Best PracticesDealership Operations & Processes

Don’t ‘Steve Harvey’ Your Pay Plan

If you’re active over in the Refresh forums, you know every so often we have a member that will post a new discussion in reference to pay plans. I feel for these guys and gals, having to figure out their “worth” and put together pay plans for positions that are new to their dealership(s).

Just the other day we had one of our members ask for help in coming up with a way to implement a bonus structure to their pay as a Digital Marketing Director. In addition, about a month a half ago there was also another question regarding compensation for a BDC Director for an auto group.

What I propose is a fresh way to incentivize these roles that doesn’t require the ridiculous tracking of metrics that may or may not directly relate to their performance. These two positions are some of the most valuable employees in your organization today so getting them right is really important. These plans inspire the right decision making, focusing each role into thinking like a true department head.

Every other manager’s compensation is primarily based on either gross or net profit, this creates a formula to replicate that method based on the variables they can truly control.

Pay plan for a BDC/Internet Director for an Auto Group

For a multi store director this is in my opinion the best way compensate. It gives them the freedom to try new products and tweak their staff – giving them ownership of the department. It also requires the dealer and BDC Director to communicate what is included and what’s not in the budget. This must be very clear.

  • Base Salary
  • Per unit bonus above agreed to floor: This is for the entire group’s sales – not just from the internet department. Say you set the floor at 300, it would be a specific dollar amount per car above that.

For example: the per unit is $20 and you sell 350, you get $1000

  • Quarterly CSI: You should receive this bonus as the sales managers do. Say you have 3 stores, create a maximum payout and then take the percentage of the stores that are above their respective zone average.

For example: max payout is $1000 and 2 stores are above zone average, you get $666.67

  • Budget Effectiveness: Set the per unit bonus floor (from the second section) at say 300. Establish a dollar amount per unit sold they can use to pay for the department (personal, digital advertising, training etc.) This also includes their pay. So say $75 a unit. That gives you a total Budget of $24,000. The per unit amount can increase over time as they take on more responsibility or portions of marketing. Take the actual sales at the EOM x the agreed upon per unit. The difference is how efficient they were. Determine how much they should retain of the difference or come up with agreed to tiers.

For example: Department cost was $23,000, Budget was $24,000, you get $1,000. Or, you came in at 95.8% of budget, you then review versus a set pay out per tier.

Pay Plan for a Digital Marketing Director

I honestly don’t think this position needs to have a compensation plan based on metric level performance. To me the core elements of what defines an average, above average and great level of performance have more to do with you successfully implementing and continuing to take on new marketing responsibilities. Metrics can be skewed, from bot traffic, direct to VDP advertising (LotLinx) etc. This means they would first have to go through a, “How do we measure X and Y accurately over time to track your pay” conversation…and that gets annoying.

[Tweet “It is not marketing’s job to sell cars. Short sighted campaigns for today, sacrifice the brand for tomorrow”]

It is not marketing’s job to sell cars. Many organizations make the mistake of paying marketing directors based on sales. This leads to short sighted campaigns for today that sacrifice the brand for tomorrow. I would instead focus on their ability to manage the process of marketing the dealership and the variables that lead to successful marketing by managing the following:

  1. Do we have a clear marketing budget and plan for the year?
  2. Are we and our vendors done with each marketing asset at least 1 month in advance (with exception of new car incentives)?
  3. How effective have we managed our contracts to reduce cost and stay flexible?
  4. Did we ensure each customer facing employee was properly trained to execute the marketing plan?
  5. Do we have a system of managing all of the metrics to convert our marketing into sales? Is it simple to use?

So here is the compensation plan:

 

  • Base Salary
  • Budget Effectiveness: Which should be based on the marketing budget vs total gross as a percentage. This can be split between fixed and variable or done as 1 total. You would need to define what is included obviously in the “marketing budget”

For Example:
Total Monthly Marketing Spend: $50,000
Total Store Gross: $375,000
= 13.3%
Then you bonus based on where this falls vs specific level, $ amount per point, etc.

In 2016 let’s refocus performance based compensation on the areas that truly drive results. And do yourself a favor, join in on this already happening discussion over in the dealer forums.

Jon leads Driven Data’s vision, strategy, and growth, providing dealerships an analytics platform that serves as a long-term strategic asset. He ha...