The Pay Plan That Actually Works | 340

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Transcript

SPEAKER_01 0:00

Welcome back to the Business of Beers Podcast, your daily dose of strategies, tools, and tips to help you build an eight-figure business. Today's episode is a clip from one of my YouTube lives. If you'd like to hear the whole thing, there's a link below in the description. Cheers.

SPEAKER_00 0:16

All right. Today I want to go into one of the things that I think is the most important part of building a business that can run without you. Because ultimately, that's the goal, right? Like all of us have the goal when we own a business to be able to build it so that the team can run without us as the owners being the one who has to constantly drive it forward and forward and forward, right? Like, that's the only way that you can scale. It's the only way that you can build a business that doesn't just become a job for you. So, and and one of the most important parts of that is designing uh pay plans, bonus plans, whatever you want to call them, that are aligned with all these things. So that's what I'm gonna go over today are how I've designed and implemented pay plans and bonus plans and how I think about it in a way that just makes everything work. Okay. And so uh we have this simple framework that we're gonna follow. And I'm gonna start by drawing a little triangle. Okay. So to make this all work, there's there's five things we have to do. So it starts with simple. Like the number one thing that any great pay plan or bonus plan has to be is simple. In that it's not this this grid with all these different things and these these different weights, and there's like you need a frickin' math degree to figure it out, but it's something that's just like, you know, you get 5% of this number, you get 4% of this number. Like you can have very simple grids, but very, very just like easy, simple. You can figure it out on a napkin, right? That is honestly the number one thing that every single great plan is, is it's extremely simple. And I think that is one of the things that most people miss is they they they just make it way too complicated. Number two that we're looking to do when we design these plans is what I'm gonna say aligned. All right, aligned between the company values and the the performance of the plan. This is one that I I see people mistake a lot. And for example, I have a friend that owns a junk company, and they thought it'd be really great if we could align everybody on um profitability, and then you take those to the to the yard, and you get you get uh charged on the weight that uh the things that you bring. So the heavier the stuff, the more you pay, the lower the margins. And the goal was to really get the the drivers doing a better job at estimating properly how much um you know how much it would weigh, basically, like how much how much they would they would bring in. And so they told them uh, you know, the the more profitable your routes are, the more money you'll make. Sounds sounds great, right? Sounds like an awesome plan to to align them. But what ended up happening was they quickly realized that if they brought less junk to the yard, they would have better margins, right? And so what really happened was they'd go to the side of the road and they would just dump the trash in the side of the road, right? Under the underpass or like in an alleyway or like in another business's like behind a warehouse. And so all of a sudden, like their whole thing was like to help the environment, right? We get junk off the streets and all of a sudden now they're like they're making it worse and potentially like getting themselves into a lot of trouble, you know, if if you're caught dumping trash all over the place, especially as a business, and you're like incentivizing your team to do this. So you have to be really careful when you think about the incentives that you give people and making sure that there's like there's always these downhill consequences, and you want to make sure you think through everything because people take shortcuts, right? People are gonna want to try to find the easiest, the quickest way. And if that means like they could cheat and and and win, well, like they're gonna do it, or some people are gonna do it at least. All right. Number two, lucrative. It has to be like, I'm gonna say worth the money. Like if I put a pay plan together that you could earn five dollars for doing something, you know, what while like to sell a thousand dollar thing or ten thousand dollar thing or whatever, it's gonna be like, all right, well, that's like it's like not worth the money, right? Um, and so you want a plan that like people are excited about, like a plan that like if they do a good job, it is extremely lucrative. Like I picked that word for a reason, not just like, oh, it does well. Like, but lucrative is like, man, you can make a lot of money. And in our pay plans, like our best mechanic last week made $5,000. Last week, $5,000. Like that was his pay for the week. The number two guy made $4,000. The number three guy made like $3,800, $3,500, $3,300. Multiple people, over 3,000 just last week. And so I would describe that as like a pretty lucrative plan, right? Um, and so that's like really important, is that your pay plan, if if you're if you want to motivate people for performance, that you give them really good upside to it. And we can talk about what that looks like. To be easy to understand, so this goes back to like the the simplicity. Simplicity is like, I think the difference is like the simplicity is like there's not a lot of moving parts. Like there's only three components, two components, right? That's really simple. Easy to understand is just like they they they totally get what it is that they have to do to get the results. Like they understand if I do more of this, I will get that. And those things are aligned with whatever you know your company goals are. All right, so it's very easy to understand. There's not a rubrics, there's not a like form like Excel sheet, they have to like figure all this stuff out and like percentages and this and that. It's super simple, super easy. Anyone could get it. All right, and then finally, it has to be sustainable. All right, where uh I would say long, long last and scales with growth. Because people hate change, all right? And if you change their pay plan, people by default think you know you're trying to screw them over. Like so, so the goal is to like not change your pay plan. Even if you have the best intentions, even if they can make a lot more money, doesn't matter. The onset is gonna be I'm gonna be better uh off, I'm gonna be worse off because of this, and you kind of have to like prove it the other way. So what I want you to do is is the is think through is this plan sustainable at multiple levels? So