#11 - Luke's NADA notes - Pay plans

Alright. Welcome to the Independent Dealer Podcast. Today we are doing our third installment of Luke's NADA notes from the NADA meeting 2019 he had in San Francisco a couple weeks ago. This is our third installment. So if you haven't listened to the first two, this one's gonna build on the first two, but this one's really good. Luke, what are we talking about?

Pay plans. Pay plans. Pay plans, that's all it's about. You know, what motivates your employee, what doesn't motivate your employee. Sit down, figure it out and make a pay plan that works both for you and for your employee.

All right, let's get into it. Welcome to the Independent Dealer Podcast, the podcast for auto dealers to learn and grow together. Here are your hosts, Luke Godwin and Jeff Watson. Okay, Luke, let's talk about your third takeaway from the NADA Conference 2019 you had in San Francisco a couple of weeks ago. We're going to discuss today pay plans. Luke, now tell us why, why did you put play plans like as your number three thing? And there must have been a ton of stuff going on. This seems like it's been around forever. Why is it new and exciting now?

Well, it's new because of the new workforce that we're dealing with. We're dealing with millennials and soon we'll be dealing with, I guess, whatever the new, the new generation is. But you know, pay plans in the automotive industry for years have been, if not strictly based on the gross, they're based on more commission than a steady paycheck. It appears that millennials are really needing or wanting that steady paycheck and not willing to adventure out into a straight commission plan yet. So I think it's something that we all should be talking about.

Yeah, interesting. I mean, so have you seen that in your hiring, I don't know how many salesmen you keep there, how many you hire and bring in, but have you found that that's a hard commission, is a hard thing to get these guys to sign on to?

Well, yeah, sure, I think you would be hard pressed to find any person straight out of high school or college now that would be willing just to go straight into a commission pay kind of setup. You know, when we graduated, maybe it was a little different that we, we believed in ourself a little more or whatever, but getting straight into something that was commission based wasn't in the world for us. And a lot of our friends were doing the same thing. So I think today we're just seeing a different generation and different pay plans in order for that. And, you know, it's what we're faced with. It's not a big deal, though.

Yeah. So help me out. What should we know when we're structuring our pay plans, both for coming commissioned, like salesmen, and then are you also talking about, like, staff, like, you know, receptionists lot porters, things like that? You know, does that work into this as well?

I think there should always be a bonus structure within a pay plan. So it should be for every position in your office. You need to pay a good salary.

Okay.

And you also need to have built in bonus structures or commissions to entice people to work a little harder. Okay.

So you're saying across the board, we should be looking at, okay, what's a base salary or hourly plus, let's incentivize them based on the success of their position or the success of the dealership. Right? Sure.

Yeah. And, you know, in today's marketing, I think you need to. You need to understand that if you've got a salesperson, they're gonna probably be a little more than a salesperson. They. You require them to do certain things. And, you know, if that goes from. If you're a really small operation, you have, let's say, one salesperson, you may require that person to go outside and crank all the cars. You know, you may have them make sure that the inventory comes in and gets cleaned. So your salesperson may be more than just a salesperson, because that's the way I started our salesperson. That's what they did. And I think so, you know, even in. In our situation, at a buy here, pay here, it's a little more involved. You don't want to pay strictly commission because you may end up with a lot of sales and horrible people. So it all needs to be based on your business model and what is required to get the production that you want from your staff, no matter if they're sales or service or whatever.

Now, do you know the first thing that comes to mind, I think now does that. Is that kind of a changing target? Because I just think about my dealership, and I think, you know what? Yeah, definitely what I incentivize for today in my current staff, based on the dynamics of the market and the dynamics of my employees may not be what I want to incentivize for in six or 12 months. Right. And that's okay, isn't it?

I think, I think you need to stick with a pay plan for 90 days and see what happens. So, yes, you can Change it. You may discover that you're paying someone too much and that happens. So you may need to adjust the pay plan. You know, just for instance, when I first went to this structured pay plan and we went from having greeters to more of a sales type setup, I said, okay, well we're gonna Pay, you know, $25 per referral. We get, not referral, per review. Five star review salesperson gets.

Mm.

