How to Develop Dealership Pay Plans That Work

1 How to Develop DealershipPay Plans that WorkWithMike BowersCompensation Consultant and Editorial Director, DealersEdgeA New Look at Pay Plans and How to CreateWorkable Plans that Actually Help DealershipLong and Short Term Goals!Presented by DealersEdgeDealership 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 KiplingIn the real world:zWe do work for the money and we have to eat every dayzWe enjoy recognitionzPeople who enjoy their jobs tend to perform betterzPay Plans that work zPay Plans that don t work zPay Plans that used to work but have stopped Working Definition: Pay Plans that workDefinition: Pay Plans that workPerformance meets or exceeds expectations AND employees earn approximately what the dealer/owner thinks the job is , when employees start earning too much, the pay plan has stopped Money a Motivator?

2 Is Money a Motivator? SatisfactionTrends from the 2006 Dealership Pay plan SurveyTrends from the 2006 Dealership Pay plan full commission pay Plans for Dealership salaries are higher reflects strong industry Plans have gotten less complicatedPay 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 Plans that WorkPay Plans that WorkPay for the position not the personzDefine the jobzJob Descriptions/definitionszEvaluate the of decision on interactionThe Job Definition QuestionnaireThe Job Definition QuestionnaireThe questionnairezReporting relationshipszTime in gradezPurpose of the jobzEssential elements prioritizezPeer groupzTraining needed/availablezAuthorityDevelop a compensation policyDevelop a compensation policyAdjustments made only when warranted by performance.

3 Not by personal two underlying questions that support The two underlying questions that support successful pay Plans :successful pay much is the job worth? 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 employee s control Significant achievement deserves a significant rewardThe Spousal CorollaryThe Spousal CorollaryzIf an employee s spouse needs more than a two-minute explanation to understand the pay plan , it is too complicatedTarget income levelTarget income levelNo matter what they say, most dealers have some target income in mind when they Develop a pay planCreating a pay planCreating a pay planzTarget incomezBase salaryzIncentive componentzThe bogey zWeekly vs.

4 Monthly incentiveszDo the math, and then do it againHow much is too much/little?How much is too much/little?zExit interviews check turnover due to moneyzIndustry benchmarkszEmployee opinion surveysSome sample compensation systems and pay plansSome sample compensation systems and pay planszTechnicians FRH Variable payzShop foreman/Dispatch Full base ( , $20/hour) Split 50% base, $1 FRH, saleszWarranty Administrators Base Base plus commissionzOther support peoplezService Advisors ..General Sales Manager Pay PlanGeneral Sales Manager Pay PlanzTarget Income:$125,000 -$145,000zzPlan #1 zzBase Salary:$1,000 of new, used, and F & I gross plus holdbackzzzPlan #2 zzBase salary:$1,500 of new, used, and F & I gross plus holdback over $200,000 monthlyzzPlan #3 zzBase salary;$1,500 weeklyBonus:Potential bonuses to earned as follows:zz$16,000 for 2005 Sales Dept.

5 Gross Profit of $4,500,000 (see monthly schedule)zz$16,000 for 2005 new and used unit volume of 2,100 vehicleszz$16,000 for new vehicle inventory under 60 days supplyzused vehicle inventory no units over 45 days oldSales Pay PlanSales Pay PlanzCommissions:zPontiac Commissionable gross up to $350, commission is $95; gross over $350, commission is 25% plus $ Commissionable gross up tp $500, commission is $75; gross over $500, commission is 25% plus $ Commissionable gross up to $500, commission is $75; gross over $500, commission is 25% plus $ Six months, 6,000 miles, 25% of gross, no pack, plus $ --Up to 48 months pays 10% of reserve; over 48 months pays 5%zFinance reserve Up to 48 months pays 10% of reserve; over 48 months pays 5%zLife A & H Up to 48 months pays 10% of reserve.

6 Over 48 months pays 5%Sales Pay plan Sales Pay plan --ContinuedContinuedUnit bonus paid second week each month:z13 15$30 per unitz16-20$40 per unitz21-25$50 per unitz26 and up$60 per unitMid-year bonus paid in July75 and over pays $10 per unitEnd of year unit bonus paid in January150 and over pays $10 per unit (less any mid-year bonus)Service Advisor plan thoughtsService Advisor plan thoughtszPay 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 (alaATcon s5x5 or 7x7)Service Advisor thoughtsService Advisor thoughtszExample.

7 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 commissionsService Advisor thoughtsService Advisor thoughtszMatrix planzDollar amount paid on the flat rate hour:So if the Advisor has average performance they are paid $2/FRH. Let s say they are running 5 techs, booking 200 hours a week-Average performance -$400 Low CSI, low sales -$ CSI, low sales -$ CSI, high sales -$ CSI, high sales -$ types Commission/Incentive types zStart with the objectives of the business to get everyone on the same planzSales Gross or net (CP, WTY, INT)zHours sold per FRHzHours per / sales per labor ratezParts soldz# of repair orders writtenzUpsalesclosing ratio / menu sales / maintenance packageszCSIzSpiffs flushes, wipers, modifiers (write-offs, ELR, open )

8 ZWhat about outside incentives oil people providing spiffsOther thoughts on Dealership pay Other thoughts on Dealership pay plansplanszHabits of successful dealershipszWork on your weaknesseszFocus on the bottom line not expense ratioszCalendar utilizationzKeep something in reserveJob Descriptions For Dealership StaffQS 1 QuestionnairexNon-managersSTATEMENT OF RESPONSIBILITYName:_____Title:_____Compa ny:_____Department:_____Location:_____Le ngth of time in present job:_____Initial date of employment:_____Supervisor s Name:_____Title:_____INSTRUCTIONS! Read this questionnaire before you begin.! Describe your job as accurately as possible. Try not to understate or inflate your responsibilities.

9 ! Generally, consider your normal assignments and primary PURPOSE OF YOUR POSITION: Briefly state the reason your job 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 Staff4. 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?_____6. What reports or records do you personally prepare?_____7. a. What percentage of your time is spent operating office or mechanical equipment?

10 _____ _____ b. To what extent are you responsible for the maintenance of this equipment? _____ _____8. How much education is required for someone filling this job, and are there any specialized courses or schools which should be required? (This may or may not correspond with your own education.)_____9. Are there any special courses necessary to start this position?_____IO. What previous experience is necessary for a person starting in your job?a. Type: _____b. Time required to obtain it:_____c. Where obtained:_____Job Descriptions For Dealership StaffQS 3I1. Are there any health or accident hazards connected with your work ?