Pay Plan or Job Description?
Over the 35 plus years of my career I have seen pay plans that range from a hand written on a scratch paper one pagers to 10 page complex ones with legal disclosures usually drafted by an attorney and anything in between. I seldom see one that is carefully authored to describe clearly and explicitly what the expectations from the people whom the pay plan is drafted for. After all do you really need elaborate job descriptions for productive personnel such as sales people, sales and F&I managers, service and parts advisors and their respective managers and not to mention the General Manager.
What are your pay plans based off of?
The problem is we tend to forget that all of it is supposed to be based on your business plan and forecast. Maybe a better question would be do you even have one? Pay plans are an integral and a significant part of your overall business plan and the expected performance of your dealership and needs to start at the large end of the funnel where you design your business plan and keep going down to the narrow end where each individual producer is linked to.
What do I mean by that? Well, to begin with if we are for instance talking about the performance of your sales department, you would plan how many new and used vehicles you would have to sell and how much variable gross profit you would have to generate in order to become a profitable dealership. This of course would largely depend on all the other variables such as franchise, location, market share, units in operation and economic circumstances. Then you would decide how many managers, F&I staff and sales staff you would need in order to achieve your objectives. Needless to say there are statistical data available to determine this type of head count and it is very critical before you start drafting your pay plans. The second step would be to determine what your cost structure should be as a percent of gross revenue to pay for this staff. Then you start at the top of the funnel and determine what your supervision cost looks like, based on the breakdown of vehicle and f&I gross revenue then determine the cost of F&I managers and the sales staff. The rest is just dividing the numbers by the staff count. Sounds elementary until you really ask yourself an honest question, have you done it?
There are various methodologies with which you can
structure a pay plan.
Fundamentally, there are various methodologies with which you can structure a pay plan. Whichever method you choose, you have to make sure that pay plans balance the performance of managers and sales staff by tugging at the opposite ends of the measure; unit numbers versus gross revenue. After the base plan, the rest of the elements of the pay plan should be purely performance related and in this case they should address unit performance, gross performance, opportunities maximized and CSI. Last but not least now throughout a month or a pay period, their individual performance needs to be tracked and communicated back in a timely manner so that corrections can be made before it is too late. After all going back to the funnel example, each individual’s performance will add up becoming the total departmental performance, essentially a part of the dealership forecast as it relates to the vehicle sales.
It is no different in the fixed operations applications except with different criteria. Now the base structure becomes the generated labor and parts gross profits by individuals tallied up to the departmental forecast and objectives. As in the vehicle sales, bonuses are determined by performance and where the focus is expected to be.
There is no need to have elaborate job descriptions for these positions as long as the pay plan, particularly the bonus provisions clearly direct the person to the required performance. It makes no sense to author a pay plan that pays on gross sales when your focus is to generate gross profits, if you want to fix excessive discounts in service then rewards should be based on effective labor rate, conversely if you have up sell performance problems for customer pay repair orders, your bonuses should be based on hours per repair order.
A good pay plan if carefully authored will describe exactly what the person is expected to do under his or her job title. If you have performance problems maybe one of the first places to start looking should be your pay plans, but remember not just one of them, all of them.
If you need any assistance on this subject, please give us a call or shoot an e-mail we will be happy to talk to you.