Well, next thing you know, we've got one person that got 25 stars review reviews in one month. Well, you go, well, they. Are they abusing the system? What are they doing? They're not abusing the system because that's what I told them, that I'd pay them at that point. Let's go, let's adjust this a little bit. Let's adjust it so that you get, if you hit 6 reviews, you get this. If you hit 11 reviews, you get that. So make it tier based or whatever seems right. You can adjust anything. But I think without giving something 90 days, you don't know if it works or not. So don't be really quick to adjust.

So help me with that because obviously in my brain I have a stumbling block where I say, man, if I thought about changing my salesman's commission, it seems like the end of the world, man. And they're out there with their calculators and they're adding up this and that and they're going to see if they're getting cut or if this, like, if I'm not blatantly adjusting their pay upwards, I feel like, am I just, am I going to have a revolt? Is everyone going to jump ship or is it like, look, man, I've got to, we've got to acknowledge the fact that maybe I'm overpaying you hourly, but I'm underpaying you commission or, you know, if I want to shift it one way or the other, how do I do that? Do I need to give them a warning? Do I just come out with it and let the dust settle where it will?

You know, we went through that probably two years ago and we. What I did. And I think what's important is saying I'm not cutting your salary, okay? I'm not cutting your pay based on your 12 year performance. 12 month performance. This is what you made, okay? I'm adjusting this pay plan so that if you do exactly what you did the last 12 months, you're going to make the exact same, same amount of money. If you do just a little bit more here and there, you're going to make more money. So it's not about cutting the person's salary. It's about requiring the person to do what you want them to do and entice them to do certain things that they haven't been doing. And when we saw that, it. It really changed the way our sales staff acted. Now, did it run somebody off? Yes, it ran somebody off. But was that my objective? It might have been my objective. So, you know, if you know someone's not going to do something, you ask that. You've been asking for a while. Make sure that's a real part of your pay plan. Because if they don't do it, they're not going to get paid. And if they don't get paid after a while, they're going to quit.

Let's talk about that, Luke. Help me understand, then, how much of this is setting up a definition of what their role is at the dealership? You know, I mean, is that it is, like, the reason why this guy's unsure or the reason why you're not getting out of him. What you think you should is because he might not even know that's what you want out of him, because you said it once in the first five minutes of an interview, but it's not in front of his face every day, Man. How important is having, like, employee defining their role at the dealership?

Well, for sure, my wife sitting across on me, so she's gonna. She's gonna make a funny face when I say this. But job descriptions got to be in there, right?

Yeah.

And that job description has to be defined as what you want them to do. You know, just for instance, when texting just came. Came on the market several years ago, I signed up immediately, right? Oh, it's great. It's a great, great thing. And I just automatically assumed that once I told my sales staff, hey, when this customer buys a car, they have to be signed up with our texting service. So it'll make it easier on our own, our collection staff. And I just figured it was gonna be done right. So after six months of us using the tech service, we go in there and nobody signed up. You know, what's going on here? Well, the collections people are saying, well, they're not. They're not getting the people to sign up before they leave when they buy the car. I'm like, well, that's got to be done. So my first thought process was, that has to be a part of your commission, you know? So I went and said, if you don't get them signed up, you don't do this. You don't do X. $25 of your commission comes off the top. Ah, but if you do it, it's back on there. So we went from having about, let's say 10% sign up at close to having probably 90% sign up at close. So that's how you adjust your expectations is making it a carrot. Put a carrot out there.

Yeah, I like that. But yours was even. I mean, that sounds like maybe it was a negative. It was like a takeaway, like, hey, this is your commission and these are the things I expect you to do to earn that commission. And if for some reason you fall short of one or two of these, it's not like I'm just going to smack you on the wrist and bad you. It's, hey, this is going to actually affect you monetarily. You know, 20 bucks if you don't get text authorization, 20 bucks if you don't get them to sign up for autopay, you know, or you look at the other way.

