New Trends in Compensation Getting Past "Percentage of the Gross What are the new compensation alternatives? What will motivate Gen "Y"?

Transcription

1 New Trends in Compensation Getting Past "Percentage of the Gross What are the new compensation alternatives? What will motivate Gen "Y"? What if they don't like your lollipops? Possible friction between Gen "Y" and current Gen "X" managers? With Steve Nickelsen & Steve Probst of Nickelsen Partners and Chris Harrell of Chris Harrell Consulting Moderated by Mike Bowers of DealersEdge

2 New Trends in Compensation: Getting Past Percentage of the Gross A DealersEdge webinar with Steve Nickelsen CEO of Nickelsen Partners, LLC Steve Probst President of Nickelsen Partners, LLC Chris Harrell Chris Harrell Consulting

3 Steve Nickelsen and Steve Probst CEO and President of Nickelsen Partners, LLC Nickelsen Partners, LLC is in the business of increasing dealership profits. We do that through: Identifying, creating, and sharing best-practice ideas Working closely with our clients to implement those ideas through consistent processes, people development, appropriate technology, and supportive incentives Providing focused tools to support execution and enable the management of those processes In that course of that work, we have worked with more than 8,000 dealers, general managers, and sales managers and have trained more than 20,000 salespeople. Page 3

4 Chris Harrell Chris Harrell Consulting Has been coaching people since 1998 on Generation Y Their expectations and needs How, what, and why they buy Strategies, thoughts, tactics for unleashing their potential Page 4

5 Today s Agenda What is Generation Y, and why do we care? Some ways to think about pay plans Pay plans and Gen Y: what should we do? Case studies of salesperson pay plans Page 5

6 Today s Agenda What is Generation Y, and why do we care? Some ways to think about pay plans Pay plans and Gen Y: what should we do? Case studies of salesperson pay plans Page 6

7 What Is Generation Y? Matures: Pre-1945 Baby Boomers: Born Generation X: Born Generation Y: Born Page 7

8 What Is Generation Y? Matures: Pre-1945 Baby Boomers: Born Generation X: Born Generation Y: Born Matures: Working to 2010 (and some dealers active much longer) Working Years Baby Boomers: Working Generation X: Working Generation Y: Working Page 8

9 All 4 generations will be What Is Generation Y? working in some dealerships for the next 10 years Matures: Pre-1945 Baby Boomers: Born Generation X: Born Generation Y: Born Matures: Working to 2010 (and some dealers active much longer) Baby Boomers: Working Generation X: Working Generation Y: Working Page 9

10 What Is Different About Generation Y? No lifetime employment Their parents and grandparents were loyal and expected loyalty from their employers. But they have seen big companies collapse and their parents unemployed Page 10

11 What Is Different About Generation Y? No lifetime employment Diversity Matures grew up with prejudice. Baby Boomers and Generation X value tolerance. But Generation Yers don t even notice racial and ethnic differences. Page 11

12 Members of Gen Y Respond Differently to Diversity of All Kinds 70% 60% 50% 40% 30% 20% 10% 0% Support Gay Marriage? Under Age Source: CNN Opinion Research poll, August % 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% Vote for Black Candidate? Source: Gallup poll Age Note: Numbers are for completely comfortable voting for Page 12

13 And Generation Y Is the Most Diverse Ethnically and Racially in U.S. History If you expect to hire a white male, you re implicitly eliminating more than two-thirds of the potential candidates! Americans Age Hispanic 18.5% White 59.8% Black 14.2% Asian 4.3% Mixed or Other 3.2% Page 13

14 What Is Different About Generation Y? No lifetime employment Diversity: from prejudice to tolerance to not even noticing A feeling of entitlement Grew up while self esteem was a big buzzword Narcissistic Personality Inventory (measures self-centeredness) 1982: 33% above normal 2006: 65% above normal Source: Generation Me: Why Today s Young Americans Are More Confident, Assertive, Entitled and More Miserable Than Ever, Dr. Jean Twenge, San Diego State University. Page 14

15 What Is Different About Generation Y? No lifetime employment Diversity: from prejudice to tolerance to not even noticing A feeling of entitlement Desire to be their own boss autonomy Self-directed Having flexibility and choices about how to accomplish their work Decide whether to stay on the first day of employment Need to know the why, not just the what Don t assume that they will need to pay their dues Page 15

16 Three Factors that Lead to Better Performance and Personal Satisfaction Autonomy Desire to be self-directed But traditional management focuses on compliance, not selfdirected engagement Purpose Mastery Page 16

17 Three Factors that Lead to Better Performance and Personal Satisfaction Autonomy Desire to be self-directed But traditional management focuses on compliance, not selfdirected engagement Purpose Mastery Urge to get better at stuff Linux and Wikipedia are examples of people devoting enormous effort to building something they are proud of for free Page 17

18 Three Factors that Lead to Better Performance and Personal Satisfaction People want to have a greater purpose than making money. When the company has that purpose, hiring and keeping talent is easier. When the company gets disconnected from a purpose, bad things happen. Purpose Autonomy Mastery Desire to be self-directed But traditional management focuses on compliance, not selfdirected engagement Urge to get better at stuff Linux and Wikipedia are examples of people devoting enormous effort to building something they are proud of for free Page 18