what you do is like just in your Excel sheet as you start to build these out, just run different scenarios to say, all right, if this guy blows it out of the water and doubles, doubles whatever we're doing now, would I be okay paying that amount of money to them? Right? What if he triples the business? What if next year he doubles the business, then next year he is plus another 50% and all of a sudden they're making like a lot, a lot of money. Like, are you gonna be good with that? Now, in my opinion, if I design the plan right, I'm also making a lot more money. So like I'm totally fine with that. Like, I want to pay for performance. Listen, you make me money, I'll make, you know, you get paid too. Like it's it's a win-win. And so you want it to be sustainable because you don't want to design a plan that gets somebody uh paid a bunch of money, maybe in year one, but then you realize, like, oh man, this is like like I'm paying way too much. Maybe like legitimately you're like you're barely making any more money, or if not, you're could be making less money, depending on you if you depending on how you design it. But then they're making the more, if not, they're making more and more and more. And so all of a sudden, you just realized that you designed and and rolled out this entire plan that makes it completely upside down. And then the more money you pay them, like all of a sudden, like you're burning money every time you do it. I have unfortunately, I did a plan like that once. Somebody came to me with an idea, I didn't think it through all the way, it was for like a different business, and um yeah, after three months, we're like, this ain't gonna work. Like, you know, it wasn't sustainable. And so all these things, if you like like the little thing, equals sales, right? Boom. So this is the framework. If I had my iPad, you'd see a triangle, but it's no big deal. Uh, simple, aligned, lucrative, easy, and sustainable. That is what makes a great pay plan. That that is the type that I have used to you know build my company uh to what it is today. It's because these are the principles we'd apply. And so we can go ahead and work through a couple examples. So, for example, for us, um, let's go with store managers, like store managers. All right, and we we we gotta think of our our our framework, right? Sales, where our guys get uh we have we have we do have two different plans. I'm gonna go over kind of the base plan, but essentially we set a floor. So the floor for for most of the stores are is uh I'm gonna say it's like $15,000 a GP a week. All right. So what do we do? We pay on gross profit because for us, we don't want to pay on sales because uh the store managers can influence the gross profit highly, and so they're gonna look at uh their GP. So yeah, you're looking forward to hearing about cost of goods. So yeah, for us, you know, GP equals sales minus uh cost of goods. Like we don't include our payroll in that that number. And so that's the number that we then incentivize them on, which is you know growing gross profit. So our plan's pretty simple. It says, hey, if you do between zero to 15k, you're gonna get 2% of the GP, all right? Um if you can do 20, 20k, then you get three percent. If you do 25, uh you get four percent, and you do 30k, uh it goes to 5%. So we just take a given week to say, all right, uh this week they do um you know eight eighteen thousand dollars. That would fall under uh it's less than twenty, right? So it falls into this one. So that would be times two percent, which would get them what 390, I think. Um 360, that would be the bonus, right? If the next week, let's say they get to 20 uh 2k, right? That would fall them under this one, so they get 3% of that number, right? So 22 times 3, that would get them 660. Let's say they get to 31k, right? That would get them into the 5% bracket, and and so on. And so that would earn them, you know, 15, 15 to 50. And so that's the core bonus every single week. We were just looking at how much they did in gross profit dollars, and then it falls into one of you know, one of these tiers, and they get paid out the next week. Or we're we're week to week. We found that um it's you know, it's easier, there's faster reward, it's aligned. And then we we do have another incentive, which is a monthly growth. So our guys get uh 4% of the GP growth versus last year. So if they can grow, you know, I mean I got some guys that are doing, I don't know, like let's say 30k plus versus last year, times that by 4%. What's that, $1,200? So at the end of the month, or the first check following the end of the month, they get another $1,200. If they grow by nothing, they get nothing. If they if they're down, they um it's nothing. It doesn't like charge them against it. But that's it, that's the entire plan. So we think about like, all right, how does this work according to my framework? Number one, I think it's pretty simple. You know, like it would be simpler if it was just a straight percentage, right? If if our plan was just, hey, you get 3% or 2% of whatever, then that would be simpler. However, the tiers make it more lucrative. And for me, having something that's lucrative, that they can make more and more money is you know more important for driving results than simplicity. And these tiers are really nice because they allow you know a little bit of extra motivation to um you know to get up. Because of my thing, like if they do 29,500, right, that's less than 30,000. So it's it's you know, it's it's 4%, 1180. And they do 31,000, they get 1,500. So all of a sudden, like that extra little thousand bucks or whatever is gonna push them to another you know, 300 hours or so more. And so what we find is that you know, there's a lot of motivation to kind of get over that next one, which is like saying yes to that next customer, calling up with that person who declined to see if we can get back in. Like there's these things that that align, right? Align the values of we want to create sense of urgency, we want to reward top performers, we want to reward the people that uh are gonna push uh and win, and then that's why we pay in tiers. And it also makes it more lucrative. In terms of sustainability, I mean, we've had this same plan. I mean, I don't even I don't even know the last time I've I've changed it. It's probably been six years, maybe, maybe more. Um we haven't changed anything. You know, I could if if I wanted to feel like, hey, I need to like bump it a little bit, what I would do is is we would increase these tiers, right? So maybe we make the floors 18,000, and maybe this is 22, and maybe this is 27 and 32. Like maybe we maybe we increase the brackets so it makes it like a little bit like they got to get a little bit higher to get to that next level. But um it's been it's been fine. So anyway, meets all of our criteria. It is what it is.