Measure Performance – Reward Results – Build Accountability
PCG develops pawn shop compensation and productivity systems around the economics, culture, staffing structure and objectives of the individual business.
Payroll is one of the largest controllable expenses in most pawn operations. It is also one of the company’s most important investments.
The question is not simply how much a pawnshop pays its employees.
The better question is: What measurable return is the business receiving from that investment?
Pawnshop Consulting Group helps pawnshop owners develop compensation and productivity systems that connect employee and management performance to the operating and financial objectives of the business.
Properly designed compensation systems can reward high-performing employees, strengthen management accountability, improve productivity and create opportunities for employees to earn more — while simultaneously improving profitability for ownership.
The objective is not to pay people less.
The objective is to create an environment in which better performance can produce better compensation because the employee has helped create the financial results that fund it.
Compensation Should Be an Investment, Not Just an Expense
Compensation decisions should also be supported by sound payroll practices and a clear understanding of applicable wage-and-hour requirements.
Every payroll dollar should have a purpose.
Traditional compensation systems frequently treat payroll primarily as a fixed operating expense. Employees receive hourly wages or salaries, periodic raises may be based largely upon tenure, and bonuses may have little direct relationship to measurable financial performance.
PCG approaches compensation differently.
When appropriate, compensation should help reinforce the behaviors and results ownership wants the organization to produce.
That may include loan growth, gross-profit production, inventory productivity, sales performance, customer service, expense management, employee development, store profitability or other measurable objectives.
A properly structured incentive should not simply increase payroll.
It should help create the additional financial performance necessary to fund the increased compensation.
Pawn Shop Compensation and Productivity Starts with Measurement
Before ownership can intelligently reward productivity, it must be able to measure it.
PCG evaluates employee and management performance using financial and operating information already being generated by the business.
Depending upon an employee’s position and responsibilities, productivity measurements may include:
• Pawn loan production
• Number and quality of loan transactions
• Average loan size
• Sales production
• Gross-profit contribution
• Inventory productivity
• Merchandise margins
• Customer retention and repeat activity
• Collections or payment activity where applicable
• Individual or departmental revenue production
• Payroll cost relative to production
• Store-level financial performance
• Achievement of established operating objectives
Not every employee should be measured by the same metrics.
The measurements should reflect the responsibilities of the position and the results that employee can reasonably influence.
Payroll as a Percentage of Revenue
Payroll should not be evaluated only by looking at the total number of dollars spent.
PCG frequently examines payroll in relation to revenue, gross profit, store performance and individual productivity.
A growing payroll expense is not necessarily negative if revenue, productivity and profitability are growing even faster.
Conversely, a stable payroll number can still represent deteriorating performance if revenues and productivity are declining.
The relationship matters more than the number viewed in isolation.
Analyzing payroll as a percentage of revenue and comparing that relationship over time can provide ownership with a much clearer understanding of whether labor costs are becoming more or less productive.
Manager Compensation Should Create Ownership Mentality
Store managers have an enormous influence on the financial performance of a pawn operation.
They affect lending, inventory, sales, payroll, customer service, employee development, expense control and the daily execution of company standards.
PCG believes manager compensation should, where appropriate, reflect that level of responsibility.
A well-designed manager incentive system can establish a clear operating target or budget and provide additional compensation when the store produces financial performance above that target.
One model PCG has successfully used establishes an agreed monthly operating budget, determines net income generated above that budget and shares a defined percentage of that incremental performance with management.
The principle is straightforward:
If management creates additional sustainable profitability for ownership, management can participate in a portion of the value it helped create.
This can transform a bonus from an arbitrary expense into a performance-funded incentive.
The Compensation System Must Protect the Business
A poorly designed incentive program can create exactly the wrong behavior.
Pay only for loan volume and employees may make loans the business should not make.
Pay only for sales and margins may deteriorate.
Pay only for gross revenue and expenses may become irrelevant.
Pay bonuses without clearly defined measurements and the program can quickly become an entitlement rather than an incentive.
For that reason, PCG evaluates compensation systems in the context of the entire operation.
Performance thresholds, profitability, margins, defaults, inventory quality, expense control and other safeguards may need to be incorporated so employees are rewarded for creating healthy financial performance — not simply activity.
Individual Productivity Creates Management Visibility
One of the additional benefits of measuring productivity is management visibility.
Ownership should be able to identify its strongest performers, employees who are developing, areas where additional training is required and positions where compensation is no longer aligned with contribution.
Productivity measurement can also make performance reviews more objective.
Instead of relying primarily upon subjective observations, management can discuss measurable results, historical trends and established expectations.
That creates clearer conversations about raises, bonuses, promotions, training and accountability.
It also gives high-performing employees something valuable: objective evidence of the contribution they are making to the business.
Store-to-Store and Manager-to-Manager Comparisons
Multi-store organizations create additional opportunities for productivity analysis.
Stores operating under the same ownership and company policies can still produce dramatically different results.
PCG can compare payroll productivity, loan growth, sales, margins, inventory performance, gross profit, operating expenses and profitability across locations.
Those comparisons can help identify both underperformance and internal best practices.
The objective is not simply to create a ranking.
It is to understand why one manager or store consistently produces stronger results and determine whether those practices can be replicated elsewhere in the organization.
A Win for the Employee and a Win for Ownership
Effective pawn shop compensation and productivity systems align employee opportunity with measurable business performance, creating a structure in which increased compensation can be supported by increased productivity and profitability.
The strongest compensation systems do not require ownership and employees to sit on opposite sides of the table.
The interests of both can be aligned.
Employees should have an opportunity to increase their earnings when they create measurable additional value.
Ownership should benefit because the additional compensation is supported by improved productivity, gross profit or profitability.
That creates a fundamentally different conversation about compensation.
Instead of asking only, “How much more will payroll cost?” ownership can ask, “What additional performance must be created to fund this compensation and leave the company financially stronger?”
When designed correctly, everybody can win.
What PCG Can Build
Every pawn operation is different, and compensation systems should reflect the economics, culture, staffing structure and objectives of the individual business.
Depending upon the engagement, PCG can assist with:
• Employee productivity measurement
• Manager performance systems
• Payroll-to-revenue analysis
• Individual and store-level performance reporting
• Incentive and bonus structures
• Management profit-sharing models
• Performance thresholds and safeguards
• KPI-based compensation
• Store-to-store productivity comparisons
• Compensation budgeting and modeling
• Performance-review measurements
• Implementation and management accountability
The right pawn shop compensation and productivity systems should be measurable, understandable, financially sustainable and tailored to the objectives of the individual operation.
PCG can evaluate an existing compensation program or develop a new system designed around the specific objectives and financial structure of the organization.
Compensation Is Only Effective When Employees Understand It
Even the best incentive program will fail if employees do not understand how it works.
Performance expectations should be clear. Measurements should be understandable. Employees should know what they can influence, how results are calculated and what performance can mean to their compensation.
Management must also be able to monitor the program consistently and communicate results.
PCG can assist ownership not only with the financial design of a compensation system, but with the management structure necessary to implement and maintain it.
A compensation plan should not be something employees discover when they receive a paycheck.
It should be a management tool that helps focus the organization on the results ownership and employees are working together to achieve.
Start the Conversation
Your employees represent one of the largest investments in your pawn business.
The question is whether your current compensation system is helping that investment produce its greatest possible return.
Pawnshop Consulting Group can evaluate existing payroll, productivity and compensation structures and help ownership develop systems that better connect performance, accountability and financial results.
Measure performance. Reward results. Build accountability.
Let’s create a compensation system where better performance creates better opportunities for everyone.