You can incentivize it to whatever you want to do, but you've got to make sure that your, your pay structure, if you feel like you're paying your guys to too little anyway, then okay, you can tack on, you know, if you're paying them a hundred a car and you think they deserve 125 a car, we'll say, you know what if you have, you know, 90% of your deals that sign up for autopay and texting and give you a five star review, then I'll pay an extra 50. You know, so there's always, there's different, there's different ways to break it down. You don't have to be the guy who takes it away unless, you know, you feel that's the way you need to go.

Yeah, if you feel like you're overpaying and I mean, that leads me, I kind of want to grab my, the composite report or the stats they put out, I think in the used car dealer one of those. And average commission for a salesman in our industry is what, 273 or something to that effect? I was gonna say somewhere between two and three hundred dollars. I have a hard time with some of those numbers because it's not always apples to apples, you know, you don't know if that guy is, you know, do they have a BDC that's bringing the leads in? Do they have a finance manager who's closing the deal and working the back flats?

Are they getting salary? Yeah, yeah, yeah, yeah.

There are other Stuff that works into that. How much support staff do they have? So that's hard because that's not a direct, what would you call it? A variable commission, Variable cost on per sale. Alright. I think that's good stuff. You know, I think about the things that I'm not getting out of my salesman or those points of pain that maybe I'm trying to get done more. And you're right, I need to review that plan. What is that? Written position. And the way I look at some of those, even through my whole dealership is I've got a whole bunch of tasks. Right. I've got, let's say each dealership has a thousand different tasks that have to be completed in order for this machine to run. Those tasks they can jump around from salesman to salesman or position to position or front to back of the house. I kind of look at them like little post it notes on a big old wall and all of a sudden I've got my lot tech or my lot porter taking pictures of inventory. No, no, no. I've decided that I'm going to hire a social media gal and she's going to be the one doing that. So he needs to know, hey, this is coming away from you, it's going over here to this person, but instead you're picking up X, Y and Z to help the salesman now, you know.

Yep. And that's you always. It's a shifting target. You know, we had a girl who was doing all of our pictures and she did collections and she had some other, you know, obligations but she left and that, you know, that Otis of taking pictures got moved to another salesperson and that meant that salesperson was gonna make a little bit more money. So you know, it's, it's always you find the right person for the right position and, and all of us at some time are either overstaffed or understaffed. And you've got to find the happy medium and the right pay plan to suit your, you know, your staffing situation.

Now talk to me. I know one of your points and your takeaways was the employee review. And I don't think that we don't have enough time to get into how important these are. But what do you do or what would you recommend we institute in our dealerships?

Well, I think, and I'll ask Alexis sitting here, I think what we try to do, not what we always do is a one month, a 30 day, 90 day, a six month and then yearly and if you miss one of those, it'll throw you off. We Had a person leave. And in the biggest, you know, not the biggest reason they left, but one of the reasons we thought they left was because we didn't review them enough and we didn't tell them what we, you know, what we thought their position was evolving to. And we really didn't, we didn't want this, this employee to leave. And by the time we got, we call wind that she was leaving, it was too late to go back and do that review. So reviews are good for not only determining whether that employee is good for our company, but if they're happy with our company. So it's a both way street. The review is for you as well as for your employee.

So you're recommending, I mean, what, quarterly.

Annually, 30, 60, I'm sorry, 30, 96 months yearly. that point, if they've been with you a year, you know, six months to a year I think is a good time every, you know, every year to do it. And if you feel like the employees, you know, out of bounds on something, then you need to pull them in earlier than that.

Yeah, yeah. It's so funny. I reached over and put a note on my calendar because I go through these phases of doing it and not doing it and it's just something you got to put on your schedule. Right. And you got to throw it right in your phone. Hey, we met today. We're going to meet again in three months. We're going to meet again in six months. Let's do it on this date at this time. Just put them in your calendar. And I know for some people it's intimidating, it's awkward. Maybe you don't want the bad news. Maybe you don't want to have a confrontation because you think they're going to ask you for a raise or you think they're going to ask you for something that you're not ready for. But man, isn't that better than having.

Them balance than a two week notice a lot of times? And make it fun. Go out to lunch, you know, you know, don't sit in your office. Make it fun for the customer, for the employee. Make it, make it something they look forward to.

Yeah, yeah, yeah, that's true. Yeah. There's no reason why you got to do it sitting in your office like some sort of an interview. Right? Yeah, right.

