dealership

Are your pay plans effective?

Have you reviewed your pay plans lately to ensure you are getting the most out of your employees?

Pay plans should be designed to maximize the goals and plans of the dealership and to direct employee’s performance in the dealerships desired direction.

Pay plans should be written to ensure everyone is working toward the same goals and direction. Pay plans can create hostile environments where employees are working for their own self interest, not the dealership.

Examples:
  • Do your parts and service directors pay plans compensate only off results of their individual departments? If so, don’t be surprised if they aren’t cooperating with each other.
  • Is your salesmen pay plan unit driven and your sales managers pay plan gross driven?
  • Is your shop foreman paid for producing hours and your service management team has large incentives based on CSI?

It is human nature not to like change. If ever there were words that didn’t sit well together, those words would be “change” and “pay plan.” Employees are always skeptical of the dealerships intentions. To help alleviate concerns, the dealership should consider analyzing pay plan changes using the last 4 – 6 months of actual results, taking into consideration any expected market changes. Although this may be a lot of work, it can help ensure your new pay plan compensates as anticipated. It can help with employee morale by being transparent and honesty is the best policy. Sharing the analyzed pay plan changes with affected employees can help alleviate their concerns. If you are giving employees a pay decrease, be up front and show them the expected decrease.

Most pay plans are designed with a certain dollar amount of compensation as the target. Percentages are tweaked until  the compensation target is met. Not analyzing new pay plans can produce negative results for the dealership. A new pay plan that results in an unintended pay decrease will produce a negative effect on moral and potentially future profitability of the dealership. Overpaying as the result of a new pay plan will have a negative effect on current profits, and a longer-term effect of decreasing pay to employees going forward. I do not know anyone who was overpaid that did not rationalize, they were deserving, and the decrease in pay going forward is too drastic and unwarranted.

Dealership pay plans should be reviewed to ensure compensation amounts for entry level employees are not too high. I have seen pay plans where the entry level employee has to take a pay cut to be promoted to the next position. This will create employees who choose not to take a promotion and ultimately causes stagnation. BDC, beginning service writers, and internal service writers are entry level positions to pay attention to.

If you need help reviewing your pay plans, give LSL a call. Our team of experts can provide you the highest quality services you need to be successful in your business.

Click HERE to print article.


LSL Staff

We are always engaged in ongoing education, to better serve you and your account. Please contact us for more information about the latest developments in our assurance, tax, and advisory services.