that it’s beneficial for employee mental health and overall company production to provide workers the tools they need to be successful. Tell your employees “Let me show you how to make more in less time.”
With a performance-based pay structure, your employees will be more eager to learn the best ways to complete their jobs, so they can earn more money. You can use these training sessions to help your employees and, therefore, your company succeed. It also makes it easier to implement new techniques.
Ready to Maximize Your Organization’s Efficiency?
Performance-based pay might not be ideal for every organization, but when implemented correctly, it can bring many benefits to countertop fabricators. Before you switch, just make sure you have systems in place to collect the right data and display it in a way that’s easy for management to use.
If you’re ready to optimize your organization and start collecting helpful data, check out Moraware’s software solutions CounterGo and Systemize. These solutions will help you manage the important data that keeps your operation moving. You can also track your shop’s numbers, so you can have access to the metrics you need to start keeping your company running lean and mean, especially if you want to harness the benefits of performance-based pay.
Schedule a demo today, and see how efficient your business can be!