AT A RECENT 20-GROUP I LISTENED TO CONSIDERABLE discussion of compensation strategies for sales consultants.
As the individual dealers described their incentive plans, I sat back amazed at the complicated details in almost every plan. Recent auto industry merger agreements pale in comparison to the complexity of pay plans.
But beyond their sheer complexity, the compensation strategies I heard described had four critical mistakes in common.
* Compensation Mistake #1: Motivate as many selling behaviors as possible. The thinking must go like this: If I reward enough actions, I'm sure to get outstanding results.
* Compensation Mistake #2: Set incentives at levels that can be achieved only by the highest performers.
* Compensation Mistake #3: Substitute incentives for strategic thinking and planning. It's easier to throw a new incentive into the compensation plan than to rethink how you are doing business and create a sound strategy for reaching your goals.
* Compensation Mistake #4: Peg starting salaries for newcomers at a notch slightly above minimum wage. HELLO! Our economy is at full employment.
Back to basics How do you avoid these common compensation mistakes? When creating or overhauling your compensation plan, remember the "FOUR S" approach to compensation.
1. Strategy.
Start with your business strategy. Compensation strategy must flow down from your long-term business strategy, not take its place.
Look at where you're going as a business and what specific behaviors from sales consultants will get you there. Make sure your pay plans are aligned with the behaviors you desire.
If you have a customer satisfaction challenge, but pay is based on the gross profit of the deal, you're out of alignment. Tying compensation to gross profit rewards sales consultants for making as much money as they can off of every one they meet. That's the behavior you're rewarding. Don't expect people to act differently no matter how much you implore them to "take care of our customers."
2. Salary.
Sorry to paraphrase James Carville, but, "It's the salary, stupid."If you don't attract the right people to your front door, your recruiting efforts are dead before you begin.
Will a starting salary barely above minimum wage attract the people you want? Many burger joints are paying nearly double the minimum wage. Whom do you expect to attract with a salary that low? I can't imagine you can attract enough potential sales people with the "right stuff"with a beginning salary below $2,000 per month. Realistically, $2,500 is probably the right number. After a reasonable period - about three months depending on the quality of your training and orientation programs - you do need to move to a more variable, incentive-based plan. By that time your recruit should have a solid enough foundation in sales skills to go it on his or her own.
3. Simplicity.
Less is more. Tell me how you reward me, and I'll tell you how I'll behave. By rewarding everything, you reward nothing. Some dealers throw every good idea that comes along into the compensation stew as another incentive. While some incentives may be good on their own, when stirred together, they create confusion. Sales consultants soon have no idea what's really important.
Don't expect your compensation plan to accomplish too much. For instance, a new compensation plan won't change your culture. Your culture is what encourages people not only to perform at a high level, but stick around for a while.
Culture is influenced much more by your front line sales management team than by your compensation plan. To improve on a turnover rate that exceeds 75% at most stores, you have to focus more on the value your management team brings to your success than on your pay plan.
4. Spouse sensitivity.
Finally, you always have a good yardstick for measuring your compensation plan and its simplicity. Make your compensation plan spouse sensitive.
Picture this: Your new recruit goes home after an interview and his spouse asks what the job pays. Will he be able to explain what he can realistically expect to earn and how he arrived at that figure? If he can't, she won't want him to take the job. If you're looking for "family type"people, you won't attract them with a pay plan that takes a manual to understand.
If you've done it right, the spouse will understand the base salary, where the incentives will come from - and whether they are achievable.
Formula none Unfortunately, there is no industry standard compensation plan, much less a tried-and-true pay formula. In the absence of an easy answer, however, you can use the aforementioned FOUR S approach to simplify your challenge of creating and maintaining an effective plan.
Many other factors will influence a compensation plan, such as product line, CSI scores and turnover rate, but that only serves to illustrate the importance of creating a pay plan that is uniquely yours and helps you meet your unique business objectives.
When it comes to compensation, only one rule is carved in stone: Your success depends on your ability to attract and keep good people.
Mark Rikess is president of The Rikess Group, an automotive training and consulting firm. To read his previous Ward's Dealer Business articles on-line go to www.rikesgroup.com
