Stop Doing Annual Employee Reviews — They Don't Work

A new manager and the mystery bonus 0:00

Steve Shaw: Welcome, everybody. Welcome back to Fixed Ops Focus. Here we are back again. It is a new month, Dave Rogers. What's going on?

Dave Rogers: That is true. It's a very new month. Just doing some reporting today, playing around, and I've got a new manager in a couple of stores, and I'm trying to get them situated. It's always exciting when you sit with a new guy and you start looking at what the old guy, or the old gal, left you, and you start shaking your head going, "What the frick?" It's interesting. Really interesting. I've got to be careful, because that GM said he was listening to us this morning on the way in, so I don't want to flame his store. I might lose a listener.

Steve Shaw: Well, I'm doing a lot of research right now. I've said it a couple of times: I finished my first book, I call it my manifesto, and it's quite the novel. And I'm working on my second one, which is very academic. So I've spent a lot of time doing research on culture, leadership and things like that.

Speaking of a new manager, one of the things is how the culture in a store instantly changes, and processes will change tomorrow. You and I have had those discussions about whether it's written down or not written down, and Cindy talked about that as well. But the day somebody new comes into your store, everything changes in the organization. A lack of processes, or a lack of accountability to the process, shows up almost instantaneously. The studies on accountability, leadership and change are very interesting, quite frankly.

Dave Rogers: I just like it when you find these spiff sheets, let's say, these extra over-and-above-the-pay-plan things that are just the norm. One guy had a bonus, and we couldn't make out what the bonus was for. We just couldn't figure it out. It was some initials, and we had no idea what they meant.

So the new guy goes up to the employee and says, "Hey, what is this bonus for?" And he goes, "I don't know. But if you touch my pay, I'm going to be pissed. If I make any less." So he came back to me and asked, "What do you think?" I said, "You should have grilled him a little bit. What do you mean you're going to be pissed? Can you tell me what the hell this bonus is and what you're doing to deserve it? Don't threaten me." He's getting some gift he doesn't even understand. How do you give somebody a bonus if they don't even know what they're working for? But he's entitled to it, because now it's just become part of his pay plan.

Pay plans nobody understands 3:04

Steve Shaw: Hey, listen, I know a lot of guys who have these half-assed written pay plans, and they will tell you they have no idea how they get paid. At the end of the month, the general manager or the fixed ops director just writes them a check. They don't have any idea, but as long as it comes in around what they need to make, they're good. That just drives me insane.

Dave Rogers: Well, it goes back to the point we've been making all along about motivating your employees, getting them focused on a goal, getting everybody fired up for the end of the month, shooting for different numbers and objectives. If a guy or a gal gets a bonus for not doing anything, it just becomes part of their salary. They don't even look at it as anything over and above. So why call it a bonus? Just divide it by four and put it in their salary, or multiply it by twelve and divide by twenty-six. There you go. Boom.

Because that's really what it is. Why make the guy wait a month? Why make them wait until the fifteenth to get this thing they're going to get anyway? Just divide it up and give it to them every two weeks.

Steve Shaw: Well, I hate to get all technical, but that goes into Maslow's hierarchy of needs. If I'm going to come to work for you, I've got to have a bare minimum. And if I'm worried about getting my guarantee, or worried about this or that, you're a hundred percent right, my head's not in the game. I'm thinking, what do I have to do to make a check? What do I have to do to make rent and pay my bills? You're right: if that's what he needs to make, pay him a salary and then give a small commission or a small bonus on top of it for achieving the goals. It's insane.

Weekly conversations beat annual reviews 4:47

Dave Rogers: It's bizarre. The other day when we were just chit-chatting, you were talking about trends in paying people. I think mostly we were talking about hourly people, and I know you were going down that rabbit hole. What did you find out? What was your grand discovery? Because I could see the smirk on your face. You had something.

Steve Shaw: My grand discovery. There's always one, right? I think we are trendsetters, so let's see what happens. What I learned is what we learned in 1999, back when we were running stores: daily production meetings are a must. That's what we did. That was our lives, daily production meetings. Then I learned it again in 2012, when I was getting my doctorate: daily production meetings are important.

