With performance-based pay, you will be able to serve more customers, because the best technicians will complete jobs efficiently, and want to move on to the next job.


Performance based pay has become the dominant form of pay for service industries. The auto industry has been using performance-based pay for more than 20 years, along with the carpet cleaning industry, and plumbing service industry, and several HVAC service companies have also used it for that long. It's even used in the medical and legal service fields, because it makes good business sense.

There are many pros and cons to instituting performance-based pay in your HVAC business, and your participation is your choice. Contrary to some opinions, the only reason to change your payment system is to provide better service to your customers. Other benefits may follow, but if better customer service is not your ultimate reason, you should focus your energy on other areas of your business.

Prepare the Entire Payroll System
To get started with performancebased pay system, you must have good operating procedures in place. This includes good pricing systems for both service and installation, and proper payroll procedures, to track both time on the job and hours paid, to be sure you pay everyone properly.

You need to set up a flat rate pricing system so your people will know what they will be paid for performing certain tasks. This can be easily done for both residential installation and service.

Almost anyone in the industry with a few years of experience can tell you the average time to replace a piece of equipment, troubleshoot and replace a part, or install components of a system.

If you can't, or don't want to figure it out yourself, there are several flat rate pricing guides available that provide the average time it takes to perform defined tasks. Most of these guides are conservative, and on average, you can do the repairs proficiently in the time these guides suggest.

Observe Wage Laws
Make sure your company is ready to handle the new pay system. The biggest challenge is make sure you are meeting proper wage and hour laws. I'm not an attorney, but in this area, you should contact an attorney in advance who specializes in compensation practices, to make sure you are handling your pay system properly.

The key thing is to make sure you're paying people properly when they receive overtime pay. There are very strict guidelines for hourly people when they work more than 40 hours per week, and performance-based pay does not exempt you from paying them under those rules. Set up a good system, and monitor it daily.

Enlisting Employee Trust
If you currently run your company without performancebased pay, your biggest challenge in setting it up will not be figuring out the pricing system, but dealing with the mind set of people who have worked on a strictly hourly-based pay system most of their lives. The mind set of most hourly people is to do a reasonably good job for as much as they can get per hour, and go home and forget about work. Their pay is predictable, and they're happy with the accompanying life style.

Initially, the new pay system will scare people who like hourly pay. Many think it's a new program that is set up to rip them off, and they don't trust it at first. It takes a lot of work and planning to explain what the benefits are to them, the customer, and the company. However, with the right program and the right training, they will soon learn how performance-based pay will be a "win-win-win" situation for everyone involved.

However, there will always be some hourly-wage employees who will never buy in to the process, so you need to anticipate turnover of technical people. I have heard stories of 20% to 60% turnover of technicians and installers as companies change over and seldom (if ever) less than 20%.

Your next step is that your management focus will need to change to get the most out of the program. Rather than pushing your staff to move faster and run more calls, the good ones will be pushing you. They will want less travel time so they can be on the job, billing productive hours.

Your training and management procedures must focus on quality, efficiency and customer service. Some employees may try to take advantage of the system for their own reward. If their focus is not to serve the customer, the company, and themselves equally, you can have a problem. Someone will need to review their billing and time cards daily.

Ultimate Advantages
If you clean up your procedures and institute a good performance-based pay system, your customers and employees will love you.

  • Your customers will be getting the best quality work, and know the entire price before you start any job. The mystery of "the price," which has historically been one of the biggest fears of consumers, will disappear.

  • You will be able to serve more customers, because the good guys will complete jobs efficiently and want to move on to the next job.

  • You need to set up a flat rate pricing system so your people will know what they will be paid for performing certain tasks.

  • The company can plan better, because if your system is well defined, and you use disciplined follow-up, you will significantly reduce your labor variance, giving you a better opportunity for proper pricing and more predictable profits.

The real winner is that great technicians and installers, like Clydesdale horses, will pull the system forward, assuring better service to your customers.

Keys to effective performance-based pay systems

  • Good operating procedures are a must
  • Be ready for turnover
  • Be ready to manage techs who will be pulling, rather than you pushing
  • Monitor quality as a top priority
  • Pay properly – especially overtime
  • Intensify training for quality, efficiency and customer service

Mark Swepston is president and CEO of Atlas Butler Heating and Cooling, Inc., Columbus, OH, the Contracting Business 2007 Residential Contractor of the Year. He can be reached at 614/294-8600.