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Are your bonus programs ineffective?

IT MAY BE TIME FOR A FRESH LOOK — AND A FRESH START

By Dennis McCarron

As you begin a fresh new year, considerable thought should be given to revising your company’s bonus program. While a one-size-fits-all approach isn’t appropriate, there are some choices that can help you maintain — and if applicable, revive — employee interest.

Let’s tackle the big issue first. Bonus programs require a start time and an end time. A bonus — sometimes called an incentive plan — is not a “set it and forget it” type of concept.

Human behavior studies have proven that if an incentive program goes on indefinitely, people lose interest. What’s worse, if you find that the program after too long a period isn’t producing results and you decide to end it, employee behavior worsens. This is known as entitlement. You took something away that wasn’t’ working anymore, but employees relied on the incremental income stream.

Now you’re the bad guy!

Rip off that bandage if you have an ineffective bonus program and start fresh.

If you have technician or hourly salespeople bonus programs, it’s best to use a monthly or quarterly timeframe to begin and end.

For management bonuses, longer periods of six months to a year — you can pay portions along the way — is better. So every quarter, the sales and production bonus focus changes and every half or full year, the management bonus focus is modified.

The structure of your bonus program should fall into just a few categories.

For sales and technicians, it’s usually a small dollar amount for specific items sold or recommended.

The item should be fairly common, yet underperforming in your store, as well as highly profitable, like an alignment or air filter.

If a bonus is too easy to achieve, it becomes an entitlement. If it’s too hard, it becomes an anchor on motivation.

End times are critical here, as many owners get caught in the trap of increasing the payout when performance slows. For example, an owner wishes to pay $1 for every alignment sold. In the first month, the store sells 90 alignments. In the fifth month, the store is back down to 30 alignments, so the owner “ups the ante” to $2. This may revive interest, but the cost of the program just doubled.

Sometimes an owner may pay $10 per alignment, but employees have zero excitement around the program.

Store manager bonus programs usually are net profit-based. One of the most common is 10% of net. It seems pretty simple and it is widely in use, but let’s shine a light on its biggest flaw — store managers don’t control most fixed expenses. This creates an eventual mistrust of whether the net profit line is a “real” number, as many managers say.

There is an alternative — a gross profit minus payroll bonus program. The most control a store manager has over profitability falls into what gets sold, for how much and who got paid to do it. If a store manager is really good at motivating his people to sell items at the proper amount, but allows for a ton of overtime, it’s all a giant waste of time. This kind of bonus allows for nearly clear transparency, is easy to calculate on an ongoing basis and the manager has near complete control of the levers that build the payout.

The big benefit of this program is trust. A net profit bonus has to wait a few days or a week after the close of the month to be calculated. A typical store manager doesn’t really understand rent factors or where advertising dollars are spent.

But a gross profit minus payroll bonus can be calculated on a weekly basis, so the manager knows what’s going on with his bonus the whole month.

What percentage should you pay? Each store is going to be a little different. A store that sells a lot of tires, but not much service, will have a lower dollar amount to apply and vice versa.

The simplest way to start off is to take what was paid out last year and reverse the math. If you paid your store manager $24,000 in performance bonus over the full year, look at gross profit minus payroll numbers.

What percentage is $24,000 of that? The idea isn’t to pay managers less or create a program that is so lucrative to the employee that you have to stop it midway through because it’s bankrupting you. The idea is to create a transparent program the employees trust, can calculate on their own at any given point and gets reliably shaken up every so often to renew interest.

And for managers, every year the program should be tweaked — a small added payout to tires, a small added payout to payroll control — whatever the company needs to be more successful.

Bonuses should be a stretch, but not impossible to achieve. If a bonus is too easy to achieve, it becomes an entitlement. If it’s too hard, it becomes an anchor on motivation. ■

Dennis McCarron is a partner at Cardinal Brokers, one of the leading brokers in the tire and automotive industry (www.cardinalbrokers.com). To contact McCarron, email him at dennis@cardinalbrokers.com.

How sharing the wealth creates wealth

FOUNDERS OF GCR HIT ON A WINNING FORMULA THAT STILL WORKS

By Michael McGregor

The “GCR” in GCR Tires & Service did not always stand for “genuine, complete and reliable.” GCR, which is now owned by Bridgestone Americas Inc., was founded by three experienced tire industry operators who had all worked for the Firestone Tire & Rubber Co. in the 1960s.

The founders believed in two core concepts — one, that the store manager was the most important person in the organization, and two, that the way to attract and retain the best store managers was to share ownership with them.

While Les Schwab Tire Centers was experimenting with similar mechanisms out west in Oregon, concurrently in Texas, the GCR group built — in 25 years time — one of the most profitable and valuable retail and commercial tire businesses in the industry.

Bridgestone has sold dozens of GCR locations to independent commercial tire dealerships over the past several years. (The tire manufacturer has retained nine GCR stores.) The core principles that built the original GCR organization still resonate today.

