Is there a perfect F&I pay plan? That's a tough question because of its subjective and controversial nature. What's easier to do is to assess the elements necessary to create an effective F&I pay plan. This four-step approach to devising employee pay plans will ensure that the dealership's F&I compensation policy is purposeful and in line with the dealership's business goals.

1. Determine your objectives. Pay plans for any department should be objective driven. This is essential for the employer to ensure value for wages expended and for employees to understand performance requirements and rise to meet them. On the other hand, it prepares employees to recognize performance deficiencies and to receive constructive criticism or training based on documented expectations.

Objectives vary from store to store. At one dealership the F&I manager might only sell products and prepare paperwork while the director works with lenders 100 percent of the time. In this case, the director is primarily responsible for cash flow and contracts-in-transit and F&I managers accept secondary responsibility. In another store, F&I managers might also be responsible for cashing the contracts, which adds cash flow and contracts-in-transit to their workload. Their achievement level should be reflected in their pay plan structure.

Typical objectives of most F&I departments include:

  • High CSI ratings

  • High product penetration

  • Mixed product penetration

  • High per-car average or F&I profit per sale

  • Fast funding (five- to eight-day total contract-in-transit objectives)

  • Protecting the front-end profit and total profit of the deal structure

  • Consistent product pricing

  • Legal compliance procedures and full disclosures

  • Efficient and accurate paperwork

    2. Determine and allocate the percentage of payroll or dollar amount of expense necessary for F&I to accomplish dealership objectives. In order to manage expenses against income, pay plans in F&I and other sales-related job functions are more effective when they are production-oriented. Percentages let the employer forecast profits and maintain a firm grip on earnings regardless of whether profits rise or fall. To keep F&I managers from excessive earnings compared to other managers in the store, employers should hire the right number of F&I managers to spread the business accordingly. There should be enough F&I managers so that each has enough time to give a complete presentation, provide full disclosures and finish all administrative tasks for each deal. This will increase per-car averages, reduce paperwork errors and help solidify outstanding relationships with each customer, which translates into higher CSI scores.

    3. Set rules, policies and procedures to live by. Pay plans must be managed by policies. Percentage-based pay plans may encourage jamming or price gouging if rules about pricing aren't included in the pay plan. Some dealerships have fixed pricing rules on their products and audit each deal to ensure products were only sold at approved prices. Fixed pricing can also be accomplished through profit margins. For example, service contracts have a varied cost depending on make, model, mileage or year terms. In this case, a dealer can have a policy that states all service contracts must be sold for $400 or $500 maximum profit, or whatever the store thinks is fair.

    Another good policy is using a menu that each customer signs to either acknowledge a sale or refuse the products. The dealership can thereby confirm that the F&I manager offered all products to every customer at the right prices.

    Cash flow policies may also be introduced. For instance, the dealer might pay commissions only after a deal is funded.

    Policies give the employer control over the processes and ensure pay plans don't cloud the purpose or objectives of the position.


    4. Create your perfect pay plan. There are probably as many pay plans as there are dealership groups. Which ones are perfect? It depends on the dealership. But here are some sample pay plans that dealerships have found to be ideal for them.

    One large, multipoint dealership that needed to process thousands of deals each month prioritized its objectives in this order:

    1. Customer satisfaction

    2. Perfect paperwork and administration

    3. Profit per car

    The dealer then determined the dollar amount he was willing to pay each F&I person and the profit per car he wanted to maintain. After that, he hired the exact number of F&I managers needed to accomplish his objective based on sales volume each month. The pay plan for this F&I department (which leaves all lender interaction to the F&I director and his staff) includes a flat amount for every deal typed to promote speed and higher CSI scores. It also has a multilevel bonus structure that rewards a minimum number of paperwork errors per month. Lastly, it includes a flat amount for each product sold based on preset prices or profit margins.

    The result? Each F&I manager is able to type as many as 150 nearly error-free deals each month, with nearly 100 percent CSI scores and a respectable per-car average. The dealership can continue to grow and operate smoothly while increasing its repeat and referral business.

    Another large, publicly held automotive company identified its need to focus on cash flow and CSI, as well as protecting itself from potential lawsuits due to its size and monetary assets.

    The company established a percentage of profits as commissions it would pay to F&I. That percentage would increase by one point if contracts-in-transit averaged less than seven days by the end of the month and two points if they averaged five days or less. Another 1 percent was paid to each F&I manager on all the F&I profit he generated if his CSI score was above 90 percent. (This bonus takes about 90 days to become effective for a new employee because of the time it takes to receive CSI scores from the factory.) Each product has a maximum sales price, and menus listing all products are signed by all customers whether they buy products or not.

    As a result, this megadealer has several dealerships selling hundreds of cars each month that never have more than five days of unfunded business in their F&I departments or business offices. They employ result-oriented F&I managers who sell aggressively and keep disclosures and other legal issues straight for their employer.

    One successful F&I director has a pay plan that pays him on the total profit of every deal, not just the F&I profit. This is because he negotiates the actual structure of hundreds of loans each month with the lenders, and his employer wants to be sure his incentive is for the store's total gross profit, not just F&I profit. This enables the F&I director to maintain the integrity of the deal structure and earn the maximum amount of money for the employer -- not a department manager. He receives additional bonuses for achieving contracts-in-transit goals. So, he works with his F&I managers to establish policies and procedures to move the paper quickly, such as faxing or e-mailing all loan applications to lenders the same day as delivery (if not already approved) -- even if it's late at night -- instead of waiting until the next day.

    Because of this, the dealership averages a very high total profit per unit sold -- front- and back-end profit combined -- and keeps most of its cash in the bank instead of on the street by averaging a five- to six-day contracts-in-transit objective. It does this even with nearly 100 special finance deals in a mix of 500 contracts being processed each month.

    Eric Andersen is president and chief executive officer of the College of Automotive Management (CAM). Keith Tuber is the CAM's vice president of corporate communications and a former journalist.