I suggest a bonus pool that accumulates approximately 60 percent of its proceeds from actual money collected and the remainder from gross profits. This type of distribution works well in new operations and mature ones. In a new operation, the bonus will be driven by gross in the early months and later by collections. If you are among those dealers who can project cash payments for a month or a given term with a degree of accuracy, it may be helpful to create a scale that provides more compensation for collecting a higher percentage of expected payments.
There should be no qualifiers or limiting factors on a bonus plan or any other incentives offered. Every dollar of gross should add to the bonus pool and every payment dollar collected should have an impact on the paycheck. You want employees hustling to build on these numbers right up until the last minute of the last day of the month.
Incentives based on delinquency rarely produce the desired results. In fact, they are often counter-productive. A small bonus or reward is fine, but a manager who has to achieve a certain delinquency level in order to reach their desired earning mark will often be frustrated. Delinquency is a fact of life in this business. Reward the manager who leads a team that banks a high percentage of expected payments even if delinquency fluctuates in a reasonable and manageable range. Intelligent managers recognize that unresolved delinquency ultimately results in charge-offs that deplete the gross profit pool so they will have sufficient motivation to act on delinquency. A periodic spiff for delinquency is probably a better solution.
With approximately 60% of the pool being built from success with the bank deposits, employees soon realize that it is in their best interest to avoid deferring payments and to make contact with delinquent customers to resolve issues promptly. The brightest managers understand that adding quality-financed sales contributes to today’s gross profit and tomorrow’s cash flow. By compensating on the profit and loss reports generated at the dealership, the staff will be motivated to maintain healthy margins on all retail and wholesale sales and maximize income in other areas including loss recovery, interest income, back-end profit, etc.
The desired total compensation less the amount of bonus estimated to be paid from the pool determines the portion of an employee’s compensation that comes from salary, which should remain confidential. The local market and the job description of that position will establish the total compensation. Managers should be receiving at least 30 percent of their compensation from bonuses earned with production.
Be careful when constructing a bonus plan, as this is where many dealers begin to get in trouble. Keep the pay plan simple! Elaborate pay plans often compensate people fairly and perhaps even generously, but if a compensation plan is too complicated for each and every staff member to be able to know their precise earnings at any point in time, then the motivation factor is lost. This is very important. Employees must be able to easily obtain the figures necessary to quickly calculate their own bonus. Employees are not motivated when a bonus appears on their check without them knowing what occurred to create the bonus or, more importantly, what they did to impact the figure.
By utilizing a simple pay plan that is driven by the numbers that are essential to your profitability, it is possible to boost company morale, motivate employees to go farther, encourage quality employees to stay and achieve company objectives all the while. This can be done without having to exhaust so much time following employees around with an iron fist.