19 What Is Different About Generation Y? No lifetime employment Diversity: from prejudice to tolerance to not even noticing A feeling of entitlement Desires to be their own boss autonomy Habit of putting lifestyle ahead of work Life starts after 5 p.m. How does that fit with the traditional dealership work schedule? Page 19

20 What Is Different About Generation Y? No lifetime employment Diversity: from prejudice to tolerance to not even noticing A feeling of entitlement Desires to be their own boss autonomy Habit of putting lifestyle ahead of work Hungry for gratification preferably instantly Page 20

21 Generation Y Values Instant Gratification Fewer delayed and reactive activities 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% Watched Read a Daily More than 1 Newspaper Hour of TV Activities in the Past 24 Hours Sent or Received an Watched a Video Online Source: Data from Pew Research Center, Millenials: Confident. Connected. Open to Change. conducted by Abt SRBI Inc., February 24, Gen Y (18-29) Gen X (30-45) Boomer (46-64) Matures (65+) Posted a Message to an Online Profile Played Video Games Page 21

22 Generation Y Values Instant Gratification Fewer delayed and reactive activities 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% Watched Read a Daily More than 1 Newspaper Hour of TV Activities in the Past 24 Hours Sent or Received an Watched a Video Online Source: Data from Pew Research Center, Millenials: Confident. Connected. Open to Change. conducted by Abt SRBI Inc., February 24, Gen Y (18-29) Gen X (30-45) Boomer (46-64) Matures (65+) Posted a Message to an Online Profile A lot more immediate and interactive activities Played Video Games Page 22

23 Generation Y Values Instant Gratification Fewer delayed and reactive activities 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% Watched Read a Daily More than 1 Newspaper Hour of TV Surprise! is old tech! Activities in the Past 24 Hours Sent or Received an Gen Y (18-29) Gen X (30-45) Boomer (46-64) Matures (65+) Watched a Video Online Source: Data from Pew Research Center, Millenials: Confident. Connected. Open to Change. conducted by Abt SRBI Inc., February 24, Posted a Message to an Online Profile A lot more immediate and interactive activities Played Video Games Page 23

24 What Is Different About Generation Y? No lifetime employment Diversity: from prejudice to tolerance to not even noticing A feeling of entitlement Desires to be their own boss autonomy Habit of putting lifestyle ahead of work Expect instant gratification A new relationship with technology Need on-going feedback trained by social media Page 24

25 Generation Y and Technology Multi-tasking isn t a choice it s life. If someone texts you while you are talking with someone else, is it rude to reply? Or is it rude to wait? On-line reviews of your dealership are meaningful for job candidates not just for customers. Reputations live on-line. The same horror stories on DealerRater.com and Google Places that hurt sales also hurt recruiting. Wikipedia Google Twitter Every Day! Facebook You- Tube Texting Page 25

26 Generation Y Breaks the Usual Relationship Between Physical and Social Connectedness Traditional: physically alone = emotionally and socially alone Generation Y Can be interacting emotionally and socially even while physically alone Can be physically together yet completely isolated Implications What part of the sales job needs to happen inside the dealership? With Gen Y customers With other customers How should this affect interacting with prospects and customers? How should this affect interacting with managers? Page 26

27 What Is Different About Generation Y? No lifetime employment Diversity: from prejudice to tolerance to not even noticing A feeling of entitlement Desires to be their own boss autonomy Habit of putting lifestyle ahead of work Expect instant gratification A new relationship with technology Distinctive politics Page 27

28 Generation Y Is the Most Politically Distinct Age Group in Modern U.S. History 2008 Presidential Election: % Voting for Obama 70% 66% Biggest gap: 14%-19% 60% 50% 52% 49% 47% 40% 30% Age Page 28

29 What Is Different About Generation Y? No lifetime employment Diversity: from prejudice to tolerance to not even noticing A feeling of entitlement Desires to be their own boss autonomy Habit of putting lifestyle ahead of work Expect instant gratification A new relationship with technology Distinctive politics Less religiously affiliated but just as spiritual 25% do not belong to any particular religion (twice as high as in 1970s-80s) 45% pray daily as many as in the 1980s and 1990s but fewer go to services every week Page 29

30 What Is Different About Generation Y? No lifetime employment Diversity: from prejudice to tolerance to not even noticing A feeling of entitlement Desires to be their own boss autonomy Habit of putting lifestyle ahead of work Expect instant gratification A new relationship with technology Distinctive politics Less religious More trusting of institutions Did not live through Watergate, don t remember Enron Trust Facebook and Apple with their personal information Page 30

31 Why Does It Matter What Generation Y Is? We have to manage and motivate them. Lead Mentor Connect By the way, we have to sell to them, too. Page 31

32 Motivating Generation Y Example #1: the right coach for the 49ers Page 32

33 Motivating Generation Y Example #2: Lessons from an MIT study Had groups of students do different tasks: memorizing, solving puzzles, shooting baskets Paid them cash based on performance Cash incentives caused better performance but only on the mechanical tasks For tasks that required thinking, performance was worse when they offered cash incentives! Page 33

