Mention pay-plan change and both dealers and business managers are likely to recoil as quickly as they would if confronting a rattlesnake. Few welcome even a discussion of this important topic. On the other hand, some brave dealers or overly zealous managers may decide their pay plan requires an adjustment and institute a passel of changes without ever conducting research to determine the outcome. Unfortunately, it’s not an all or nothing situation.
Putting full faith and trust in managers can also become the root of future problems, especially if a manager inappropriately tinkers with pay plans. Recently hired general managers who have a burning desire to add thousands to the net bottom line of the dealership by reducing pay plan benefits can be detrimental to a dealership as well, risking the loss of the company’s most valuable and experienced sales staff. So, not every pay plan needs alteration.
Why is change ever necessary? Most of us dislike change of any kind unless it is a change that puts more money in our pockets or offers other benefits. Aristotle based his thought and science entirely on the idea that “everything that moves or changes is caused to move or change by some other thing.” If this is true in business, then dealers and their managers must make a concerted effort to discuss everything — including pay plans — because they are the ones who must make the changes. Is the current pay plan working? If not, why? What changes need to be made to accomplish both the dealership’s goal of increased profits and the manager and employee goals of increased salaries and bonuses? Change can be a good thing if properly examined and initiated, especially if the changes are made for the right reasons. The key, however, is not to remain static, as not changing pay plans to meet market demands can hurt both the dealership and its staff.
In April 2006, Ken Thompson, an Englishman who conducts seminars in team leadership development, wrote an article on the subject of change within an organization. He stated: “When an organization or team or network seeks to bring about any form of change, it requires and expects the individuals affected to behave differently in some way.” He added that “most change is [seen as] a threat, not an opportunity. However, because most people tie up their identity with what they do, many changes are resisted if they are perceived to threaten their identity. Also, people behave in accordance with how they see the world, which is based on their experiences, skills, beliefs and values. Therefore, any required change must be in accord with this world view if it is to be sustained.”
So, why is it worthwhile to know any of this? Because in a dealership, most employees work for a universal reason: to earn a decent paycheck. The amount of this paycheck has a profound effect on their quality of life. Why do most of these employees remain in the dealership year after year? Because they view their pay plans as being fair and more than adequate. Would these loyal employees object to a change in their current pay plan if it involved only small changes, such as carrying out new processes or changing the way they perform the current ones? They would if the change reduced their current benefits.
Making Pay Plans Relative
An effective pay plan is one that rewards for superior performance and creates a positive working environment. A great finance pay plan prescribes to current market conditions and motivates every staff member to achieve excellence. If menu selling is the desired method for obtaining sales in finance, a great pay plan should reward on all products the dealer has agreed to offer. Bonus points should be applicable on target products, such as service contracts and GAP sales.
The automotive retail industry has seen countless changes in recent years, and some dealerships are having a tough time keeping up with all the trends. For instance, several products they once offered to customers are now considered taboo. Credit life and disability products were two standards on the menu. Today, these products have lost some of their appeal among customers, either because they lack the benefits they once had with customers or because the return on investment isn’t what it once was.
So, what are the target products these days? Alternative value-added products are hitting the marketplace — several that offer less risk to the dealer and offer minimal charge-backs and the potential to earn a higher percentage of profit without significantly affecting the customer’s payments. Ancillary products can generate as much as 60 percent of the gross profit in the finance department. Knowing this, a great pay plan will take into account that 60 percent of the profit generated be attributed to ancillary products, with reserve cut back to 40 percent. What products are we talking about? Service contracts, GAP, theft, tire and wheel, paint and fabric, tire guards, windshields, titanium, roadside assistance, and diamond fusion are at the top of the list.
Products are the name of the game for dealers who know how to rein in profits while maximizing customer retention. Reserve income is carefully monitored to avoid excessive rate gouging and charge-backs. If customers are not satisfied with the dealership’s rate, they will shop for better deals. And with the availability of the Internet, a simple mouse click can easily inform the customer of better rates elsewhere. A great pay plan will encourage your personnel to meet every customer’s needs with courtesy and respect.
Old thinking delivers the same result every time: weak performance and limited profitability. Any business manager who is paid on a percentage of the bottom line will most likely do whatever is necessary to gain the greatest return, even if it means increased charge-backs and tarnishing the dealer’s reputation. A percentage of the payout generally creates limited sales opportunity, with a higher probability for deceptive trade practices.
On the other hand, retraining business managers to understand that a finance or lease contract that includes products will usually stay on the books. The satisfied customer will return to the dealership time and again and become the most cost-effective form of advertisement.
A great finance pay plan must be redesigned (that means changed) to influence the performer to offer every product to every single customer 100 percent of the time. But, it must discourage product gouging or choosing one product over the other. Compensating one product over the other diminishes results. Some managers still drop rates to earn a product sale. Once a rate is dropped, dealership creditability drops as well. Rate and product should go hand in hand, and a great pay plan should spell out the company’s procedures and sales ethics.
Pay Plans That Work
A great finance pay plan serves all parties. Most pay plans fall short because they are one-sided. In order to increase profits in finance, dealers must offer great products. They must investigate what’s available and know which companies offer premier products that are backed by a reliable insurance provider. They must know why the dollar amount looks good, and they should never be caught off guard. They must review all products for limitations and know why some companies are better than others. They must watch out for agents who like to spiff one product over the other. They should know that spiffs are great only if they agree with their new and great pay plan. They must understand why they should limit the number of products and ensure their impeccable quality.
A great pay plan ultimately allows customers to win. Why? Because customers don’t like feeling manipulated or gouged. They perceive value if given the opportunity to choose what products will benefit them the most. Value always outweighs cost in their minds.
A great pay plan is one that encourages all dealership personnel to build customer loyalty through superior performance, positive energy and synergy in every way possible. A great pay plan maximizes profits by valuing customers. In the end, that should be the ultimate goal of any evaluation of pay plan effectiveness. Without satisfied customers, no pay plan works.
So, change is a good thing. A changed pay plan may be what your dealership needs to see an upward change in net profit. But, as Ken Thompson states in his article, “Changes must be small enough to be accommodated and owned by the individuals concerned, so as not to threaten their identity.” And, “If people are to behave differently, they need to view their world differently. This requires that they appreciate [the] many different ways of viewing things and [that they] acquire the skills to do so. When we see things differently, we invariably behave differently.”
Change involves both insight and action. So does your new and great finance pay plan.