How to Develop DealershipPay Plans That Work
With
Mike BowersCompensation Consultant and Editorial Director, DealersEdge
A New Look at Pay Plans and How to CreateWorkable Plans that Actually Help Dealership
Long and Short Term Goals!
Presented by DealersEdge
Dealership Pay Plans Dealership Pay Plans That WorkThat Work
Only the Master shall praise and only the Only the Master shall praise and only the Master shall blame; And no one shall work for Master shall blame; And no one shall work for
the money and no one shall work for fame; the money and no one shall work for fame; But each for the joy of the working.But each for the joy of the working.
Rudyard KiplingRudyard Kipling
In the real world:
We do work for the money and we have to eat every day
We enjoy recognition
People who enjoy their jobs tend to perform better
Pay plans that Work
Pay plans that dont Work
Pay plans that used to work but have stopped Working
Definition: Pay plans that workDefinition: Pay plans that work
Performance meets or exceeds expectations
AND employees earn approximately what the
dealer/owner thinks the job is worth.
Therefore, when employees start
earning too much, the pay plan has
stopped working.
Is Money a Motivator?Is Money a Motivator?
MotivationVs.
Job Satisfaction
Trends from the 2006 Dealership Pay Plan SurveyTrends from the 2006 Dealership Pay Plan Survey
1. Fewer full commission pay plans for dealership managers
2. Base salaries are higher reflects strong industry performance
3. Pay plans have gotten less complicated
Pay plans for dealership sales reps, Pay plans for dealership sales reps,
service advisors and shop technicians service advisors and shop technicians
have undergone subtle sophisticated have undergone subtle sophisticated
changes.changes.
Pay Plans That WorkPay Plans That Work
Pay for the position not the person
Define the jobJob Descriptions/definitionsEvaluate the job
1. Skill/education2. Level of decision making3. Impact on results4. Human interaction
The Job Definition QuestionnaireThe Job Definition Questionnaire
The questionnaire
Reporting relationshipsTime in gradePurpose of the jobEssential elements prioritizePeer groupTraining needed/availableAuthority
Develop a compensation policyDevelop a compensation policy
Adjustments made only when warranted by performance, not by personal need.
The two underlying questions that support The two underlying questions that support successful pay plans:successful pay plans:
1. How much is the job worth?
2. How should the employee earn the $$$?
Three Rules for Effective Incentive PlansThree Rules for Effective Incentive Plans
Keep it simple
Goals must be achievable, verifiable and within the employees control
Significant achievement deserves a significant reward
The Spousal CorollaryThe Spousal Corollary
If an employees spouse needs more
than a two-minute explanation to
understand the pay plan, it is too
complicated
Target income levelTarget income level
No matter what they say, most
dealers have some target
income in mind when they
develop a pay plan
Creating a pay planCreating a pay plan
Target incomeBase salaryIncentive componentThe bogeyWeekly vs. monthly incentivesDo the math, and then do it again
How much is too much/little?How much is too much/little?