34 Motivating Generation Y Example #3: Lessons from second MIT study Went to India Offered 3 levels of cash rewards for performance up to 2 months salary Same results: pay-forperformance works for mechanical tasks, not for ones that require conceptual or creative thinking Pay enough so lack of money doesn t distract people from their tasks, but rely on other approaches to motivate top performance on tasks that are not purely mechanical Page 34

35 Take-Aways Hiring and Managing Generation Y Generation Y Expectations Traditional Management They ve had money. They haven t had meaning. They expect inspiration. Traditional pay plans Traditional management approaches Traditional focus on compliance Page 35

36 Today s Agenda What is Generation Y, and why do we care? Some ways to think about pay plans Pay plans and Gen Y: what should we do? Case studies of salesperson pay plans Page 36

37 The First Thing to Remember about Pay Plans = The pay plan IS the job description! Page 37

38 The Pay Plan Is the Job Description If you pay someone to do something, they will. If you pay someone NOT to do something, they won t. If you inadvertently pay your people to do the wrong thing, they will. Page 38

39 A Pay Plan Gone Wrong: 1990s Version Some well-intentioned carcompany executives came to believe that customer satisfaction was the key to sales and profits. Car companies created incentive programs to reward high SSI scores (and punish low ones) Dealers did what they were paid to do which didn t always overlap with what the factory wanted! Became more customer-friendly Eliminated questionable practices Focused on manipulating SSI scores Harassed customers to give higher scores SSI scores went up, but the pay plan itself was flawed. Page 39

40 Pay Plan Lessons from the SSI Incentive Tale Fairness both objective and perceived matters. People get resentful when their pay depends on factors outside their control (like vehicle quality and availability for dealer satisfaction incentives). Page 40

41 Pay Plan Lessons from the SSI Incentive Tale Fairness both objective and perceived matters. People do what they are paid to do, even if it s not in the best interest of anyone involved. So the pay plan should be designed to avoid bad incentives. And managers should be alert to adverse behaviors. Page 41

42 Pay Plan Lessons from the SSI Incentive Tale Fairness both objective and perceived matters. People do what they are paid to do, even if it s not in the best interest of anyone involved. Even good people often find a stronger focus on doing the right thing when they are paid to. We all face conflicting priorities make the deal today vs. make a happy long-term customer, control cost vs. spend for future return, work late vs. spend time with family Incentives help shift the balance when priorities conflict. Page 42

43 Pay Plan Lessons from the SSI Incentive Tale Fairness both objective and perceived matters. People do what they are paid to do, even if it s not in the best interest of anyone involved. Even good people often find a stronger focus on doing the right thing when they are paid to. Pay plans don t need to be perfect. Even though there were lots of things wrong with the SSI incentives, those incentives did help create a lot of positive change in the industry. Page 43

44 A Pay Plan Gone Wrong: 2011 Version To deal with the Internet, a dealer adopted competitive on-line prices for its used cars, updating (often dropping) prices each week To match that strategy, the dealer changed the pay plan to pay on holding the advertised price, not just front-end GP Most focused on selling cars at the advertised price and getting volume Salespeople did what they were paid to do One told a customer who was ready to buy to wait a few days so the advertised price would drop so it would be closer to the agreed-on transaction price! Was this problem the pay plan, or was it a different management failure? Page 44

45 Ways to Get the Behavior You Want Enable Communicate what you want and why Train on the relevant skills Provide necessary tools (e.g., computers, phones) Provide management support Make sure the people have enough time Help staff set priorities Incentivize Commissions Spiffs Prizes Private praise Public praise Consequences Enable, incentivize, or both? Don t blame on defiance what can safely be blamed on incompetence Page 45

46 Good Pay Plans Have to Fit the Business Total Monthly Pay What the business can afford Desired position relative to other employers Employee Expectations Pay Plan Design Expected Performance Desired Attitudes and Behaviors Page 46

47 What Can Your Business Afford to Pay? What will the person produce? Total gross profit? Other contribution/benefits to the business? How much of that can you pay back out and still turn a healthy profit? Traditional: no more than 18%-23% of front-end gross profit Evolving: no more than $300-$350 per vehicle retailed Page 47

48 How Should You Position Compensation Levels (Pay and Benefits) vs. Other Employers? Below the market average? At the market average? Above the market average? Page 48

49 How Should You Position Pay Levels vs. Other Employers: A Real-World Toyota Example Pay 10%- 20% More Hired warehouse workers at a few $/hour more than surrounding employers Higher Performance Better Candidates Better ROI on Training Better Retention Page 49

50 How Should You Position Pay Levels vs. Other Employers: A Real-World Toyota Example Pay 10%- 20% More Hired warehouse workers at a few $/hour more than surrounding employers Higher Performance Better Candidates Lots of applicants Able to pick the most likely to be good performers Better ROI on Training Better Retention Page 50