So I'm doing research again, and what I find is that people say they're tired of annual reviews. People don't want an annual review, they don't want a bi-annual review and they don't want a semi-annual review. You know what they want? They want regular, weekly conversations. The more we talk to people, the more likely it is they're going to stay. People who get regular meetings and regular feedback from their boss, weekly or more, are two times more likely to stay in the organization. There's statistic after statistic that just supports what we've known all along.

It blows my mind. I've had conversations with every one of my clients about it. Jamie was talking about it on our podcast a few Fridays ago. It's the ten-fourteen meeting for him. He walks out into the shop, and they talk about production every single day. And even with the service advisors, it's not an email. People don't want an email from us that says good job or bad job. They want a face, somebody they can talk to, to say good job or bad job. And they want it on a regular basis, not whenever we think it's a good idea.

Dave Rogers: Well, I don't know if that's a generational thing or just a today thing. We did have one service manager, and I think one of the reasons he left was that we didn't tell him he was doing a great job every fifteen or twenty minutes. He just had that kind of personality. Upon further research, this guy's always been that way, even when he was a service advisor at another store, which I found out not too long ago. Had I known, I would have called him up once a day and said, "Hey, great job."

Steve Shaw: The funny thing is, they say it's not generational anymore: the baby boomers, Gen X, Gen Z, the digital generation and all of this. I wrote a whole paper about the digital generation, the digital natives and the people beyond them. And they say it's not based on your birthday anymore. It's not your generation. It's just certain people, and I could go into lots of detail, but I won't. It's becoming more and more widespread: "I want to know how you feel about me."

From a manager's perspective, we've always gone with: you should worry when I stop talking to you, not when I'm talking to you. But the research is starting to play out that the cadence is regular: a pat on the back, you're doing a great job, at the latest weekly, and more and more often than that. I think that just validates everything we've ever said. It's crazy. Everybody wants it.

Thin skin, and who taught your manager? 8:32

Dave Rogers: Well, the "no news is good news" theory used to work for us, right? It doesn't work anymore. But I think the flip side of that is that a lot of people have thin skin. They don't like to hear when they're not doing things well. They only want to hear the good stuff every day, not the bad stuff. That's a little bit of a conflict, if that's the case. I'm not saying it is, but I've seen some people out there with thin skin. A lot of times they don't want to know about it.

Steve Shaw: I think there are a lot of people with thin skin, but I also think it's because we only talk to them when they do something bad. We only give them the bad news, and they're going, "Well, how did I know? How did I know whether it was a good job or a bad job?"

Dave Rogers: No, I agree with that. We have a tendency to do that in the car business, too. You go to fire somebody, and they don't know why they're being fired. "Wait a second." And I think you're right. The one thing I've come to notice over the last ten years is that everyone wants to blame the new generation, but that new generation learned from the people before them. The people in their forties and fifties are the ones who taught the people in their twenties and thirties, and they think the same way because that's where their kids got it from. They didn't get it from the other twenty-year-olds. They got it from the forty- and fifty-year-olds. So I think it's very short-sighted to just blame the next generation. I really do.

Steve Shaw: I think a couple of things. One, when I wrote about the digital generation, I forget exactly, it was people born from '77 to '99 or so. Well, those people are now managers. They're the forty-plus-year-olds in the world right now. So you're right, a hundred percent: now they're teaching our people. But here's the question, and this is one chapter of my new book. Who taught your manager?

Who taught your manager? And the answer is no one. That's all well and good for people like you who said, "I'm going to go learn this for myself. I'm going to grow and learn all of this." But if the answer to "who taught your manager?" is nobody, and this guy's just sitting in the chair, then what does this person do? He teaches the next generation of managers, who then teach the next generation. Three or four generations in, which is where we're at now, who's teaching these people? It's nobody teaching nobody. So nobody knows what to do.

Paying a bonus for yellow 11:04

Dave Rogers: No, I agree. Listen, it goes back to a point I made a long time ago. Who's training people to be good managers? Nobody. Everyone wants to jump right to the leadership program, and nobody wants to learn how to manage. You have incentives being paid, and no one can tell you what they're paid for.

Let's use videos as an example. I saw a spiff program where they got money if they were over eighty percent on video, and a little bit more money if they were over ninety percent. You should get nothing if you're over eighty, unless you're over ninety. Ninety should probably be the minimum, and ninety-five should be the top tier. Play with the numbers any which way you want, eighty-five, eighty-seven, whatever it is. But when you start looking at these things, who set that objective? That's not managing. That's pacifying people. "Here's a participation trophy. I'm going to give you a hundred dollars if your videos are over eighty percent."