You don't need to do that.

There's probably a lot of opportunity. I've talked to some people that say get out there and have lunch with them and talk about anything but work, you know, so there's that opportunity to figure out what makes them tick, what makes them happy, what, you know, it might have changed. They may have been motivated by money 12 months ago and now they're motivated by freedom and time off.

You know, a book that really focuses on this that I, you know, I encourage everybody to read. It's called Dream Manager and it's talking about managing the dreams of your employees. And it's a, it's a great book, easy read, but it's something that, that you could use during these reviews to, to find out what makes your, your employee tick and what you can do to help them, you know, to get to those dreams. I think they'll work harder and work smarter for you if you do that. Uh huh.

Interesting. Okay. Any other takeaways you want to share with us.

From, from the review process or just the pay plans in general?

In general, yeah.

Yeah. You know, one thing I thought that was very interesting that was talked about was how pay plans need to be written. Two positions, not to certain employees. So just remember that your sales pay plan should be the same across the board. Your service writers should be the same across the board. Your technicians should be the same across the board. And all of these could be done with a simple spreadsheet that you enter in the numbers at the end of the month and it spits out what the person should make. So it shouldn't be a person by person basis. You shouldn't have one sales staff in your company that gets paid $200 a car and one that gets paid 100 a car and one gets paid 50 a car. That just shouldn't work. It shouldn't be that way. It should be a system where, you know, each person gets paid the same if they hit the same numbers. So always remember that when you're, when you're doing anything, a technician should be, should be paid on their qualifications, not on the person.

Nice. Nice. I like that. I think it's smart, keeping, you know, biases or anything out of the equation. It's just kind of straightforward, you know.

Yep, that's it.

This position plays and if that person moves on or leaves, you've got, you've got it set up to hire someone new and they know what they're going to get.

Exactly. Right. And the other thing that does is nobody ever has a question on what they're getting paid. If you know, or if they need a raise. You talking about somebody being in a review and asking for a raise, it's pretty simple. If you have a pay plan written, let's say It's a technician walking into your office who's making $15 a flat rate hour, Right? And you have a spreadsheet that says that's what they're supposed to make. And they walk into your office and say, hey, I think I deserve 17 hour. Well, it's pretty simple. You go to that spreadsheet, you, okay, you deserve 17 hour. This is what you need to do to hit that 17 hour. Have you done the latest certification on this? Have you been to training for this or that? Well, no, I hadn't done that. Well, as soon as you do that, you're at 17 hour. So that's how it's. It takes that out of the equation, takes the objectivity out of. Out of their pay. Mm.

How much do you bonus for those types of activities? You know, I mean, do you feel like it's important to throw? I guess what I'm getting at is, man, I mean, my salesman's pay plan is a little complicated. You know, I've got a bonus based off if it's a buy here, pay here sale or if it's a cash or outside finance, because I feel like those are two different types of efforts, and I want to sometimes push one or push the other. And I've got bonuses on aged units, and I've got volume bonus, and then I've also got a team bonus. So every time your team member sells a car, you get money, you know. So my salesman pay plan is a little convoluted, but I've kind of instituted these little, like, bonuses. Like, if I'm going to throw on, like, hey, now you're going to get spiffed for every auto pay you set up or every text authorization, or every, you know, person that's wearing green or everyone that leaves us a review or, you know what I'm saying? Like, is that bad? Is that okay?

Like, I think that's.

Where does it get too complicated?

I think. I think you're way too complicated. I think it needs to be simplified, so it needs to be simply defined. And I think you're overthinking it. That's just my opinion. Now, if it works for you, it works for you, but I think you could find a lot simpler way to do it.

But I guess my broader question is across the board, if we're going to come into our dealerships and say, okay, guys, this month I want to give everyone a spiff, or from now forward, I'm going to give everyone a $25 bonus when you get a review for us, you know, or in your name. Now you've got that layered on top of. Well, now I'm going to give you a $20 bonus every time you get an appointment set. Now I'm going to give you a $10 bonus every time you, you know, get an appointment, every time you get a test drive, every time you, you know what I'm saying? Like, when does that become so absurd? You're like, no, no, no, here's your 20 responsibilities and here's your salary. Get these.

