Article

Four Keys to a Long-Term Pay Plan

June 2008, Auto Dealer Today - WebXclusive

by Jack Lintol - Also by this author

It Starts With Defining Who You Are

As the old saying goes, “The reward for a job well done in the car business is a minor adjustment in pay,” and it’s usually not an upward adjustment. How many of us have asked someone the question, “Why did you leave that dealership?” only to hear, “because  ‘they’ cut my pay”. I have heard it more times than I would like to admit.

As a matter of fact, it troubles me that every dealer gets thrown into this negative “your pay will be cut if you start making too much money” bucket. There are so many dealers out there who have great pay plans and understand that if their employees are making a lot of money, they are too. These same dealers also realize that there is more to attracting and retaining great employees than just pay alone. I know it sounds altruistic, but it’s true.

Another common theme I hear is that the salesperson “exploits” the pay plan to make a ton of money. Well, isn’t that their job? Aren’t they supposed to do what they are incentivized to do? Who set up the pay plan, anyway? Did that person really take the time to understand what they wanted that salesperson or manager to do and whether or not their pay plan would motivate the person to actually do it?

It is usually the people who don’t spend the time developing well-thought-out, long-term pay plans, whom you hear complaining about a salesperson exploiting the pay plan. Within three months of seeing a new pay plan, aggressive salespeople figure out where to focus their efforts to maximize their pay. The manager who set up the plan, not the salesperson, is truly to blame if someone’s pay increases and the expected results do not. The best dealers and managers know this.

Great dealers have one thing in common: they understand that their best asset is their people. So, it stands to reason that they will take care of their employees. The keys to attracting and retaining the best employees include many things beyond a solid pay plan. I want to take a look at all the other items before we address compensation.

Know who you are and what you and your dealership stand for. Does everyone who works for you understand who you are and what you are trying to accomplish? We have defined this in our business, and it has helped us when recruiting people to ensure candidates will fit into the organization. Knowing who we are also helps us run our business and guides our decision-making process. Here are just a few items you need to know to help define this:

1. Core Purpose – Defines why your organization exists, other than to make money

2. Core Values – Set of small tenets or guiding principles. These already exist and need to be discovered, not set. Core values are 100-year items that will not change in response to market conditions.

3. Mission – A simple statement that describes the business you are in

4. Strategic Anchors – The unique ways that you achieve your mission

5. Big Hairy Audacious Goal (BHAG) – a crisp, compelling, easy-to-understand 10-year (or more) objective

All of these items will allow you to be more effective in attracting, recruiting and retaining the best people. Knowing who you are and what you stand for makes it much easier to operate your business. It allows everyone to reference core values when making decisions, ensures the business is being operated consistently with the mission and strategic anchors, and confirms that the dealership is on the road to its BHAG. Communication about these items should be daily, and they should become the spoken language in your dealership.

Create a great environment. What is the first impression anyone has when walking into your dealership? This can tie into your core values. One of our core values is: Have energy and the ability to energize others. This is a very bold statement, but you can feel it when you walk into our building. I can’t tell you the dramatic differences I have seen across the country in dealership environments; some of the best-run and most profitable dealers are high energy with fast-paced, highly motivated people who love coming in to work every day.

Make sure your salespeople have the opportunity to sell a lot of cars and move up within the dealership. How much are you investing to get traffic into the store or to make the phone ring? Invest in the salespeople’s and manager’s skills, so they know how to prospect on their own as well as handle the traffic you pay for. Do you have a process at the dealership that is tried, tested and continually improved?

Your people need training. Are managers or outside companies providing training to keep your people sharp and eliminate any excuses they might have about how to handle various situations? If you are not willing to invest in them, will they really invest a full–day’s work for you? Training done the right way pays off in spades. I would rather train people and lose some, than keep all the ones who have not been trained.

Make your people accountable. Ensure that everyone knows where he or she is, and everyone else is, for the month. Put it in neon lights. Make sure everyone’s numbers are discussed daily.

Now to the pay plans. The keys to setting up a long-term, effective pay plan are as follows:

1. Simple – You want the salesperson or manager to be able to easily calculate or at least approximate where they are for the month.

2. Transparent – Don’t hide anything; be straight. Eliminate the pack. Instead, just lower the percentage.

3. Strategic – Ensure that the plan will accomplish your monthly, quarterly, yearly and Big Hairy Audacious Goals. You have to figure out what you want your people to do and then ensure that the compensation plan will motivate their behavior to achieve those goals.

4. Ability – Make sure people have the ability to make money, because if a salesperson or manager is making a lot of money with the right pay plan, you should be too. If the respective job requires some time to get up to speed and there needs to be a ramp-up period, pay them a higher commission rate in the early months and work them down to the normal commission rate over a specific period of time.

Here is an example of an actual pay plan from a new-car franchise that focuses on subprime with no pack:

Total Monthly Gross (Front and Back)   Commission %
Up to $50,000 15
Greater than $50,000 17.5*
  *Commission % back to dollar one

All of this is easy to say, but difficult to implement.  If you take the time and make the investment to make your dealership a better place to work, with a competitive upfront pay plan, you will have better results, lower turnover and less need to “pencil” your staff. Take the time to ensure the pay plan is as timeless as possible and set it for a year.

Have a great month.


Special Finance Insider Vol. 2, Issue 3

Your Comment

Please note that comments may be moderated. 
Leave this field empty:
Your Name:  
Your Email:  

Blog

On-the-Point

Jim Ziegler
A Faster Horse

By Jim Ziegler
The Alpha Dawg wonders where the demand for driverless vehicles is coming from and has good news and bad news — but mostly bad news — for Fiat Chrysler and Cadillac dealers.

Strangers in the Mall

By Jim Ziegler
The Alpha Dawg makes new friends, stands up for Cadillac dealers, charts the rise of the independent lots, and reconsiders free trade agreements.

You Can’t Handle the Truth

By Jim Ziegler

Watch Out for Grizzlies

By Jim Ziegler

Opening Observations

Over the Curb