To get the story on the early days of GCR, I tracked down Jim Gauntt, GCR’s chief financial officer from the 1970s, and Ken Weaver, former president of U.S. and Canada commercial operations and chief financial officer of Bridgestone Americas, who worked at GCR beginning in 1984.

According to Gauntt, GCR started in 1945 when Balie L. Griffith left Firestone as a district manager and took over a store in Odessa, Texas, incorporating as the Balie Griffith Tire Company. By 1960, he wanted to retire, so he asked his son, Balie J. Griffith, to take over for him. Balie was the “G” of GCR.

Harold Crawford, a district manager with Firestone, was contacted by Balie about partnering to buy a tire dealership in Abilene, Texas. Balie would only buy the dealership if an experienced man like Harold would run it for him, so in 1963, the Balie Griffith Tire Co. (“G”) put the Harold Crawford Tire Co. (the “C” in GCR) in business with a 51%-49% ownership split.

Operating this way, they opened and acquired two additional stores soon after.

Perry Rose was the southern division manager for Firestone, managing the Southeastern states and Texas. If an independent dealer wanted to buy any Firestone store or dealer, they contacted him.

With Rose’s blessing, Griffith and Crawford began acquiring Firestone company-owned and dealer locations in Odessa, Abilene, Midland, Brownwood and Sweetwater, Texas.

Rose was coming down to the grand openings so often that they got to know him well. In 1970, they enticed him to take over some stores in Austin, Texas. The ‘R” in GCR was now in place.

Each of the three principals brought unique strengths to the combination, according to Weaver. Griffith was strong in real estate, Crawford was an excellent tire buyer and Perry Rose was a retail expert.

By the time the partners reached nine stores — each store separately incorporated — accounting had become a bit challenging.

Rose recruited Jim Gauntt, an experienced operations manager from Firestone’s Atlanta, Ga., office. When Gauntt got to Austin in 1971, they bought out a tire dealer and a Firestone store in Beaumont, Texas; a dealer in Corpus Christi, Texas; and Balie had built another store in Odessa. By the end of 1971, they were at 13 stores.

From the beginning, the partners required individual store managers to buy 25% of the ownership of the location that they operated. They would go to the bank with the store manager to borrow the $5,000 needed for his 25% of the $20,000 typical equity capitalization. Then Balie Griffith Tire Co., Harold Crawford Tire Co. and Perry Rose Tire Co. each bought 25% of the store.

“They did several things that I thought were really clever, one of which was they gave managers ownership,” says Weaver. “Again, you had to buy it, but they believed retail is all about store management.

“With that, everybody is an owner and as I’ve learned in the private equity business, there’s a heck of a difference between an owner and an employee. Everybody ate out of the same bucket, interests were aligned and we all did well or poorly together.”

The partners also paid well to get the best people. Gauntt recalls that “in addition to 25% ownership, managers got 10% of an operating profit bonus, each and every year.

“If the store made $200,000, they got $20,000 off the top, in addition to their salary. The managers would run the store just like it was their own — which in fact, it was.”

Topping all that off, every employee participated in a long-term profit-sharing trust.

Employees contributed 5% of their salary to the profitsharing trust and depending on how the store or group did overall, the company would match it up to an additional 15%.

“It mattered to everyone in their store that the store made money,” says Gauntt.

The founders of GCR believed in two core concepts — one, that the store manager was the most important person in the organization, and two, that the way to attract and retain the best store managers was to share ownership with them.

Photo: Bridgestone Americas Inc.

The trust grew to be a substantial amount of money as the funds were invested in the stock market and real estate.

Several store managers made over $1 million each on this alone, when proceeds were finally distributed.

Weaver believes the profit-sharing trust “allowed everyone to build personal wealth and it kept turnover low.”

When the company expanded into Houston, Bill Blankenship, another Firestone district manager, was hired to run the first store in that market.

As the partners opened more stores in Houston, they found they needed local supervision, so they created the market manager position for Blankenship.

This entitled him to get ownership in all the stores that he supervised, so Griffith, Crawford and Rose each relinquished part of their combined 75% ownership and gave Blankenship 10% of each of the stores he ran.

“The result of this is they were hiring Firestone district managers to run stores,” says Weaver. “Bill Blankenship started in Houston and he had one store. He kept opening new stores and became a market manager. For him, it was kind of a pyramid. “They took great pride in that whoever the plank holder was for a market, they ‘You let them have a piece put his name on that market. In Houston, of the action, they will do those stores were called ‘Bill Blankenship Firestone’. Again, it was all about ‘How can a better job.’ we get the individual store and market people as involved and committed to the business as we possibly could?’” However, as the business grew, with all of the stores set up as separate C-corporations, things got way too complicated. Gauntt says that “in 1980, we sat down and decided, ‘Why don’t we merge Balie Griffith Tire Co., Harold Crawford Tire Co. and Perry Rose Tire Co. and we will figure out the