Are Your Pay Plans Counter-productive?

Pay plans are a very touchy subject. I’m always being asked about pay plans. It’s one of those subjects like religion and politics. I’m brave so I’m jumping in.

There are as many different pay plans as there are dealerships. It’s fair to say that how much and how a manager is paid depends totally on the dealer’s philosophy of the business. More often than not the dealer’s philosophy was developed early based on what “worked” when the dealer himself (or herself) was actually a manager.

We tend to think that everyone thinks like we do, and so if the way we were paid when we started made us successful, then it will work for others along the way. Or we think it’s worked so well for the dealership over the years…so why change? Nothing could be further from the truth.

Let me point out that as a new car dealer for 20 plus years, I was always searching for the “right plan.” I’ve always felt there had to be a better way. I fully understood that just because it worked for me, or let me say I made it work for me, that did not in any way mean it was the perfect plan.

I believe that every manager in the front of the dealership should be paid based on the same bottom line. My definition of the same bottom line means to add up the used car gross, the new car gross and the net F&I and pay them all on the same number. To do anything else is counter productive in producing the maximum gross, teamwork and future growth.

However, the actual percentage they get paid is totally dependent on them achieving monthly performance levels which are adjusted each month based on a number of factors such as inventory availability, previous performance, forecasts, and staffing levels.

If you want to include a small salary, the salary levels for each manager might be different depending on a number of factors, such as responsibility, years on the job, etc.

To keep it simple, assign each manager no more than three or four levels of achievement to shoot for. This concept is designed to put maximum gross on the books and at the same time push each manager to make sure they are achieving maximum performance in their individual department.

It’s simple enough to figure out by sitting down and determining how you feel about what levels of performance you find acceptable and backing into some highs and lows. If you feel 60 units a month is acceptable for your new car manager then maybe that job is worth X dollars a year. Maybe 75 units puts your thinking at XYZ dollars per year and so on. You can think about it in terms of gross or units.

A pay plan like this requires the GM to adjust the levels each month based on inventory, time of year, number of sales people on the staff, etc. It’s really not that hard. You sit down at the end of the month, review a few numbers, plug the new standards in and review them with each manager. Getting them to agree they are achievable is half the battle.

Here’s a sample. CLICK HERE

I need to go work on my own pay plan. That’s all I’m gonna say, Tommy Gibbs