Exit interviews check turnover due to money
Industry benchmarks
Employee opinion surveys
Some sample compensation systems and pay plansSome sample compensation systems and pay plans
TechniciansFRHVariable pay
Shop foreman/DispatchFull base (I.e, $20/hour)Split 50% base, $1 FRH, 1.5% sales
Warranty AdministratorsBaseBase plus commission
Other support peopleService Advisors
General Sales Manager Pay PlanGeneral Sales Manager Pay PlanTarget Income: $125,000 - $145,000
Plan #1
Base Salary: $1,000 weeklyBonus: 1.5% of new, used, and F & I gross plus holdback
Plan #2
Base salary: $1,500 weeklyBonus: 1.5% of new, used, and F & I gross plus holdback over $200,000 monthly
Plan #3
Base salary; $1,500 weeklyBonus: Potential bonuses to earned as follows:
$16,000 for 2005 Sales Dept. Gross Profit of $4,500,000 (see monthly schedule)
$16,000 for 2005 new and used unit volume of 2,100 vehicles
$16,000 for new vehicle inventory under 60 days supplyused vehicle inventory no units over 45 days old
Sales Pay PlanSales Pay Plan
Commissions:Pontiac Commissionable gross up to $350, commission is $95; gross over $350, commission is 25% plus $95.GMC Commissionable gross up tp $500, commission is $75; gross over $500, commission is 25% plus $75.Used Commissionable gross up to $500, commission is $75; gross over $500, commission is 25% plus $75.Demo Six months, 6,000 miles, 25% of gross, no pack, plus $95.GMPP -- Up to 48 months pays 10% of reserve; over 48 months pays 5%Finance reserve Up to 48 months pays 10% of reserve; over 48 months pays 5%Life A & H Up to 48 months pays 10% of reserve; over 48 months pays 5%
Sales Pay Plan Sales Pay Plan -- ContinuedContinued
Unit bonus paid second week each month:13 15 $30 per unit16-20 $40 per unit21-25 $50 per unit26 and up $60 per unit
Mid-year bonus paid in July75 and over pays $10 per unit
End of year unit bonus paid in January150 and over pays $10 per unit (less any mid-year bonus)
Service Advisor plan thoughtsService Advisor plan thoughtsPay plan types Straight-hourly/salary Substantial base with some performance objectives
80/20 (or less) The 40/40/20 plans base, commission, bonus The 30/70 plans most common structure base,
commission and very little bonus Complex matrix plans (ala ATcons 5x5 or 7x7)
Service Advisor thoughtsService Advisor thoughts
Example: Advisor needs to make $40,000/year -$3,300/month - $770/week 80/20 - $616 salary, $154 bonus 40/40/20 - $308 salary, $308 commission, $154 bonus 30/70 - $231 salary, $539 commissions
Service Advisor thoughtsService Advisor thoughtsMatrix plan
Dollar amount paid on the flat rate hour:
So if the Advisor has average performance they are paid $2/FRH. Lets say they are running 5 techs, booking 200 hours a week-Average performance - $400
Low CSI, low sales - $364.15
High CSI, low sales - $392.45
Low CSI, high sales - $401.89
High CSI, high sales - $430.19
Commission/Incentive types Commission/Incentive types Start with the objectives of the business to get everyone on the same planSales Gross or net (CP, WTY, INT)Hours sold per FRHHours per R.O / sales per R.O.Effective labor rateParts sold# of repair orders writtenUpsales closing ratio / menu sales / maintenance packagesCSISpiffs flushes, wipers, etc.Incentive modifiers (write-offs, ELR, open R.O.s)What about outside incentives oil people providing spiffs
Other thoughts on dealership pay Other thoughts on dealership pay plansplans
Habits of successful dealershipsWork on your weaknessesFocus on the bottom line not expense ratiosCalendar utilizationKeep something in reserve
Job Descriptions For Dealership Staff
QS 1
QuestionnairexNon-managers
STATEMENT OF RESPONSIBILITY
Name:___________________________________________Title:______________________________
Company:__________________________________________________________________________
Department:______________________________Location:___________________________________
Length of time in present job:__________________Initial date of employment:______________________
Supervisors Name:_________________________________Title:______________________________
INSTRUCTIONS
! Read this questionnaire before you begin.
! Describe your job as accurately as possible. Try not to understate or inflate your responsibilities.
! Generally, consider your normal assignments and primary responsibility.
1. PURPOSE OF YOUR POSITION: Briefly state the reason your job exists.
___________________________________________________________________________________
___________________________________________________________________________________
___________________________________________________________________________________
2. Describe the duties you personally perform in the course of your work.
a. Daily:______________________________________________________________________
b. Weekly or monthly:____________________________________________________________
c. At irregular intervals:___________________________________________________________
3. Which of your duties do you consider to be most important?___________________________________________________________________________________
___________________________________________________________________________________
___________________________________________________________________________________
QS 2
Job Descriptions For Dealership Staff
4. Who assigns work to you? Give title and name.
Name: ______________________________________Title:_________________________________
5. Does anyone else perform similar or the same duties which are assigned to you? if yes, who?
________________________
