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In the latest episode of The Site Shed, Matt Jones sits down with returning guest Tommy Howard to tackle a topic that can make or break a trade business—pay structures that drive performance. If you’ve ever wondered how to create incentive plans that truly work, this conversation is packed with gold nuggets.
Tommy, a highly successful business leader who scaled his company from $1.5 million to over $100 million, shares why pay plans are crucial for growth and how they can boost revenue and productivity. The discussion dives deep into how to structure incentives effectively, common mistakes business owners make, and how to ensure fairness while maximising profit.
Why Incentive Plans Matter
If you’re a business owner, ask yourself this: Would you work harder if you knew you weren’t going to make any extra money? Most wouldn’t. So why do we expect employees to?
Tommy emphasises that incentives are the key to motivating employees and increasing efficiency. Without clear financial rewards tied to performance, most teams will default to just doing the bare minimum. And in industries where time is money—like plumbing, electrical, and HVAC—slow performance can eat into profitability.
However, Australia’s strict labour laws, much like California’s, make it tricky to implement pure performance-based pay. That doesn’t mean it’s impossible—it just means you need a structured approach that aligns with regulations while still incentivising productivity.
Building a Simple and Effective Pay Structure
One of the biggest mistakes business owners make when designing incentive plans? Overcomplicating them.
Tommy explains that many businesses create pay structures that are so convoluted that employees don’t even understand how much they’ll earn on a given job. If your technician can’t answer, “How much will I make on this job?” in one or two sentences, your pay plan probably isn’t working.
The best pay plans:
- Are simple and easy to calculate: Employees should instantly know what they stand to earn.
- Incentivise efficiency, not just hours worked: Paying people purely by the hour encourages them to take longer.
- Account for ethical concerns: Some commission-based models lead to employees overselling unnecessary products or services.
A real-world example? One of Tommy’s top salespeople sold $19.6 million worth of services in a year, taking home over $1.5 million USD in commissions. His system is simple—10% commission on self-generated leads, 5% if the lead is handed to him. Because he knows exactly how much he’s making per sale, he’s highly motivated to close deals quickly and efficiently.
Avoiding the Pitfalls of Performance-Based Pay
While performance pay can boost revenue and efficiency, it’s not without its challenges. Tommy outlines some key pitfalls businesses need to avoid:
Ethical Issues
Some businesses push sales so hard that employees start selling unnecessary services. Tommy stresses that you need a zero-tolerance policy for unethical behaviour. If a tech is caught selling something a client doesn’t actually need, they’re out—no exceptions.Complicated Pay Formulas
Employees need clarity, not confusion. If they can’t calculate their earnings on the spot, they won’t be motivated to improve their performance.Lack of Flexibility
Not every business can use a pure commission model. Tommy’s companies in Las Vegas and Arizona can pay by the job, while his businesses in California and Australia need a hybrid model due to wage laws. You need to tailor your approach based on location and regulations.Lack of Adaptability
Business needs change, and so should pay structures. Tommy recommends reviewing incentive plans regularly to ensure they’re still working as intended.
Key Takeaways
- Simple pay plans work best. If your employees don’t understand their incentives, they won’t be motivated to perform.
- Performance pay drives efficiency. If employees are rewarded for speed and quality, they’ll work faster and smarter.
- Ethical concerns must be addressed. A strong company culture prevents dishonest selling.
- Compliance is key. Understand wage laws in your region to ensure your incentive plans are legal.
Conclusion
This episode of The Site Shed shines a light on one of the most critical yet often overlooked aspects of running a successful trade business. An effective incentive structure can be the difference between a thriving company and one that struggles to grow. By keeping pay plans simple, ethical, and performance-driven, you can build a team that’s motivated to work efficiently while also increasing your bottom line.
Want to learn more? Tune in to the full episode and start thinking about how you can implement smarter pay plans in your business today.
Ready to dive deeper into these topics? Don’t miss out on our full podcast episode with Tom Howard. Click the button below to start listening!
Resources:
- Part 1 – From $1.5m to $100m in 12 years. Meet Tom Howard – https://youtu.be/SfkKE1dj8EQ
- Part 2 – What is the process for buying or selling? How long does it take. – https://youtu.be/VOlUgUFbyEk
- Part 3 – Pay plans to drive performance when marching toward a sale. – https://youtu.be/9yrbSvGMWfs
- Get the Acquisition Guide for FREE at https://www.howarddeals.com
- ServiceTitan’s World of Titans Event – https://bit.ly/WorldofTitansAU
- Website: https://www.howarddeals.com
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