This is a good time of year to reflect on changes you would like to see take place in your dealership. One area I would encourage you to consider is your employee compensation program.

Most dealerships we consult with reward employees for their number of years of service. If an employee has walked through the front door for 10 years, they get paid more than an employee who has only been walking through the front door for 5 years. While it would seem to make sense that an employee that has been with the dealership longer is more valuable, seldom do I find that to be true. As a matter of fact, in many cases, I have found that an employee after 5 years of service has the same level of knowledge and experience as an employee of 10 years. With the law of diminishing returns, there becomes a point where “more” is not exponentially better than “less.” So, at some point, you are paying an employee more for the same experience and expertise for which you are paying another employee less.

Let’s face it, using the old way of compensating an employee based on years doesn’t promote increased performance or an improved customer experience. Instead, I encourage you to determine what the maximum amount a position is worth per hour and then create a bonus program.

Rewarding Individuals & Teams

There are three different methods you can use. The first, and probably the easiest to administer, is a bonus based on individual performance. In many cases, you are already doing this for your salespeople and I recommend you also do this for your technicians. The sales team may be earning a percentage of the net profit along with an hourly base while the techs may be earning a bonus based on their billable hours and their efficiency along with their hourly base. This type of bonus can work well in some positions, but it can also create conflict in others.

The second bonus system is based on the total performance of a specific team and is recommended for those teams where it is difficult to measure individual results. Let’s use the parts department as an example. If you do individual bonuses for your parts staff, customer satisfaction will decline because the counter parts salespeople will focus on those customers who make bigger purchases. To solve this problem, the bonus is based on the total profitability of the department each month and then is divided based upon the position.

“Consider making employee performance a bigger part of your pay plan…”

Typically, the manager would get a larger portion of the bonus and the other employees would split the remaining dollars. By creating a team bonus for your parts department, your inside sales team or even your rental department, you eliminate any fighting over who sold what. Your team knows that the better they are at their jobs, the more money they can make, regardless of how long they have been at your dealership.

Rewarding Through a Pool

The “pool bonus” is a third way to compensate your employees who do not directly produce revenue, but support those that do. This bonus is created by taking a percentage from the other bonuses and putting it in a pool that is then divided among all the employees who are not compensated through either the team bonus or the individual bonus. For instance, you might allocate 10% of all the bonuses paid from the individual and team bonuses and pool that money. Then, divide the money at the end of each month among the support group based on their percentage of salary relative to the group. Let’s say in the “pool bonus” group we have an office manager, a lot person and a pick-up and delivery driver. Combine their pay for the month and then distribute the bonus based upon the percentage each person’s salary is of the total salary.

If you have been thinking about giving raises for the New Year, I would encourage you to consider making employee performance a bigger part of your pay plan. You will find it will give you both happy customers and motivated employees.


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