51 How Should You Position Pay Levels vs. Other Employers: A Real-World Toyota Example Pay 10%- 20% More Hired warehouse workers at a few $/hour more than surrounding employers Higher Performance Better Candidates Lots of applicants Able to pick the most likely to be good performers Better ROI on Training Better Retention Who leaves when they can t earn as much elsewhere? Page 51

52 How Should You Position Pay Levels vs. Other Employers: A Real-World Toyota Example Pay 10%- 20% More Hired warehouse workers at a few $/hour more than surrounding employers Better people and high retention creates high ROI on training So Toyota could afford to do more training and kaizen than anyone else Higher Performance Better ROI on Training Better Retention Better Candidates Lots of applicants Able to pick the most likely to be good performers Who leaves when they can t earn as much elsewhere? Page 52

53 How Should You Position Pay Levels vs. Other Employers: A Real-World Toyota Example Highly trained, experienced, good people generate great productivity Much higher productivity makes somewhat higher pay a great investment Better people and high retention creates high ROI on training So Toyota could afford to do more training and kaizen than anyone else Higher Performance Better ROI on Training Pay 10%- 20% More Hired warehouse workers at a few $/hour more than surrounding employers Better Retention Better Candidates Lots of applicants Able to pick the most likely to be good performers Who leaves when they can t earn as much elsewhere? Page 53

54 Good Pay Plans Have to Fit the Business Total Monthly Pay What the business can afford Desired position relative to other employers Employee Expectations Pay Plan Design Expected Performance Desired Attitudes and Behaviors What are the relevant metrics? Which of those does the employee really control? How much should the employee produce? Page 54

55 When We Pay Salespeople Today, What Are We Trying to Get from Them? Desired Results High unit sales High gross profits High customer satisfaction High customer retention Good customer reviews Low stress for managers Page 55

56 When We Pay Salespeople Today, What Are We Trying to Get from Them? Desired Results High unit sales High gross profits High customer satisfaction High customer retention Good customer reviews What are we expecting salespeople to do to make this all happen? What parts of this are truly under their control? Which desired results are current pay plans doing a lousy job of accomplishing? Low stress for managers Page 56

57 When We Pay Salespeople Today, What Are We Trying to Get from Them? Desired Results High unit sales High gross profits High customer satisfaction High customer retention Good customer reviews Low stress for managers Desired Behaviors Do prospecting Follow the sales process Follow up with be-backs Follow up with buyers Comply with policies Doing these behaviors should generate the desired results. These behaviors are 100% controllable by the salespeople. They are mostly observable or measurable by managers but not as easy to measure as the desired results. Page 57

58 When We Pay Salespeople Today, What Are We Trying to Get from Them? Desired Results High unit sales High gross profits High customer satisfaction High customer retention Good customer reviews Low stress for managers Desired Behaviors Do prospecting Follow the sales process Follow up with be-backs Follow up with buyers Comply with policies If these behaviors are not happening, what is the real cause? Salesperson motivation? Salesperson skills and training? Management practices? Page 58

59 When We Pay Salespeople Today, What Are We Trying to Get from Them? Desired Results Desired Behaviors Specific Incentives High unit sales Do prospecting Commissions on GP High gross profits High customer satisfaction High customer retention Good customer reviews Follow the sales process Follow up with be-backs Follow up with buyers Comply with policies Per-unit commissions Volume bonuses Satisfaction bonuses In-house spiffs Low stress for managers Factory spiffs How well do these incentives line up with what we can fairly expect? Page 59

60 What Are the Relevant Metrics? Which of Those Does the Employee Really Control? Traditional metrics Unit sales Front-end gross profit PVR Sales satisfaction scores Page 60

61 What Are the Relevant Metrics? Which of Those Does the Employee Really Control? Traditional metrics Unit sales Front-end gross profit PVR Sales satisfaction scores But Who really controls the gross when the just-sold used vehicle was bought high or low? Who really controls the gross on Internet-driven purchases when the sale price is desked to be close to the advertised Internet price? What if the front-end gross is low but the F&I gross is high, or the trade was a steal, or there was a lot of money already booked in usedcar reconditioning? Page 61

62 Good Pay Plans Have to Fit the Business Total Monthly Pay What the business can afford Desired position relative to other employers Employee Expectations Pay Plan Design Expected Performance Team player vs. hotshot? High-pressure vs. customer-friendly? Ambitious vs. content? Desired Attitudes and Behaviors What are the relevant metrics? Which of those does the employee really control? How much should the employee produce? Page 62

63 Good Pay Plans Have to Fit the Business Traditional commissions vs. something else? More or less flexibility and autonomy? How much transparency? Total Monthly Pay What the business can afford Desired position relative to other employers Gen Y Employee Expectations Pay Plan Design Expected Performance Team player vs. hotshot? High-pressure vs. customer-friendly? Ambitious vs. content? Desired Attitudes and Behaviors What are the relevant metrics? Which of those does the employee really control? How much should the employee produce? Page 63

64 A Killer Question for Commission Plans: Do They Make People Do ONLY What They Are Paid to Do? Low Pay Plan Focus on Specific Metrics Incentives typically focus on broad goals (hard to game) Supports intrinsic motivation the natural desire to do things well (more powerful over the long term than narrow incentives) Focus on doing a good job for the dealership High Page 64