Steve Shaw: That's yellow. That's fucking yellow, excuse my language. Because I looked back at my papers from 1999 and 2012, and it was still red, yellow, green. That's what it was: "Hey, you're okay. Don't worry, you're yellow right now. Just do a little bit better."

Over probably my last five years, since we adopted Pass/Fail, and I wrote the book The Art of Pass or Fail a few years ago, it's: look, you either do it or you don't. You pass or you fail. And that's the whole concept you're talking about. Why would I give somebody a bonus for being mediocre? Because you're yellow. That's it.

Dave Rogers: Yeah, well, that's the cop-out. We've talked about this before. That's the easy path, the way to keep your employees happy working for you and to cover your ass when you decide not to come in. It's all the same thing: "Don't rat me out, man. I'm giving you a yellow bonus. Don't rat me out."

Steve Shaw: That's it. The "don't rat me out" bonus.

Daily pay for hourly employees 13:12

Steve Shaw: There were so many things in that research. One of the things they did talk about was daily pay, for hourly people in particular. If we're trying to find people, there's a trend going on in the world. I can go to Walmart, Target or Petco and make, give or take, twenty bucks an hour, let's say. And at the end of the day, they're going to write me a check for a hundred sixty bucks. You can get paid daily from your employer. That's a trend.

What they said was that over 70% of the hourly people at these big boxes have opted in to daily pay. I think that's cool as shit. Why wouldn't we do it? I know why we wouldn't: because it's not convenient for us. But the big-box retailers figured out how to do it. It just hasn't been brought to the automotive industry. What would that do for us? If it's a trend and people like it, maybe somebody would want to do that here.

Dave Rogers: I've read some things about it here and there, on-demand pay or early access, where after a certain period of employment, usually five, seven, ten days or whatever it is, you can draw against your pay. I think there are fees involved, and there are different companies that do it with different plans. I don't know if they actually get a check at the end of the day or cash, but it's getting to be a trend, and from all indications, most people would prefer it.

Now, people like me are going to look at it and go, "If I paid you up to the day on Monday and Tuesday, chances are you're not coming in Wednesday," because you had enough money and went to the bar Tuesday night, or you went to ladies' night on Thursday and I'm not going to see you on Friday. That's the one thing. But I don't think the people who want it give two shits whether that's going to be an issue.

Steve Shaw: Well, I think it's like a debit card type of thing, where you get paid and it gets put on your debit card.

Dave Rogers: A certain percentage of it, I think. They can draw against it, because they have to account for taxes and stuff. Listen, my uncle was in construction. He didn't have his license, so I had to drop him off at work, and like I said one time before, you'd show up on Friday at noon, and the rest of the crew was gone. They were at the bar having fifty-cent Buds, or they were at the strip joint. The whole job site was dead, and the only person standing there was my uncle, waiting for me to pick him up so I could take him to go cash his check.

Steve Shaw: Yeah, those guys were getting paid out in cash, man. "Hey, here's the cash for the day."

Dave Rogers: Some of them were, a lot of them weren't. And one company he worked for started paying people Monday afternoon, because they figured then they'd come to work for the rest of the week. It's pretty funny if you think about it.

Do your managers know how they get paid? 16:35

Steve Shaw: It's crazy. I think there are a lot of cool trends out there in the world, and we always seem to be behind the curve. It's just common sense. But you said it best, and this was another thing in my brain: if somebody doesn't understand why they're doing something, like how did I make this estimate, how did I get paid, what was my spiff for, what did I charge the customer, whatever it is, that's a problem.

One of the concepts was: walk out into your store and ask somebody, "How do you calculate gross profit?" If they don't know, that's a problem, and we should answer that question. How do you get paid? I can tell you from what I call my SWAG research, asking people in seminars, "What do you know about gross profit?" Most people don't. They'll tell you they do, and they might have the concept of it, but they couldn't put it on paper.

I'm not saying this is in your organization, but I can tell you there are service managers who have no idea how they get paid, and they're running our stores. That's the criminal part of the whole thing: the manager doesn't know how he gets paid.

