The three most important elements in a successful dealership are people, processes and pay plan. The benefit of the right performance-based pay plan is that it not only can improve dealership performance but also reduce employee turnover.
“What motivates associates to stay at a dealership is earnings, a feeling of recognition, a feeling of value they bring to the organization and seeing the tangible results of what they produce,” says Scott Gunnell, director of sales administration/strategy at JM&A Group.
A performance-based pay plan gives associates an opportunity every day to decide how much money they want to make, JM&A Division Manager Rob Neri explains.
“You’re motivated to find what is best for the customer and make an honest profit for the dealer,” he says. “That’s rewarding.”
Since pay plan is such a vital part of a dealership’s success, it needs to be approached thoughtfully.
“It all starts with the vision of the dealer and where he wants to take the business,” Gunnell says.
For a pay plan to work effectively, it needs synergy between departments and personnel. As an example of how a pay plan can have associates working against each other, sales managers might be paid on gross profit, while the primary component of the sales associate’s pay plan is on volume. That puts them at crossed purposes and keeps them from working effectively as a team.
Specific to F&I, a pay plan should reward penetration and per vehicle retail. On the sales side, it focuses on volume and gross. Both departments will have key performance indicators.
Associates will respond much better if management explains the goals, the reasons for them and what the store is going to do to achieve them — and then shares the areas in which associates can earn additional dollars.
“What often creates challenges is the retail associates don’t think they can hit the objectives,” Gunnell says. “The dealer’s goal is to move the performance needle; maybe last year selling 20 cars a month made you $10,000 a month. This year, 25 makes you $10,000, but 30 makes you $20,000. That top tier is designed to motivate you to push to a high level of performance.”
One key is to make the incentives sufficiently motivational while providing the tools — an adequate advertising budget, floor plan for sufficient inventory, new products, and sales training — to help make the incentives attainable. With that kind of support, management can legitimately tell associates that the ball in their court.
“How do you feel if, month and month out, you’re not hitting the higher tiers? It’s demotivational,” Gunnell says. “It’s easy to say the house needs to lower the bar. The real solution is to ask yourself what you can do to change your behavior to meet these goals.”
Changing pay plans too often. It’s appropriate to revisit your pay plan annually, maybe twice a year — or when something significant happens, such as buying a new dealership. Anything more than that creates confusion and distrust.
“When pay plans get changed too frequently, F&I managers look at it like the dealer is looking for a way to cut their pay,” Neri says. “That’s normally not the case. It’s usually because the person hit their goals and the dealer wants to set new ones. When associates understand the goals, they understand why the goals are being adjusted.”
Not effectively communicating the plan. Without clear communication, F&I and sales associates can come away from the announcement of new goals feeling like their best wasn’t good enough — or worse, that they’re being punished because the dealer thinks they’re lazy.
Once the dealer sets the store’s goals, JM&A recommends that the general manager meet with the F&I managers, discuss where the store has been, where he plans to take it in the next year and how he plans to get there. “Ask them, ‘Do you see any reason why we can’t hit these number?’” Neri says. “You’re not talking about pay plan at this point. If you get buy-in on the objectives, then they’ll understand how they correlate to the pay plan.”
The final step should be one-on-one meetings with each finance manager “to show them how they can make more money by following the process better than they ever have. When we roll out a new pay plan, we’ll go in and sit the desk with the finance manager for a couple of days,” Neri says. “When they see that the goals are easily hit, it becomes a positive versus a negative.”
Paying a flat percentage or a guarantee. Another typical mistake is paying F&I managers a flat percentage of the revenue they generate. That doesn’t motivate them. The better the F&I manager performs, the more opportunity they should have to make money.
Even less motivating is to bring on an F&I manager or a sales associate and give them a guarantee. “If they’re guaranteed a certain amount of money without being held to a performance standard, there is no motivation to meet goals and objectives,” Neri says.
When a dealer sets clear financial goals and objectives, it gets everyone on the staff moving in the right — and the same — direction. For JM&A Group customers, the easiest way to set goals is to enlist the help of your JM&A district manager.
“As part of doing business with us, we do an annual profit gap analysis,” Gunnell says. “It compares like stores in like areas and manufacturers to give our dealers goals that are realistic and attainable. Sometimes the pay plan you have in place is already working. We can directly correlate that to the individual F&I manager.”
“F&I managers shouldn’t have giant surprises in their paychecks,” Neri says. “If you have a daily report, the F&I managers know exactly where they are and how much money they’ve made. When they start doing well, they gain momentum. That’s the whole idea. If they’re not doing well, they know that too. You can easily pinpoint opportunities and training needs.”