65 A Killer Question for Commission Plans: Do They Make People Do ONLY What They Are Paid to Do? Low Pay Plan Focus on Specific Metrics High Incentives typically focus on broad goals (hard to game) Supports intrinsic motivation the natural desire to do things well (more powerful over the long term than narrow incentives) Focus on doing a good job for the dealership Typically focus on specific behaviors or narrow metrics (gross on each vehicle, spiffs for specific actions) Overjustification Effect I must be selling effectively because I like the money I get for it Focus on doing what they re being paid to do instead of what is really wanted Page 65

66 A Killer Question for Commission Plans: Do They Make People Do ONLY What They Are Paid to Do? Low Pay Plan Focus on Specific Metrics High Incentives typically focus on broad goals (hard to game) Supports intrinsic motivation the natural desire to do things well (more powerful over the long term than narrow incentives) Focus on doing a good job for the dealership Typically focus on specific behaviors or narrow metrics (gross on each vehicle, spiffs for specific actions) Overjustification Effect I must be selling effectively because I like the money I get for it Focus on doing what they re being paid to do instead of what is really wanted Page 66

67 What Motivates Traditional Salespeople? 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% Average High Performer Very High Performer Money Power Justice Learning Art Authority Different people are motivated by different things regardless of their generation. People who are most motivated by money have been the most successful salespeople. This example is from a study of salespeople in the financial services industry. Page 67

68 TTI Reported that 72% of Top Sales Leaders in the U.S. Were Primarily Money-Motivated Utilitarian/Money: 72% Utilitarian/Money Theoretical/Learning Traditional/Religious Social/Charity Aesthetic/Art Individualistic/Power Page 68

69 A Personal Lesson The Nickelsen Group 1990s firm consulting to dealers Paid consultants primarily based on what clients paid for their time Earn more by spending more time on-site at clients and retaining those clients Risk of business ups and downs fell heavily on the consultants Adjusted pay plan to share the risk more evenly Higher fixed salary, smaller commission on consulting fees Results: Consultants worked fewer hours and generated lower client fees Why? Theory #1: People are lazy and are motivated mostly by money. Page 69

70 A Personal Lesson The Nickelsen Group 1990s firm consulting to dealers Paid consultants primarily based on what clients paid for their time Earn more by spending more time on-site at clients and retaining those clients Risk of business ups and downs fell heavily on the consultants Adjusted pay plan to share the risk more evenly Higher fixed salary, smaller commission on consulting fees Results: Consultants worked fewer hours and generated lower client fees Why? Theory #1: People are lazy and are motivated mostly by money. Theory #2: People get trained to think in a certain way. When a pay plan is changed, they react differently to the change than they would if that had been the pay plan all along. Page 70

71 A Personal Lesson The Nickelsen Group 1990s firm consulting to dealers Paid consultants primarily based on what clients paid for their time Earn more by spending more time on-site at clients and retaining those clients Risk of business ups and downs fell heavily on the consultants Adjusted pay plan to share the risk more evenly Higher fixed salary, smaller commission on consulting fees Results: Consultants worked fewer hours and generated lower client fees Why? Theory #1: People are lazy and are motivated mostly by money. Theory #2: People get trained to think in a certain way. When a pay plan is changed, they react differently to the change than they would if that had been the pay plan all along. Theory #3: The people who were happy and successful before were motivated by money. The people who would have worked best under the new plan had been driven away by the old one. Page 71

72 Two Questions Chicken and the egg Does money-motivation make traditional salespeople successful?, or Do commission pay plans only work well for salespeople who are money-motivated? Page 72

73 Two Questions Chicken and the egg Does money-motivation make traditional salespeople successful?, or Do commission pay plans only work well for salespeople who are money-motivated? What does this mean for hiring Generation Y salespeople? Will we be able to find the same number of money-driven people, or does a large majority of this age group share different values? If we do succeed in hiring money-driven Generation Yers, will they relate well to their peers who are not as money-driven? If we hire people who are less money-driven, what will we have to change to make them effective? Pay plans? Management approaches? Other practices? Page 73

74 Today s Agenda What is Generation Y, and why do we care? Some ways to think about pay plans Pay plans and Gen Y: what should we do? Case studies of salesperson pay plans Page 74

75 Case Study #1: Traditional Sales Pay Plan Concept: Pay on the gross Details Fixed pay: None except a draw against commissions earned (sometimes based on minimum wage) Commission: 25% of the front-end GP on each deal Various packs may shield some dealer profit from being commissionable Minimum commission of $150 per deal Many increase commission rate with volume sold Other incentives: Fixed bonuses based on hitting monthly volume targets Per-unit bonuses based on hitting Sales Satisfaction targets Page 75

76 Where the Traditional Pay-on-Gross Pay Plan Came from: the Traditional Vehicle Buying Process Shop Classified ads (used) and big newspaper ads (new) and at dealerships Very limited ability to compare prices Select Vehicle Primarily at dealership (except consumer-toconsumer sales) Negotiate Price Starting at window sticker or other price tag Both sides expect big discount from asking price Page 76