Dave Rogers: No, I agree a hundred percent. I don't think there are any in my organization, although a couple of years ago we did have a couple who didn't know the calculation for gross profit. And I've always alluded to this. It's a little different now, but I used to talk sales to my advisors. Even though they got paid off gross, I set daily objectives in sales, because they could measure that. They knew if they sold a thousand-dollar job. They didn't know how much gross was on that job until the RO closed, or until they printed it out and looked at the accounting copy, if they were smart enough to do that. But for the most part they knew, "I sold a five-thousand-dollar job, I sold a two-thousand-dollar job."

So I always kept them focused: "Listen, at the end of the month, if you sell this much, you're going to gross roughly a hundred thousand dollars." If the goal was two hundred thousand and you're going to work twenty days, it doesn't take a mathematician to figure out you need to sell ten thousand dollars' worth of shit every day. That used to work for me, because it kept everybody on the same playing field. And at the end of the month, if there was a discrepancy and they didn't hit the objective, you could back into it and see what happened: you closed a lot of stuff with a lower margin, or you gave a bunch of discounts, or you did this and the other thing. But you're right, if the manager doesn't know, the employee is shit out of luck. There's no helping that guy or gal.

Steve Shaw: I was actually reviewing some papers I wrote back then. One of them was about a service manager at a store in Illinois where I was consulting. He goes, "I know my boss is ripping me off. I know he's ripping me off." I'm like, "How do you know that?" He goes, "I just know." But he didn't know how he was paid, he didn't understand his pay plan and he didn't know how to read a financial statement. But "I know I'm getting ripped off."

I knew the owner, too. I knew Bob, the owner, and Bob was totally not ripping him off. But the service manager just felt like it, because he never could get ahead or figure it out. I think that happens in our industry: the lack of awareness. And again, that goes back to daily, daily, daily. We shouldn't have somebody in our store who doesn't know, every day, or weekly at worst, exactly where they are and how they're going to get paid.

Why self-reviews fail, and the GM tip 20:21

Dave Rogers: I think your original point, too, was about letting people know where they stand daily or weekly, and I do agree with you. The once-a-year reviews are so messy. I used to have that with the big box, the public company. It was always idiotic to me. They'd hand the employee a review, and the employee had to do homework and review themselves, and then the manager had to review them too.

I used to say, "This is the most ridiculous thing I've ever heard of." And they'd ask why. I'd say, "Because I know that employee is lying on their review, and they think I'm lying on my review. This is not a way to build trust." And some of these guys were union. There's no union technician or union anybody who's going to sit there and say, "I suck at what I do," because he'd just be papering himself up.

Nobody's going to do that. So the employee would say "meets expectations," the manager would say "below expectations," and you'd wind up in an argument with somebody that went nowhere. I still see this stuff. I used to say, "No, the way to do this is we sit next to each other and we talk about it. What do you think? What's your attendance? I think your attendance is pretty good." Go down the list and collaborate on it. But nobody wants to spend the time to do that. Nobody.

Steve Shaw: Everyone's scared. Why are we so scared? You'd better give us a GM tip of the day before this goes too long.

Dave Rogers: GM tip of the day. I don't know. Pay your people daily? Take cash out of your pocket and give them some money? No.

No, listen, I think you're right. It's got to be daily, weekly, monthly. You've got to talk to your employees, every employee. Most dealerships have, what, seventy, seventy-five people. It's not like you can't touch base with all of them. It might be hard to grab your parts driver every once in a while, or your dealer-swap guys who are only here and there. Take those ten or so people who are part-time or not there all the time, and honestly, have a sit-down with them, chit-chat with them, or just walk by their bay, chat with them and see how they're doing.

One of the things I read recently, and I think it's a good thought, is that this is where AI is going to help. If you can free a manager up from sitting there running numbers all the time with their face smashed into a computer, it should give them more time to get out there and talk to their people. People have to start looking at that as the use for AI, not just answering your phones and sending emails. It should make you more productive, or at least give you your numbers right away so you can go out and talk to your people. Because that is truly the most important thing right now. Human capital is much more important than some of the other stuff we deal with. So that's my tip of the day: get out there.

Steve Shaw: Right on. I think that's a great topic for the next one, too. All right, well, I'll catch up with you next week.