Why Your Best People Can Explain Their Pay on a Napkin | 337

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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 0:23

Make these fall a little bigger here. It's rewarding. And so I think there's there's a lot of different ways to think about this. And it really depends on who the role that you have and what in making sure everything's aligned. And so those are those are like that's like the basic framework to start with is when you're going to look to structure a pay plan. And it doesn't matter what role this is. This could be, you know, a an individual producer, such as like a mechanic, it could be an individual sales person who goes out and sells like our turf business, right? We have indep we have guys that that sell turf for us uh out in out in Texas. Uh it could be store managers, it could be outside sales reps, inbound sales reps, doesn't it doesn't matter. Um could be leadership roles. Where number one, the most important thing is is alignment in terms of aligning the company incentives, like what your goals are as the owner in terms of then how you are paying them. Um and if sometimes we we we put in things into pay plans because we want to drive certain behaviors uh that we that we think uh we want to drive certain behaviors that we think will result by the pay plan, but it ends up having an opposite effect. So for example, uh I have a friend who owns a junk removal business, and he said years ago they put uh an incentive to pay their drivers based on basically the profitability of their runs. And how how the junk business makes money is you know, they they get they get uh charged by the weight at which they dispose of stuff. And so in theory, if they you know dispose of less weight uh you with the same um you know level of revenue, their margins are better. And so what the guys started doing was basically just taking the junk out and and leaving it on the side of the road instead of taking it to the yard. Because that means you know they collected the same amount of revenue, but when they went to the yard, they didn't have as much weight because they they they like you know littered it. Uh and you know this led to like a a much bigger problem, which is you know, these guys dumping trash all over the place, you know, unauthorized. And so that that initial goal of like, hey, we want to incentivize our guys to care more about the gross profit, had this like backwards effect of them trying to cheat the system and you know potentially creating a uh a situation that could be way worse. And so that's like the the first thing you really have to think of is is terms of alignment and what incentives, what behaviors are you trying to um drive. And knowing that like uh pe people try to game the system, no matter what you do, pe people are always out there trying to try to game systems. And so you you want to like create a plan that, not that it can't be game, but like doesn't create incentive reverse incentives like that. Um it should be simple, uh napkin math, I I say, where basically you could go through and you could you could put it together and they can explain it to you on a napkin, right? That's a key part of this. They explain it to you on a napkin. I have uh many times, you know, over the years, uh I gotta hire people all the time, right? And I ask them, uh, you know, how do you get paid right now? Tell me tell me about your pay plan. And they they they can explain it to me. Uh they'll they'll fumble around and this and that. And A, I know that like they're probably not a top performer because top performers know their pay plans inside and out. They know, you know, not that they know how to game it, but they know how to optimize it in every number. And the people who necessarily aren't aren't as sharp or or the pay plan's really bad, and it's it's really complicated. And there's like there's like a rubrics, and there's like uh ads and additions and percentages, and there's like you need a you need a freaking like rocket science degree to figure it out. So um keep them as simple as you can. Then there's then there's two parts that I want to do, which is I want to reward for volume and I want to reward for growth. So these are the for for this is for for this is for managers at least, um for for people who are like responsible for uh what they do. Volume and growth. Because if you if you only reward for volume, right, say that says, hey, you know, I'm gonna pay you, you know, whatever, bonuses at I don't know, 25k, and maybe you make, maybe you make, I'm just gonna make up some numbers. Um, I don't know, 3% at 25k, you're gonna make, you know, 4% at 30k, at 35k, you're gonna make um 5%. Something like this, right? Where it's volume. So the more volume they do, the more more money they they make, right? Um the challenge is is at a certain point, you know, the business uh maybe they drove they drive it to a certain volume that they are satisfied with the income. There becomes this just like sense of, I don't know, complacency where everyone's just okay with with what it is. And you know, but you as the owner, like your sales are rising every year, your rent goes up every year, your taxes, your insurance, probably your your other payroll costs and other things. And so you really need to continue to grow the business year after year after year. And if you have a plan that is purely just volume-based, at a certain