If you missed my article in the last issue on pay plans, I'll give you the Reader's Digest. If you did read it, I'll drive the point home one more time. Based on all the research I could muster up combined with a large dose of real world experience, one thing is evident: there will be major changes in the way people are compensated in dealerships across the country if we are going to attract and retain good talent. Compensation plans based solely on performance without a guarantee only work with a small percentage of employees. The average person reacts best when somewhere around 75% of their income is salary and 25% is based on performance. Let's talk real world.
Example #1 Technicians. I had the recent pleasure of working with a group of technicians that were in a region of the country that was strictly hourly pay. They were being paid for 45 hours a week, and the dealership was collecting somewhere around 20-25 hours in flat rate. Needless to say the department was an enormous loser. When I asked one of the technicians about the pay plan and how long it had been in place the remark was "it's been this way for fifteen years and if you go changing it we're gonna walk." "We're gonna walk" wasn't just his opinion, it was the opinion of every technician in the shop.
We scheduled several meetings over the next few weeks to discuss the state of affairs. I simply let them know that the reason I was there was to turn the department into a profit center instead of a sliced artery. We had several meetings to discuss the types of pay that might make sense. We shared information on how they were paid versus what we collected in flat rate, and other financial information that was never shared with them. Just letting them know the reality of the situation and the part they played in the financial well-being of the dealership appeared revolutionary. I did let them know that not making a profit was not an option and the doors would close if we didn't turn things around. I charged them with coming up with a pay plan.
Now if they had come up with something totally off the wall, you can bet I would have pulled out my best persuasion skills. The fact is, that wasn't necessary (maybe participative management actually works). The idea they came back with was to have a guarantee of 35 flat rate hours per week. Anything above that they kept, anything below that they got the guarantee. The following month would go to a thirty hour guarantee, just about that 75/25 we talked about. Of course the percentage of guarantee goes down as the efficiency and productivity go up.
In our last meeting they told me if I could get the guarantee for the first several months they would do whatever it takes to turn things around. I have never seen a group of individuals more committed in my life. The shop stuck to their word in the biggest way possible. What they settled on was nearly a textbook pay structure. The results were a ninety day turnaround from an average loss of seventeen thousand a month to twenty thousand dollar positive net.
Am I recommending that you go out tomorrow and give everyone in your shop a thirty-hour guarantee? No. What I am saying is if you're interviewing or hiring new technicians it's a great way to get them on board. Eventually I do see the industry leaning in the direction of a base guarantee, plus performance.
Example #2 Service advisors. There are a couple of challenges with service advisors. First, getting them to work together. Second, getting them to sell more customer pay, as warrantee has all but evaporated. The best format we've seen in the market place consisted of a base salary, and a graduating commission structure. This could vary depending on the market. In one shop I saw it working well: the advisors were paid a four-hundred-dollar a week base, not a draw. They were paid on the total department, not just what they wrote. This makes it much easier to promote cooperation. Their pay was based on a graduating scale in half percent increments. At a base level, 55k in labor sales, 1%; from 55,100 - 59,999, 1.5%; from 60,000 - 64,999, 2%, etc. You would have to adjust for your market. You can also adjust for seniority through higher base.
Example #3 Sales Personnel. We are rapidly seeing the days of draw against commission fade into the distance. Having conducted interviews throughout the country I am amazed by two things. First, the amount of highly talented people that are out there looking for a job, many of them college grads who could not find a job in their prospective field and figured they'd give us a look see. Second, the look of confusion and disbelief if it's draw against commission. The two most prevalent comments are "why would anyone work under those conditions" and "so basically I'm borrowing my own money." The dealers we see that are genuinely succeeding are paying a base salary, based on the market, and a graduating pay plan based on volume. One group we worked with went from minimum wage draw against commission to a three-hundred-dollar-a-week salary and fifty dollars a car for anything less than three deliveries, seventy -five dollars a car for three cars delivered in a week, one hundred retroactive for cars four though six and one-thirty retroactive for anything above six. This is just to demonstrate the theory. Salaries and volume plateaus vary, as well as additional dollars for old units etc. You'll notice in this example the salary guarantee is most likely going to be around 50%, not the 75/25 we discussed earlier. Even then it's still a lot more livable than most pay plans have been in the past. Again a note of caution. If you have that rare breed of commissioned salesperson that's been in the business for a number of years making this a blanket pay change to all salespeople in your dealership would not be advisable (see Mary Ruth Austin's article, page 15 ).
Management. Just a quick note on management as we could really get carried away here. There should be a golden rule for paying managers. Pay on, and only on, what they have direct control over. I am constantly amazed by the number of disgruntled managers that I hear complain about how they're getting grabbed for money here or there because they truly don't know the ins and outs of how they're compensated. If they don't have control over the advertising budget and other pertinent areas that they don't handle, don't pay them on the net. Even if they are getting every nickel they deserve, they still do not look at all the expenditures, are never given that section of the statement and even when compensated to the penny fear what they don't understand. The management experience that was the most cut and dry to me is the dealer I worked for who paid on gross and religiously copied, cut out, and explained my section of the statement every single month.
Please give careful consideration to any of the ideas that we've discussed before taking action; there are a multitude of variables to consider before making pay changes and this is one area where you don't want to make several changes in a short time.
George Pavlyak is a retail automotive consultant based in Cincinnati, Ohio. If you have specific questions or require more information about this subject, please check the appropriate box on the reader response form on page 3.#