Implementing a Performance-Based Pay Plan
In the past, Mike DeGennaro often felt “caged in” by his parts department’s preferred pay plan. Then, in 2015, his new bosses provided the parts director with what he feels is the key to unlocking a staff’s true sales potential.
Upon arrival to Reno Buick GMC Cadillac in Reno, Nev., two years ago, DeGennaro was granted permission to change the parts department’s pay setup. He soon began implementing a performance-based pay plan, and the department’s gross sales numbers have steadily climbed as a result―from $140,000 in late 2015 to $220,000 last year.
“This plan here seems to work. … We’ve increased the gross profit here roughly 40 percent over the last year,” he says, whose employees get paid a salary plus a percentage of the department’s total sales, in addition to a percentage of the sales the area they work within the department generates.
DeGennaro, a 33-year veteran of the industry, has experience with various types of pay plans, and that experience has taught him one thing, definitively: Without incentives, employees aren’t likely to go the extra mile consistently.
With “straight hourly pay, a lot of times there you have people abusing overtime,” he explains. With “straight salary, the downfall to that one is obviously, people call in sick or something, [and] you have them on a salary, they’re still getting paid.”
DeGennaro feels a parts director has to give employees something to strive for if they hope to see impeccable profits. That’s why he’s such a fan of a performance-based pay plan.
Below, he indicates the keys to implementing a stellar performance-based pay plan.
Chief among the steps to implementing any new pay plan is establishing attainable, yet valuable goals for the new program.
“You want to make sure, first of all, that your employees can make a living on the plan,” notes DeGennaro, who worked as a fixed operations manager earlier in his career. “You have to look and see where [employees] are at today, and make sure they’re gonna move forward with the plan.”
When considering a new pay plan, DeGennaro suggests making sure your staff’s projected pay remains within 5 percent of what they had been making previously. That will likely show employees that there’s room for improved pay while still keeping your department’s budget relatively reined in.
Alert Employees in Advance
DeGennaro gave his parts department employees more than three months’ notice that he intended to alter their pay plan. He stressed to employees that the new pay setup would reward them for what they sold. He stressed that the new program would ultimately help the department increase both volume and profits.
Providing that advance notice can help weed out any employees who will refuse to get on board with an altered pay plan.
Establish Immediate Goals
When DeGennaro implements a new pay plan, he makes sure to promptly provide employees with goals to aspire to. At Reno Buick GMC Cadillac, he has established goals every month. The staff is encouraged to reach bonus-level targets, with the main demand being that the crew needs to top its gross profit from the month prior by at least 10 percent.
If the staff achieves the aforementioned goal, each employee receives a 2 percent bonus of the total gross.
“It has really made a big change,” DeGennaro says. “Last month, we did 34 percent more than the year before [for the same month] in gross profit. So, it’s really growing.”
Prove the Plan's Value
Any time you alter an employee’s pay setup, you’re likely to experience some initial pushback. That’s why DeGennaro suggests crunching the numbers and being prepared to illustrate to employees how they stand to benefit from a pay plan change.
“Show them where you’re at today and where you plan on going,” DeGennaro suggests. Say, “‘the business is growing, and we’re going to bring you along with us and make more money.’ … You always have resistance until somebody actually sees it.”
In the months immediately following DeGennaro’s implementation of a performance-based pay plan, he closely monitored his department’s financial figures. Then, he sat down with each employee he oversees and showed how the plan improved their bottom line. It didn’t take long for each of his employees to get on board with the new setup.
Nowadays, when DeGennaro suggests that his parts employees jump in a truck and deliver to a new customer in-person, they’re as receptive to the idea as ever. In the past, there wasn’t much incentive for employees to make such extra effort.
Clearly, the performance-based pay plan has paid dividends for DeGennaro’s staff.
“None of my guys complain anymore,” he says. “You [hear] more asking for the sale, more asking for related parts sales.
“They understand that, the more they sell, the more money they’re going to make.”