point, they once they reach a plateau, they lose incentive. And so that's my problem with volume only. And then if you think about growth only, the problem with a growth-onus, which is it's really good when when growing. So let's say we take a store that's doing, I'm just gonna make up some numbers, 700k, and we take that store to 1.4 in a year, right? So we we double, we double the business. In that side, like we want to pay uh, you know, a bone, a pretty good bonus that year for driving growth. Because for us, like getting that up to that level, like, man, it's great, requires like we want to pay extra for somebody who who gets it there. Um then if the next year happens, right? So let's say we we take it from 1.4 million, and let's say we grow it to you know 1.6 million, right? Um, if we only paid for growth, this one he would have made you know bonus on 700k in growth. This one he'd only make bonus on 200k in growth. And so in theory, depending on how it's like weighted, it's possible that in a scenario, he can make less money this year taking the business from 1.4 to 1.6 than he does in this year when he when he doubled it. If because you're paying a high percentage on that growth. And so for me, I find the best balance is is back to is back to this, where it's like roughly our goal is that 50% of the bonus comes from volume. So it's like continue to grow the volume, and then 50% comes from the growth. And so that helps balance out when you have a of a year like this where it's like, man, you you freaking double the business, great job, you get it, you get a huge per you get a huge uh amount of dollars towards your bonus for for growth. And this year, and and then and then there's volume along the way, right? Because as he's growing it, the the volumes, the volume's growing. Now this year, because we've uh we're already kind of at the volume, now the growth's not as big, but the volume's going up, right? So that's like one of the one of the ways that that I'm gonna think about it. Um the next way is uh around the um it's it's all about guarantees, right? I think this is like a really hard part is is to balance how much guarantee do you give in a in a especially in a in a sales or performance-driven business. Because, you know, the the higher the guarantee that that somebody has depends on the person, but but a lot of times it's back to being complacent, right? It's back to being like having that drive and that hunger to to go and get more. Like if you said, hey, you're gonna make, I don't know, what a pick a number, it doesn't really matter. But if it's like, hey, you're gonna make sixty thousand dollars or eighty thousand dollars or whatever it is, no matter if you bust your butt up, you bust your butt and you grow the business and you and you make make us a lot of money, or we're gonna pay you sixty thousand dollars if you barely show up, you dick around on your phone the whole time, and you know, uh you you just punch a clock in and out. But you can pick one, pick either one, and like you're gonna make the same amount of money. At the end of the day, like it's it's like people are to take the least path of resistance in general. And so the thing about guarantees is like, you know, it's the same thing of the balance. Like, we want to balance it so that we want to attract great people, great people expect and deserve a strong guarantee. But then it's also like they got to perform, right? Uh, and so a lot of times, you know, what we we work with people on it to say, all right, how much money are you looking to make? And then we can kind of back into, all right, here's the plan. Like, you know, we can guarantee you X amount of dollars up to a certain amount of time, maybe for three months or six months or maybe even a year, it all depends. But during that, like, we need to see progress, like in in three months from now, in six months from now, this is where the business needs to be. And if the business isn't there and you can't drive it to that point, then like we're gonna have to go back and talk about the guarantees again because you know it's it's we set the guarantees under the expectation that you will drive results. And if you can't drive results, then why are we giving uh a big guarantee, right? Uh and so it's really gonna be market dependent, but I have found the you know, you you also get what you pay for, right? And at the end of the day, I want to try to hire the best available people that I can afford. And so it depends on your business. If you're just starting out and you're you, you know, you have you have tight margins, you know, you're not gonna be able to go out and afford like a super high-powered guy, but you're gonna try to find the best person who can help, you know, buy your time back, really. Because that's the goal. It's like you want to get things off your plate so that you can focus on driving the business forward, whether that means acquisitions, whether that means leadership development, or landing big accounts or like whatever it is that that you're really good at, get the stuff off your plate so that then you can focus on that growth and you're not like stuck in the weeds uh uh as much. And so really it comes down to you know market market driven things, whether that's an hourly employee with a guarantee, whether that's a uh a manager, a district manager, um, a CEO. It doesn't, it doesn't, it's it's it's all pretty, pretty similar.