AUTOMOBILE DEALERSHIPS

How To Create Effective Pay Plans

Kevin J. Carnes
Principal, CPA, CVA

22 September 2017

It is an issue that has plagued dealerships for years. The heartache and time spent developing, tweaking, and presenting pay plans have not only shortened the life of owners, it has also cost dealerships, key productive employees, unnecessarily. The process of developing
effective pay plans is not easy, but if done properly, can work for both the dealership and the employees, making sure that they share in the positive production of the store. So where do you start? The following are some tips on how to develop effective pay plans that should benefit all involved.

The first step in the process would be to gain an understanding of
what you are trying to accomplish. For example, if you are looking
at sales associates, you want to make sure that the pay plan
addresses the key areas specific to your dealership. Obviously, you
want to maximize volume and gross profit; however, each store is
different and if the volume is more important, then the pay plan should be geared more towards volume. You then need to make sure that the pay plan for the specific position only addresses parameters
that the individual can control. For example, you should not include
variable expenses such as advertising in a manager’s pay plan
unless the manager is responsible for advertising. Only hold people
accountable for variables that they can control.

I also suggest that you try to keep pay plans as simple as you can.
This is not easy to do, but make sure that you understand the responsibility of the position. Since a service writer is responsible for
client relationships, you should not only pay them on the sales that
they generate, but the customer satisfaction results could be more
important and should be reflected in their pay plan. By understanding what the role of the position is, it will allow you to streamline the pay plan.

One additional factor to consider when developing pay plans is to
utilize industry guidelines and to set goals so compensation falls
within these guidelines. Although there is a tremendous amount of
data in this industry, the following are some guidelines to work with:

Payroll as % of Gross

In conclusion, finding the appropriate pay plan to maximize the
performance of the store and to satisfy employees can be a real
challenge. It takes time and effort, and should ultimately hold
people accountable and increase productivity. Each pay plan is
unique, but if you keep this information in mind, it should provide a
basic guide for you through this process.

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