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Welcome to NCM's Up to Speed Blog

Cracking the Code: Automotive Pay Plans

Written By: ConSept LLC
Posted on December 09, 2013

Automotive pay plans are a powerful tool when constructed and managed properly. They can also be one of the biggest hurdles to improving profitability if put together haphazardly. The pay plan should be a fundamental representation of the job description and it is critical to align the payee’s incentives with the dealership’s objectives. Moreover, each plan should include a list of expectations and standards that must be met to qualify; regardless of whether you include a base salary or focus on commissions, each employee should understand their role and responsibilities. We call these guidelines non-negotiables and they play a very important role in establishing and monitoring acceptable levels of productivity. For example, rather than simply paying a salesperson a percentage of gross, include an expectation that they contact ten customers per day via phone or email. Obviously, this practice should improve their sales volume, but it also gives management a metric to inspect and opens opportunities for further training.

When putting together a new pay plan, it is best to start at the end and work backwards. Determine what a superstar would accomplish and what you feel they should earn if they’re doing everything right. Again, the employee’s success should align itself with the dealership’s end goals. For example, if you want to sell a lot of cars but also want to have high customer satisfaction numbers, it is a good idea to tie CSI into the pay plan. This can be done as a separate line item on the pay plan (such as rewarding a $500 spiff for attaining a certain level of CSI), but preferably it would be tied directly to the core commissionable pay (such as paying a higher percentage of gross when a certain level of CSI is achieved). Once the ideal results are set, assess what different levels of acceptable results would look like as well. Not everyone will be a superstar, but your pay plan should be set up to encourage incremental improvement. By setting different performance levels, perhaps with catchy titles at each interval, you can turn a mediocre employee into an average employee. The most profitable dealerships do not have a sales floor full of the best in the industry; they simply have a higher baseline than most.

Another good practice when building performance-based pay plans is to work from blended averages for a pay period. For example, paying a business manager a straight percentage of gross often leads to an especially strong start to the month followed by an average end to the month. With this traditional pay plan, the manager’s minimum required pay (i.e. bills are paid, and some money is put away) is attained well before the month ends. The last week, which is the dealership’s busiest time, is seen as additional opportunity but hardly receives the level of focus that it should. Similarly, if your business manager sees new and used customers, you will often see significantly better numbers with one or the other. If you instead paid commissions based on PRU (per retail unit) or penetration numbers, the last deal of the month is just as important as the first.

Providing the right pay plan can be the key to reaching higher levels of productivity, but it can also encourage a higher level of employee retention. The best employees are willing to do what it takes to be successful and would welcome a pay plan that rewards them accordingly. Too often, pay plans are altered or thrown out to appease those who are holding your dealership back. If you have effectively established your own goals and tied them to the pay plan, you should find that the right people will be on board. The pay plan also gives you a great opportunity to encourage longevity with the company. Many stores will pay higher commission levels or hefty end-of-year bonuses to employees with longer tenures.

Unfortunately, there is no magic formula to come up with a great pay plan and what works today may not work tomorrow. Embrace dialogue with your staff when testing out new pay plans and make your intentions clear; their input could prove to be invaluable if they are on board with your efforts. If their compensation is tied to your success, it should be a comfortable discussion for all involved!

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