Pay to Play

Compensation can be a major point of contention among dealers, managers and employees. GM explains how initial planning can prevent future headaches

June 2015, Auto Dealer Today - Feature

by Steve Fox

Compensation can be a major point of contention among dealers, managers and employees. GM explains how initial planning can prevent future headaches. 
Compensation can be a major point of contention among dealers, managers and employees. GM explains how initial planning can prevent future headaches. 

In theory, the pay plans you write for your sales, F&I and service pros reward standout performers, motivate new or struggling employees and identify areas of focus for improvement. In practice, pay plans are the source of constant headaches for dealers and managers, who must balance the needs of the dealership with those of its staff.

Let’s face it: Few employees are completely satisfied with their pay plans, and no plan contains a “reward” for every duty you expect them to perform. And when those duties change, the plan needs to be updated.

As veteran managers are fully aware, when sales slow and paychecks shrink, employees tend to seek increases in their compensation percentages. Their results have decreased, they say, but only due to “the market,” and they expect to you to make adjustments to maintain previous compensation levels. (Naturally, when “the market” improves, they don’t offer to give up those increases.)

That leaves senior management with a never-ending series of tough decisions, all of which boil down to one simple fact: Certain positions need to be compensated within a certain range to keep your best employees on the payroll. So how do you maintain proper levels of compensation under any circumstances?

My experience has taught me that putting a solid plan in place at the outset is the best way to avoid stress in the future. Take the time to do the math and consider every “What if?” situation. What if a downward adjustment cost you the services of a productive employee? What if a moderate increase in business put you in the position of paying excessive compensation?

I have seen my share of pay plans that contain “guaranteed” or “maximum” compensation amounts. Generally speaking, I do not like those components because they eliminate the motivation factor. If they are included, they need to be implemented rarely; specifically, only in months for which extreme performance parameters are reached. If it is common for a position to be paying guaranteed or max compensation, you need to change the plan.

With all that in mind, let’s take a look at one type of pay plan that continues to vex many dealers: service advisors. I like a base of 40% plus 50% commission, leaving 10% for a customer-satisfaction bonus. Remember, the larger the base, the less room for pay based on percentages. If you believe in motivation, you want to avoid increasing your base to the point where it becomes, in effect, a salary.

That doesn’t mean your sales advisors can’t make a good living — quite the opposite! Here is an example based on the model described above:

  • Average sales expectation: $100,000
  • Total monthly compensation: $5,000
  • Base (40%): $2,000
  • Commissions (50%): $2,500 (dealer pays 2.5% against the $100,000 objective)
  • Customer satisfaction score (10%): $500

The bottom line is this: Take the time upfront to determine which areas you want your employees to truly focus on. Set up a compensation model that rewards their results in those areas and, most importantly, does so in a way that ensures it can deliver value for you and your employee and anticipates a variety of scenarios. This will help keep your best service, F&I and service pros in the fold without negatively impacting your operation.

Steve Fox is general manager of Lithia Chrysler Jeep Dodge in Santa Rosa, Calif., and a 25-year auto retail and service veteran. [email protected]

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