77 Dealership Strategies that Worked Well with the Traditional Car-Buying Process Price vehicles high to start Very limited ability to compare prices Leave lots of room for negotiation Advertise a few vehicles at low prices as teasers but try not to sell them at those prices Wait for the right buyer Sooner or later, there will be a buyer for every vehicle at the price the dealer wants Treat the used-car business as a sideline Mostly important for taking trade-ins on new vehicles More proud of being in the new-car business than of selling used cars Make enough money without focusing on used cars Risky because don t know enough about other-make vehicles Page 77

78 Dealership Strategies that Worked Well with the Traditional Car-Buying Process Price vehicles high to start Very limited ability to compare prices Leave lots of room for negotiation Advertise a few vehicles at low prices as teasers but try not to sell them at those prices Wait for the right buyer Sooner or later, there will be a buyer for every vehicle at the price the dealer wants Treat the used-car business as a sideline Mostly important for taking trade-ins on new vehicles More proud of being in the new-car business than of selling used cars Make enough money without focusing on used cars Risky because don t know enough about other-make vehicles High list prices now drive away Internet shoppers Fewer naïve shoppers because of Internet Used-car business becoming a strategic profit center Page 78

79 What Does This Mean for Traditional Pay-on- Gross Pay Plans? Traditional (Old) Process Current Process Informed consumer? No Yes Competitive prices advertised? No Varies Consumers likely to pay high GP? Many Few Dealer focus on customer retention? Low High Importance of profits other than front-end GP? Low to Moderate High Ability of a good salesperson to obtain high GP consistently? High Low Fit with GP-focused pay plan? Good Poor Page 79

80 What Effect Does the Pack or Lot Fee Have with a Commission-on-Gross Pay Plan? Low Commission percentage can be lower because the commissioned gross profit is higher Fewer deals generate minimum commissions Dealer Pack or Lot Fee High More deals generate minimum commissions - so the minimum should probably be higher Salespeople have less incentive to go for added gross, because more deals will be a minis Salespeople have less incentive to cherrypick vehicles that should generate better grosses (or avoid ones that won t) If the pack or lot fee is high enough, a commission plan could look like a volume plan! Page 80

81 Take-Aways for Commission-on-Gross Pay Plans Common for a good reason: Very effective in environments where salespeople have a lot of influence on average gross profit Poor fit where average gross profit is out of salesperson s control One-price Few customers pay high grosses because of Internet or dealer s desking strategy Attracts people who are money-driven Not clear how well this will work for Generation Y salespeople Page 81

82 Case Study #2: Volume-Driven with Bonuses for Selling at Asking Price (Preferred Buick-GMC) Concept: Pay for holding the advertised price (for used cars) Details Fixed pay: $700 draw bi-weekly, washed out against month-end commissions by the 10 th of the following month Commission: $200 per new and used delivered Add $25 for in-stock new vehicles Add $50 for selling vehicle at no discount (at MSRP or asking price) Other incentives: Volume bonuses $825 for 11 units $1,600 for 16 $2,750 for 22 $4,050 for 27 As incentive-driven as a pay-on-gross plan, but the focus is volume Good for where the dealer believes the salesperson has little effect on gross Page 82

83 Case Study #3: Salaried (at Saturn Dealers) Concept: Base salary with limited incentives Solid fit with Saturn no-negotiation strategy Also used by some more traditional dealers and other one-price stores Details Fixed pay: Standard weekly salary Commission: None Other incentives: Bonuses for hitting monthly volume targets Bonuses for hitting Sales Satisfaction targets Salary makes it easier to attract good people but may reduce their motivation Volume bonuses motivate strongly when close to the volume threshold but not as well when that gap feels too big to the salesperson Success depends on the culture of the store and personalities of the salespeople Page 83

84 Case Study #4: Blend of Salary and Commission (Audi Dealership) Concept: Salary plus commission Target total compensation of $48,000 to close to $100,000/year Details Fixed pay: $2,000/month salary ($24,000/year) Commission: 5% on front-end gross profit Other incentives: None Salary makes it easier to attract good people but may reduce their motivation Plan could substitute per-unit commissions instead of pay-on-gross for the variable piece, for stores where gross profits vary less Page 84

85 Case Study #5: Commission Based on Advertised Price Concept: Pay for holding the advertised price (for used cars) Details Fixed pay: None except a guarantee (optional) Commission: $300 if sold at asking price $250 if sold within $250 of asking price $200 if sold within $500 of asking price $150 if sold more than $500 below asking price Other incentives: Per-unit volume bonuses (starting at $15/unit for 10 units, up to $35/unit) Add $10/unit for all units if the salesperson has 100% CRM compliance Added per-unit bonuses for process compliance Added $10/unit for all units if CSI is above zone average Page 85

