Michael’s Auto Repair Shop
Michael’s Auto Repair Shop was the largest chain of auto repair shops in the county with 12% market share, 500 garages, and 3000 employees (including 1000 mechanics). Last year, Michael’s decided to launch a Mobile Mechanic Service (MMS) which enabled the customer to call for a mechanic at the site of the breakdown. The service operated from a Central Control Room (CCR), a call center which received customers’ request and handed them over to various Regional Warehouse Units (RWUs) which housed the mechanics with their pick-up trucks. The mechanics from the RWU received the customer’s request along with the directions of the site of the breakdown and would drive down to the site in their pick up trucks. The instructions to the mechanics were to complete the job on site if it could be completed within 45 minutes with the spares available, or else to tow the car back to the RWU. The RWU also had a support staff that ensured that the pick-up trucks were well stocked with spares and ready for the next service visit. Low productivity Since the business started 10 years ago, the top management of Michael’s was concerned about the productivity of their mechanics, but with the launch of the MMS, this issue became more visible. An analysis of the data showed that on an average, the mechanics were servicing 2.5 cars per day, far fewer than what was expected, since servicing one car took less than an hour to complete. Peter D’Souza, an MBA from a premier institute was recently recruited as the Chief of Operations and was assigned the task of finding a solution to this problem. On discussing with the mechanics and their supervisors, Peter found that there were a couple of factors responsible for the low productivity. One of the main reasons for low productivity according to the supervisors was that the mechanics simply did not try too hard. Another problem highlighted by the mechanics was that it often took an unduly long time to find the correct location of the customer. And customers often insisted that the work be completed on site even though it took more than 45 minutes. The Pay for Performance (PFP) plan Peter had decided to launch an incentive plan to check the problem of low productivity. In addition to productivity, Peter hoped that the plan would help to create loyalty amongst Michael’s largely transient workforce and combat the industry’s traditionally high turnover rates. In many cases, turnover rates were high because auto servicing was a seasonal business. The summer and monsoon tended to be the busiest months, and this was the time when competition for new hires was at its peak. In winter, demand for auto service was low; so many smaller garages preferred to lay-off workers and later hire them when the demand peaked. Additionally some mechanics were attracted to other garages by just a few rupees more in their compensation or some privileges like being allowed to drive the truck home after duty hours. PFP for Mechanics All mechanics will receive a “piece rate” for every customer visit. Every month, the number of visits made by the mechanic would be added and his pay for the month would be based on the number of visits. For the first three months of the plan, if a mechanic did not make more in variable pay as compared to his earlier fixed pay, he would receive his earlier fixed pay as a guaranteed pay. If he exceeded his earlier pay in variable pay, then he would be paid the variable pay. After the first three months, however, his guaranteed rate would be lowered by approximately 30%- effectively encouraging him to work towards the PFP rate. At that time, experienced mechanics were making between Rs. 7,000/- and Rs. 9,000/- per month. The PFP suggested that the mechanics be paid Rs. 85/per visit. Estimating that a mechanic could make an average of 5 visits a day (i.e. 125 visits a month), the average income per month could be Rs. 10,625/Responses to the new program The initial reaction to the PFP was mixed, some mechanics that had joined from companies where such incentive schemes already existed, were delighted to hear of this scheme, while others felt that effectively the management was reducing their pay by 30%. Some managers were worried that lowering the guaranteed rate would increase the employee turnover especially since the labor market for mechanics was highly competitive. If you were in Peter’s situation, would you go ahead with the new PFP? Adapted from: Hall, B. J., Lazear, E., & Madigan, C. (2001, Dec. 6). Performance pay at Safelite Auto Glass(A). Harvard Business School Press, 9-800291.

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