Get a pay plan with payback
It’s more than just the money, as Canadian dealers know well. A well-designed compensation package addresses several business needs. It supports recruitment, assists in retention, motivates performance and rewards the employee with money (direct compensation) and intangibles (indirect compensation). And it should achieve all these goals while dealing fairly with both internal and external staff.
Ten years ago, I talked to dealers about compensation packages and found that several were moving in the direction of base salary plus commission, or indeed, salary only, for sales staff. It was argued at the time that a salary reduced month-end anxiety and resulted in a healthier work environment.
This time I found that, with one exception, every dealer I spoke with is paying straight commission. Dave Dodd was succinct on the topic. As the new general manager at 401 Dixie Hyundai in Toronto explains: “It’s the logical thing to do. It’s performance-driven and works best for both managers and for sales staff. Everyone needs to be motivated. Money talks.” He keeps his pay plans simple, saying that complicated ones are just harder for employees to understand.
Scott Langin took over an existing dealership, MacDonald Buick GMC, in Moncton, NB, on the very same day that GM went bankrupt. From that inauspicious start, he’s made a few changes. The pay plans he inherited were just fine, he says, but he has introduced a rigourous system of performance appraisal right across the dealership. Targets and goals are set and employees are tracked weekly, even daily.
“Everyone knows exactly where they are from day one to day 30. There’s no room for excuses and I always know what’s going on. Folks like it when you shake hands and say ‘nice work’, but I can also talk to an underperformer and say, ‘Hey, Pete, what happened this month?’.” The results have since been impressive – Langin reports that profitability is up three times from what it was four years ago.
Exception to the norm
The exception is Lorne Brett, who now owns three dealerships in Saint John, NB. He remembers that time – 10 years ago – when there was a push to develop more creative pay plans. “Some dealers even went to straight salary, but it just didn’t work. Salespeople need to be rewarded based on their performance. There’s definitely been some retrenching in recent years.”
So when he bought the local Honda store 18 months ago, Brett took that opportunity to create a new pay plan. Existing staff were more than open to new ideas, so it was a perfect time to do it. Brett observed that, at his GM store, it would be very difficult to significantly change a long-established compensation plan. At this newly-acquired Fundy Honda store, however, he came up with an innovative approach. He decided to offer a modest base salary and a flat fee based on the model sold. “This gets us away from all those issues around appraisals and gross profits. It’s been refreshing for both sales staff and for us. I haven’t heard of anyone doing anything quite like it,” he says.
The actual amount of the salary is less important than the idea of a base salary, according to Brett. If he paid more base, he’d pay less on the per model sold. “Salespeople must be motivated by the results of their work. But this is definitely a less contentious pay plan.”
More than just the money
But think beyond the buck – compensation is about more than just the money. Most employees expect and deserve a decent benefits package. The Canadian Automobile Dealers Association (CADA) has done a great job over the years with various benefits programs. For example, the employee benefits package dates back to 1950, and the retirement savings plan was established in 2006. Both are worthwhile packages to invest in, given that the national organization has more than 1,500 dealers enrolled and represents some 85,000 employees.
Dan Zarowny, a Ford dealer in rural St. Paul, AB, is now using the CADA programs, but he was way ahead of the curve when he inaugurated a pension plan for his employees more than 35 years ago. The dealership contributes three percent and the employees match that, but it’s their own portfolio to manage and there is never a locked-in phase.
“We know it’s a great way to keep good staff,” says Zarowny. “And no one leaves us without a good pension account. We’re old-timers now, dinosaurs, but back then we were way ahead of the game. We were very progressive.”
Currently he’s considering improvements to the extended benefits package for his managers. Zarowny Motors has stayed ahead of the game ever since, and will receive its 34th President’s Award this year.
Flex time and personal time are important elements of any compensation package these days. Zarowny gives two additional stat holidays beyond the mandatory 10 days off. Langin also aims to accommodate family needs. “I have kids and I know that sometimes you can’t get a sitter when your kid is sick.”
In Newfoundland, General Manager Gerry Murphy (St. John’s Chevrolet Cadillac) is also family-oriented. Staff get enough sick time, and when they need to, they can use it for personal time. Murphy tells them: “You work with us, we’ll work with you. You need a couple of hours for your kid’s soccer game, fine, but when I ask you to work an extra hour, don’t expect overtime.”
Company cars
A company car is a common benefit but Brett told me he hates using demos. “They’re always dirty, they get dented, and they’re impossible to manage. And they create problems between sales management and the sales staff.”
Given the chance to shake things up a bit at Fundy Honda, he discourages his salesteam from taking a demo. Instead he offers a generous car allowance, $100 a week, which is enough to let them lease a new Civic and pay the insurance.
I thought the downturn might have affected the perks and bennies, but as Brett reminded me, “Once you’ve given a benefit, you can’t take it away. All we can do is fiddle with the deductibles.” Every year, he reviews the benefits plan and meets with staff as a group to talk about the rising costs. “We make suggestions, but we want them to buy into it,” says Brett. The results of increased deductibles are reduced usage, less abuse and lower rates for everyone.
Compensation is inextricably linked with performance and a team approach often pushes employees to maximize performance, while helping to build employee loyalty.
Staff at Langin’s dealership have responded well to his performance-based pay plan. Morale must be high, because they’re getting 90-percent attendance at company functions. “We keep it casual and fun and safe. When a team hit a goal, we gave them a dinner cruise with an open bar, and then we provided the limos.” Another time it was a snowmobiling trip in northern New Brunswick. He also looks after his best performers. They drive nicer cars and they are given more flexible hours. “Basically the high achievers have full rein to do what they want to do. With some of the others, well, if they want a day off, they have to ask.”
Murphy says the team approach works brilliantly for his workforce. He divides the sales staff into teams of four, and sets targets for team performance over the month. As Murphy put it, they talk to each other a lot more and help each other out. They do things as a group they would never do alone. The incentive is a cash prize, a trip or a social event. Usually the incentive is money-based, but like fellow GM dealer Langin, Murphy has also taken the winning team out on a fishing trip or a dinner outing.
Employee retention
Compensation packages must motivate and reward, but they should also boost employee retention. Sarah L. Fogleman, an economist at Kansas State University, KS, wrote this about creative compensation: “Compensation is no longer a matter of answering the question, ‘How much do I have to pay?’. A better question might be, ‘What do I want my compensation package to say about my business?’ Because, it says a lot about your values. For instance, giving longevity bonuses for employees on the anniversary of their employment says that you value the people who stay with the business.”
Zarowny is doing something this year that he thinks his staff will appreciate, which in turn will nurture loyalty. He’s been developing a formal employee handbook on policies and procedures. “Our managers needed something specific in place. We had a handbook of sorts before, but it was kind of makeshift. We’ve recognized the need to do this for a while but most of us aren’t capable of writing a handbook. So we worked for several months with Carswell Custom Handbooks to guide us through the process.”
Zarowny also disseminates the minutes of all management meetings to everyone in the dealership. “The idea is to let them know what we’re doing. I think this sends the message that we value all of them.”
As Fogleman wrote: “For employees, compensation equates not just to how they are paid, but ultimately, to how they are valued. A compensation package reflects the culture and values of your business.” By taking a fresh look at your compensation plan, you could end up getting more bang for your buck.
