Pay For Performance: Change Is Necessary - Sometimes

By Michael Rees

All your sales team should be on performance-driven pay plans. That includes salespeople, closers and sales managers—if you want them to perform, that is. But what constitutes a good, well-rounded performance-driven pay plan? And what kind of uproar is going to happen if you start changing pay plans?

The last thing I want to advocate is messing with your employees' pay plans. If ever there were words that didn't sit well together, those words would be "change" and "pay plan." Sure, you could easily bring valuable employees in to your office to give them a pay increase. However, if you sat them down and said you were going to change their pay plan, they would only think negatively about it no matter how good it may be, so be very careful with this.

After selling cars in England for five years, in the early 80s I started selling cars at an Atlanta dealership that was only selling 40 units a month. After a month or two, I became salesman of the month and held on to that title for the next 11 months straight. I was promoted to sales manager for my efforts, but my pay plan left a little to be desired. After two months, I asked to go back on the floor because I had been making a whole lot more as a salesman. A few months later, I was offered the sales manager position again, but this time I negotiated a pay plan that was a percentage of the gross profit of the sales department. Over the next four years, we grew the sales so much that we built a new facility to cater to all the new business. We then hired a new F&I manager, who really changed the way we did business in that department. I imagine you have heard of him; it was the one and only Mr. Jim Ziegler.

Jim and I really rocked and rolled, as we continued to build the dealership to a record month. We sold 256 vehicles and averaged over $3,000 per copy! Both of us were on performance-driven pay plans, so the more the dealership made, the more we both made. We were ecstatic about this incredible month, especially as we would both benefit personally just as the dealership benefited.

A few days into the next month, I was called in to the dealer's office, where the dealer and GM congratulated me on the terrific month, then asked the question: "Do you realize how much money you made last month?"

Well, of course I did because I kept impeccable records and always knew how much I was making. They informed me that they thought I had made too much!! Remember, this was a strictly performance based plan, but now we had apparently over performed!! Then came those words I mentioned earlier: "We are going to change your pay plan!"

Ziegler had the exact same meeting with the dealer and GM, and that was the last day either of us worked in that dealership. The dealership lost two of their best managers that day because they didn't want to continue to pay for overachievers.

My point with this story is that you need to be prepared for extraordinary performance. In fact, you should want to pay big commissions (if you have your people on the right pay plans).

If you want to get the most out of your sales team, you have to motivate them with compensation. I do not have a perfect pay plan that works for everyone because every dealership is different and you need to look after your people accordingly. You cannot have the same pay plan for a sales manager whose team sells 300 vehicles a month as a sales manager whose team sells 50 a month.

To determine whether a review of your pay plans may be needed, consider the following criteria:
1.      Your people should earn more as the dealership earns more.

2.      Their earnings should be commensurate with the amount of money they earn for the dealership. A set amount per vehicle sold matches the first criteria, but not necessarily the second.

3.      If they are selling 18 or more vehicles a month, every month, they should not be able to do the same elsewhere and make more money.

4.      If your managers look after a team of quality salespeople who consistently perform, they should not be able to do the same elsewhere and make more money.

5.      You should have bonus programs for overachievers, not for the average.

To finish, here are just a couple of examples of effective performance-driven pay plans:

Salespeople should make a percentage of the gross profit (both front and back) that increases as the volume increases. For example:

0-15 units	10 percent
10-14 units	15 percent
15-18 units	20 percent
18-25 units	25 percent
25+ unts	30 percent

These percentages need to be retroactive. This means that in order for the big volume salesperson to make real money, he/she has to gross more for the dealership.

Sales managers and F&I managers should make a percentage of the gross profit (both front and back) that increases as volume increases. This will vary a great deal according to the size of your dealership. Figure out how much the job is worth; then work out what percentage of the gross profit you are currently doing that figure equates to. Then, as your dealership makes more, the manager is compensated accordingly. This percentage will normally range from 3 percent to 10 percent.

If you feel you need to re-vamp some, or all, of your pay plans, spend time to make sure you get it right for all parties. Do your calculations, using "what if" scenarios. You need to be comfortable with pay plans that could make your employees more than they have ever made before as long as that means your dealership makes more.

Vol 5, Issue 8

[Sent from Ralph's iPad]

Ralph Paglia

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