86 Case Study #5: Commission Based on Advertised Price Concept: Pay for holding the advertised price (for used cars) Details Clear incentives to Fixed pay: None except sell at a asking guarantee price(optional) Commission: $300 if sold at asking price $250 if sold within $250 of asking price $200 if sold within $500 of asking price $150 if sold more than $500 below asking price Clear incentives for specific behaviors How much is too much complexity? Should some of these behaviors be handled through expectations and accountability rather than the pay plan? Other incentives: Per-unit volume bonuses (starting at $15/unit for 10 units, up to $35/unit) Add $10/unit for all units if the salesperson has 100% CRM compliance Added per-unit bonuses for process compliance Added $10/unit for all units if CSI is above zone average Page 86

87 Case Study #6: Volume-Based with F&I Spiffs (Mike Patton Auto Family details vary by store) Concept: Pay for volume and F&I profits (in a one-price store) Details Fixed pay: $450/week draw ($350 if employee sold <8 last month) Commissions: $200-$300/unit sales commission $15-$35/unit F&I spiff when F&I PVR exceeds $850 for salesperson s deals Other incentives: Volume tier bonuses Units Unit Bonus Tier Bonus Base Earnings F&I Spiff F&I Earnings Total Earnings 6 $0 $1,400 $0 $0 $1,400 7 $200 $1,600 $15 $105 $1,705 8 $200 $1,800 $15 $120 $1,920 9 $200 $2,000 $15 $135 $2, $250 $250 $2,500 $25 $250 $2, $250 $2,750 $25 $275 $3, $250 $3,000 $25 $300 $3, $300 $3,300 $25 $325 $3, $300 $3,600 $35 $490 $4, $300 $250 $4,150 $35 $525 $4,675 Page 87

88 Case Study #6: Volume-Based with F&I Spiffs (Mike Patton Auto Family details vary by store) Concept: Pay for volume and F&I profits (in a one-price store) Details Fixed pay: $450/week draw ($350 if employee sold <8 last month) Commissions: $200-$300/unit sales commission $15-$35/unit F&I spiff when F&I PVR exceeds $850 for salesperson s deals Other incentives: Volume tier bonuses Units Unit Bonus Tier Bonus Base Earnings F&I Spiff F&I Earnings Total Earnings 6 $0 $1,400 $0 $0 $1,400 7 $200 $1,600 $15 $105 $1,705 8 $200 $1,800 $15 $120 $1,920 9 $200 $2,000 $15 $135 $2, $250 $250 $2,500 $25 $250 $2, $250 $2,750 $25 $275 $3,025 Expands incentives to cover F&I instead of just front-end GP 12 $250 $3,000 $25 $300 $3, $300 $3,300 $25 $325 $3, $300 $3,600 $35 $490 $4, $300 $250 $4,150 $35 $525 $4,675 Page 88

89 Case Study #7 Ohio Used-Car Store Part of 3-store group (lost new-car franchise in 2009) Traditional managers Hired young, new-to-auto-retail salespeople on mostly salary plan Results Good process compliance prospecting and sales process But managers acted as if the sales staff and pay plan were the same as they had been for the past 20 years Traditional male managers, but most new salespeople were women Management approach did not change So the initiative failed disappointing sales, poor staff retention If you re going to change your recruiting and pay plan, you d better be prepared to adjust your management practices, too. Page 89

90 Case Study #8 Voss Chevrolet Concept: Salary plus commission Details Fixed pay: Salary of $1,200/month Commission: 16%-22% of gross, depending on how many units sold that month 16% on all units if sell 0-5 units 22% on all units if sell over 20 units Other incentives: $400 bonus if sell 8 units by the 15 th of the month CSI bonus based on number of surveys returned and score Top 3 places paid $850, $500, and $300 Blend of traditional pay-on-gross plan with salary Salary makes it easier to recruit good people but may reduce motivation Page 90

91 Case Study #9 Lexus Dealer in the Midwest Concept: Traditional pay-on-gross plan, plus salary plan for new hires Details Traditional commission-on-gross plan was in place Dealer wanted to hire additional salespeople and pay them differently Dealer offered each current salesperson a choice of plans stay with the current one, or switch to the new one Success: dealer very happy with results, and having two plans avoided friction with the old sales staff To balance the needs of a traditional sales staff and new Gen Y hires, offering a choice of pay plans may work best Consider treating the plans as an experiment, to see if one consistently works better than the other Page 91

92 Other Pay Plan Elements for Dealership Sales Staff Requirement to deliver at least 6 units/month (3-month moving average) to stay employed (after training period) Spiffs, bonuses, or increased commissions for specific actions/behaviors: Units appraised Look-to-book ratio (% of appraisals actually traded for) Compliance with sales process elements Compliance with use of CRM system Commissions for other GP 10% commission on F&I GP 25% commission on service contracts Higher front-end commission rate on financed deals than on cash deals Monthly bonus to Top 1/2/3 salespeople (based on units and/or gross) Make sure that total compensation is at least minimum wage Benefits: health insurance, 401k plans, etc. Paid time off: vacation days, sick days, holidays Page 92

93 Bush Auto Place Pays Its Salespeople a Bonus for LOW Closing Rates A low closing rate means that the salespeople recorded their prospects who didn t buy. You can t follow up on prospects that you don t know about. Bush pays a bonus when the salesperson s reported closing rate is under 40%. $700-$800 Three salespeople missed qualifying in the first month. There are now a lot more prospects being entered into Bush s CRM system. Page 93

