3 Steps to the Perfect Pay Plan

Our industry is changing rapidly before our eyes. As we are challenged to grow sales and improve profits, one area of our business that has a significant impact on getting us there is our employee pay plan structure. Unfortunately, many dealers have a lack of understanding surrounding this topic. I have overheard the same conversation in both 20 Group meetings and casual conversations over dinner. The subject of pay plans is brought up, and the dealer always finishes with the same request:

“Please, send me your pay plans!”

Do you really think that someone else’s pay plans will work for you? Have you considered that those pay plans are tailored for different markets, with different challenges, and different objectives? I’m sorry to say, but you can’t plug and play another pay plan model into your dealership and expect instant results.

Pay plans should be performance-driven and motivate an employee to perform at a higher level, with a reward. I know that not everyone is programmed to work for commission, so don't misunderstand. As a dealer or general manager in charge of overseeing pay plans, you should decide how you want the department to perform and then set expectations. Pay plans should accomplish what is most important to you as the dealer.

Step 1: Set Expectations

I recently spent time with a dealer after he reached out to me for assistance in creating a pay plan for his new general manager. The dealer was losing money, and he planned to put the new employee on a guarantee, for a period, until things turned around. After all, how do you pay someone when you're in a negative profit status?

As the conversation continued, it wasn’t long before we were looking at departmental performance numbers and the need to set benchmark expectations for the departments moving forward. As simple as this sounds, this tactic helps your employees understand at what level you expect them to perform, and chances are they will work harder to get the store to that level. It’s critical that your team understand what is expected of them and that they know they'll be held accountable for their performance numbers. From here, it’s much easier for you to identify all the information needed to create a cost-effective and motivational pay plan for your employees.

Step 2: Accountability

What does accountability mean in your dealership?

• Taking responsibility for your behavior?
• Consistently doing what’s right?
• Demonstrating personal integrity?
• Actively participating in activities and interactions that support the strategy of your dealership organization?

Odds are you thought of something along these lines; however, not everyone has the same definition of accountability. Defining what accountability means in your store is an essential step towards developing your own successful pay plan structure.

If you're having trouble, allow me to share some insight. After years of working with dealerships on this topic, I have found that there are six key elements to holding employees accountable. I have personally seen all six of these elements consistently work in a wide variety of dealerships, and I have complete faith that they will help you as well:

The Six Elements to Holding Employees Accountable

1. Plan your work and work your plan.
2. Clearly define & communicate your expectations.
3. Measure what you intend to manage.
4. Inspect what you expect.
5. Reward the positive results and respond appropriately to the negative. Positive behavior that is rewarded will be repeated. Negative behavior that is not adequately addressed will be repeated.
6. Develop and implement a systemic structure. Dissimilar people operating within the same systemic structure will produce similar results.

Step 3: Your People

What is the one asset that can quickly change a dealership’s performance? The people! Retaining quality staff members not only saves you the time and expense of hiring and training a new employee but also allows your team to have dependable and competent leaders throughout your organization. Keep this in mind when creating a pay plan, as all your pay plans should have built-in flexibility designed for improving employee retention. Other factors to think about when developing your pay plans are:

• Limited draws and/or limited guarantees.
• Plans should vary with performance & remain a relatively constant percentage of department gross and controllable net.
• Keep it simple, do not complicate the pay plans.
• Make it possible for employees to track their earnings.
• Pay plans should NOT have more than four components.
• Performance should ALWAYS determine compensation.

No two dealerships are the same. No two improvement plans should be the same. However, they all originate from one of three places: lower expenses, improved gross, or the ability to sell to more customers. While this may seem like a lot of work, by customizing your pay plans for your dealership you will reap the rewards of highly motivated staff, improved employee retention, and increased profits.

Learn more from Mark and the other NCM moderators, consultants, and instructors by joining a 20 Group, scheduling in-dealership consulting, or signing up for a course with the NCM Institute. Success-Driven Pay Plans is a great place to start!