We’ve been discussing the various forms of performance pay in my last two articles. In this one, I want to share one method of incentivizing performance as it pertains to irrigation service work. While this method isn’t the only way to do so, it is simple, easy to understand and it works.
Irrigation service technician
Our irrigation service technician is paid $25 per man-hour to work nine man-hours per day and up to 45 man-hours per week. He has to obtain permission to exceed the 45 man-hour limit. His or her daily revenue goal for labor is $750 (see the MS Excel worksheet at bitly.com/lawnwebextra). The weekly revenue goal is $3,750 (5 days x $750). Once the technician reaches the weekly billable amount, he or she earns an extra 2% of what is billed for labor for the week. That equates to an extra $75 per week ($3,750 x .02) or $325 per month ($75 x 4.333 weeks per month). This also translates into a pay increase of $1.67 per man-hour ($75 ÷ 45) or 6.7% ($1.67 ÷ 25.00).
You could add a monthly incentive to encourage the technician to maximize his or her monthly revenue by paying the technician an extra half or one percent of the total monthly labor revenue. For instance, in our case, the monthly revenue goal would calculate to be $16,249 ($3,750 x 4.333). You’d pay the technician an extra $162.49 ($16,249 x .01). Adjustments could be made for holidays, weather or acts of God by multiplying the number of lost days by $750 and subtracting this amount from the monthly goal.
You’re probably thinking ahead of me but, yes, you could add an extra half or one percent as an annual revenue target. If your irrigation service season was seven months long, your annual goal could be $113,743 (7.0 x $16,249). You could lessen this goal for anticipated holidays, weather days, etc. For instance, our goal might be $110,000. The technician could earn an extra $1,100.00 ($110,000 x .01).
The total incentive package for your technician could be as follows:
($325 per month x 7.0 months) + ($162 per month x 7.0 months) + ($110,000 x .01) $2,275 + 1,134 + 1,100 = $4,509
To incentivize the technician to sell more parts (and ensure that they get billed to customers), many of my clients pay their technicians five percent of the retail price of the parts that they sell. It might work out similar to this:
• The technician works approximately 147 days per season.
• Cost of parts per day is approximately $100.
• Retail price of parts per day is approximately $200.
• The technician sells approximately $29,400 of parts per year.
• The technician is paid five percent of the retail price of the parts or $1,470.
This incentive could be paid monthly, quarterly or annually as you deem appropriate.
You could also pay an extra one percent on a monthly or seasonal basis as we did for labor revenue. Total potential seasonal incentive paid to the technician could amount to $5,979 ($4,509 + 1,470).
The total revenue that our technician could generate would be in the vicinity of $140,000 annually ($110,000 for labor + $30,000 for parts). It very well might be more.
There are many ways to incentivize your staff to enhance their performance. Establishing reasonable revenue goals within certain time limits is one way to do so. Doing so has many positive effects. First, in our example, it empowers the technician to have more control over how much money he or she earns. Second, it rewards the individual for thinking entrepreneurially. This has the tendency to make one’s work more meaningful by engaging the individual in the overall business process. Third, incentivizing the technician this way usually improves customer service since the technician is more engaged in the overall process. Finally, this process produces more wealth for all concerned — especially the technician.
You might remember the entrepreneur’s three objectives regarding money: It’s better to have it than not have it. It’s better to have more of it than less of it. And it’s better to have it sooner than later. This incentive model does all three.