94 Today s Agenda What is Generation Y, and why do we care? Some ways to think about pay plans Pay plans and Gen Y: what should we do? Case studies of salesperson pay plans Page 94

95 Recruiting Gen Y: Enterprise.com Positions the Opportunity Page 95

96 Recruiting Gen Y: Cold Stone Creamery Auditions Page 96

97 Recruiting Gen Y: Cold Stone Creamery Auditions Page 97

98 Pay Plans for Generation Y Consider shifting away from 100% commission Salary plus commission? Salary plus bonuses? Keep the plan simple If it doesn t fit comfortably on one page, it s too complicated If the salespeople don t understand it, they won t think it s fair Don t be afraid to keep your old plan and also roll out a new one aimed at Generation Y salespeople Give everyone (or just the existing sales staff) the choice of which plan they prefer Watch to see what works best: sales, profits, satisfaction, retention Page 98

99 Top 3 Approaches for Retaining Workers, by Age Gen Y (Under 30) Gen X (30-44) Boomers (45-64) Matures (65+) 1. Company culture 1. Additional bonuses or financial incentives 2. Flexible work arrangements 3. New training programs (tie) 3. Support and recognition from managers (tie) 2. Additional compensation 3. Strong leadership/ organizational support 1. Additional benefits (health and pensions) 2. Additional bonuses or financial incentives 3. Additional compensation 1. Additional bonuses or financial incentives 2. Additional benefits (health and pensions) 3. Flexible work arrangements (tie) 3. Corporate social responsibility (tie) Source: Deloitte, Talent Edge 2020 executive survey. Page 99

100 Other Considerations for Hiring Generation Y Think about how management practices will have to change: Different pay plan = different incentives and motivators Different sales staff = different (and possibly much worse) responses to traditional management approaches Consider quality-of-life issues Ways to get to a 40-hour work week? Ways to get at least one free weekend each month? Ways to allow some work to be done away from the dealership? There may be ways to leverage existing dealer investments in community relations to make the dealership more attractive to Generation Y staff by creating meaningful opportunities to volunteer for good causes Page 100

101 Conclusions What is Generation Y, and why do we care? Some ways to think about pay plans Pay plans and Gen Y: what should we do? Case studies of salesperson pay plans Page 101

102 Dealership Pay Plan Self-Assessment Total Monthly Pay What are you spending on salespeople: As a percentage of GP? Per unit retailed? Are you paying the right amount (in total) to attract and retain good staff? Employee Expectations Pay Plan Design Expected Performance Desired Attitudes and Behaviors Page 102

103 Dealership Pay Plan Self-Assessment Total Monthly Pay What are you spending on salespeople: As a percentage of GP? Per unit retailed? Are you paying the right amount (in total) to attract and retain good staff? Employee Expectations Pay Plan Design Desired Attitudes and Behaviors Expected Performance What are the most important aspects of salesperson performance at your store? Importance to profits Affected by salesperson actions How well does your pay plan encourage that performance? Page 103

104 Dealership Pay Plan Self-Assessment Total Monthly Pay What are you spending on salespeople: As a percentage of GP? Per unit retailed? Are you paying the right amount (in total) to attract and retain good staff? Employee Expectations What do you want the culture of your store to be? How does your current pay plan influence that? What bad behaviors do you see today that are driven by your current pay plan? Pay Plan Design Desired Attitudes and Behaviors Expected Performance What are the most important aspects of salesperson performance at your store? Importance to profits Affected by salesperson actions How well does your pay plan encourage that performance? Page 104

105 Dealership Pay Plan Self-Assessment Does your current pay plan appeal to the kind of salespeople you want to hire? Would you be better off shifting any money from compensation into lifestyle factors that your employees value (or vice versa)? Total Monthly Pay What are you spending on salespeople: As a percentage of GP? Per unit retailed? Are you paying the right amount (in total) to attract and retain good staff? Employee Expectations What do you want the culture of your store to be? How does your current pay plan influence that? What bad behaviors do you see today that are driven by your current pay plan? Pay Plan Design Desired Attitudes and Behaviors Expected Performance What are the most important aspects of salesperson performance at your store? Importance to profits Affected by salesperson actions How well does your pay plan encourage that performance? Page 105

106 If You d Like Help Thinking Through These Questions Call Steve Nickelsen at (330) , or Go to and answer the self-assessment questions on-line. One of us will call you to discuss your answers and overall situation. Note that there are underlines in the link: NP_Pay_Plan_Assessment Or just Steve Probst at sprobst@nickelsenpartners.com, and he will send you a link you can click on to get to the on-line questions. Page 106

107 A Few Closing Thoughts from W. Edwards Deming All anyone asks for is a chance to work with pride. It is not necessary to change. Survival is not mandatory. Page 107

108 Thanks to all of you for your participation today, and congratulations on your desire to learn! Steve Nickelsen (330) Steve Probst (617) Chris Harrell (661) Page 108