Right. So, okay, so it's pretty simple. You have those 20 responsibilities need to be incorporated into their salary. Okay. Then you've got probably a tiered system or how many cars they sell for ours. If you're, if you're 10 to 15, you get 125 flat. And that's a 90 day average. If you're 15 to 20 is 175. If you're 20 plus is 200 a car. So, and that's all based on 90 day average. Now, you know, going in, I make, you know, 450 a week. If I sell these cars, I'll get this as commission. If I do, then we have a review commission base. Okay. So that's pretty much it. That's the complexity of our sales commission breakdown. But if you, if you start not doing certain things of your obligation, you can get docked out of your, out of your commission base. Mm. Because $25 of that commission base is based on you sign them up for text getting a picture of you in the car that we can post on social media. You know, so there's different things that go in there. And if for some reason you're not getting the percentage that you need to get of those, then you're going to lose that $25 that's added on that commission bonus. So there's a way to pull some of that stuff out so that it's not really convoluted. And I don't believe in a bunch of different spiffs. If you've got an age unit, there's a reason that units age. Get one of your salespeople to figure that out. Is it overpriced? Is it not clean? Is it need new tires? Does it not start as a battery dead? There's a reason that use inventory is there, it doesn't need a spiff.

Interesting, interesting. But you're still going in and checking each of those things, you know, so, so in your own way it's still, you know, you've got to go into each sale and say, all right, These are the things you should have done. Did you get a picture? Did you get tax authorization? Did you get auto pay? Did you get.

You have to do it, you have to do it every once in a while. You don't have to do it every time because they will be doing their job. Now what happens is when you find out somebody's not doing their job, then you go back and check all their deals and then you say, okay, you haven't been doing this for three months. You know, you've got a way to earn this back. But you're gonna be doc x amount for the next, for your next mission check if it's not done. Uh huh.

I'm just gonna write that down real quick so that I can go and take a, take an adjustment, you know, make sure that I've got those things spelled out in my commission plan. You know, hey, here's the things you need to have done in order. Paid. You know, that's the way I look at it. Like I've got a little checklist on the outside of each deal jacket. And if you haven't checked off those eight documents that I need, stips from the bank or from the finance company, you know, you don't get paid till they're done.

It's that simple. And this is part of your job. You didn't do it, you don't get paid on this deal.

Yep. Cool. Luke, anything else for us today?

I think that's it, man.

Cool. It looks like you've covered most of the stuff you had in there with your notes, parting ideas, as far as making sure we're getting the right people motivated the right way. I mean, is there any tips or tricks you use to, you know, obviously we talk about pay plans right now, but within that pay plan you've also got things that aren't necessarily straight up pay, right? You've got, you know, benefits, you know, do you do anything for your employees like get togethers monthly? Do you bring in lunch on Saturdays? Do you give them a gym membership? Do you, you know, those important things, these little fringe benefits, let's call them.

Well, you know, what we do is we bring in lunch on Saturday, we bring breakfast in on Friday. If you're going to work a Saturday, we give you a half a day during the month, during that week, so you get a little extra time. You know, there's many things you can do. Just make sure that's the reason you need to meet with your employee, make sure they're happy and ask them if there's something else we can do, that's the least we can do.

Yeah, get them just have a good conversation. And I think that's key is, you know, it's something I go over at least weekly in our office meetings is I say, hey, guys, if you've got an issue, come talk to me. You know, if you can't talk to me, talk to our manager. You know, if you don't want to talk to either of us, leave an anonymous note under someone's door, like, want to know what's going on? If you're not happy and there's something going on, like it's an open door, you know, the last thing you want is your employees to be scared to come and talk to you and say, hey, you know what? I'm not making ends meet at home, you know, I need to look at my pay plan or, hey, I'm not enjoying working here any longer. You know, got to have that open communication.

Exactly.

Alright, Luke, sounds good. Let's wrap it up and we'll, we'll pick it up next week. We've got a couple of good podcasts coming out in the next few weeks, some good interviews scheduled. Everybody stay tuned, all right?