If there is one hot topic in your dealership, it’s pay plans. It is the ultimate water cooler discussion, and the most leveraged tool for managers to motivate performance.

But, it seems like you can’t look on the internet without reading about how job searchers are changing what they want from an employer. And with a larger number of millennials entering the workforce, it probably warrants a view into what drives this generation of workers.  Studies suggest they prefer recognition over money, they feel entitled to receive more benefits and perks from their jobs, the list goes on and on. So does that mean that pay plans are losing their luster overall?

We wanted to find out, so we asked this question: do salespeople entering the industry care about pay plans, or instead place more value on other factors (like customer service or career path)?

We surveyed nearly 500 salespeople to see exactly what motivated them to perform at their dealership.

Pay Plans - do they work?

First off let me start by saying I’m not going to blow smoke; pay plans are still the clear cut winner of what motivates salespeople. When asked what motivates them at work, 45% said that compensation was number one.

So that answers the question, right? Time to double down on building the right pay plan. Well…

NADA reported in December 2016 that salesperson turnover was 67%. This is the case in in spite of the fact that financial compensation for dealers grew at 1.4% in the face of only a .4% growth in profitability. That means that compensation grew 250% faster than profit, and it still didn’t really improve turnover.  

Obviously the tried and true philosophy is that your pay plan shouldn’t really outpace profitability, but in an attempt to keep good salespeople it seems profitability was sacrificed. There has to be a better way to keep people than continually throwing more money at them.

Other Motivations

It is true that pay plans are the number one motivator, but that’s not the only thing that motivates salespeople. It may surprise some people, but according to the responses we received, 21% of salespeople were motivated by developing skills, 15% were motivated by a career path and an additional 15% were motivated by delivering good customer service.

This hints at the fact that there may be more to motivating a sales team than just adjusting (again and again) your pay plan. These other motivating factors imply that pay plans are not the end-all-be-all motivator. In fact, it can even by an indication that you could have the wrong hire.

In It For The Long Haul

We also asked all of the salespeople how long they planned to be in the automotive dealership. With all the turnover in the sales department we figured there had to be a large portion of vagrant salespeople who were in it for the short-term payoff. The truth from our findings: 60% of salespeople who had worked in the dealership for less than a year, planned on being there for over 5 years.

Only 5% of the salespeople coming into the dealership for the first time planned on being there for less than a year. 63% of people who planned to leave within the first year said their primary motivation was compensation. Even though 95% of people planned on staying, a year later only 33% of them were still there, with 40% of those leaving in the first 90 days according to NADA.

When we compared  how long salespeople wanted to stay in the dealership, to their motivations at work, an interesting break happened. Salespeople who planned on leaving within a year were 40% more likely to be motivated primarily by compensation.

Salespeople who planned on staying were more likely to be motivated by something other than the pay plan. Don’t get me wrong, pay plans were still number one at 32% (down 10% from the average), but this group was 23% more likely to be motivated by developing skills and an impressive 73% more likely to be motivated by career paths.

Here’s the good news, not only did these individuals want to stay at the dealership, but they also closed more deals. Salespeople who planned on staying longer reported outselling their peers by 9% on average.

Looking Past the Pay Plan

Pay plans are still king when it comes to motivation, but only when the other factors are addressed. Ignoring other aspects of employee motivation could turn into a detriment to your dealership. You can download our full study here to see other factors that impact motivation.

All salespeople are not created equal. Those who want to stay are looking for you to invest in them beyond a monthly check, they want to know there is a path for developing skills and a their career.

Dealer Executives Underestimate Cost of Staff Turnover by $97,000 Despite Investments to Improve Employee Retention

A study from DrivingSales, in partnership with Hireology, found that dealer executives underestimate their turnover by 20% for their entire dealership and 27% among their sales team. This indicates a major disconnect in the dealership that is coming at a potentially significant cost to dealership profitability. Adding to the issue is the fact that dealers are not effectively addressing the problem: according to the survey most dealerships are potential incorrectly devoting resources to reversing this costly trend.

On average, the overall dealership turnover rate reported by Dealer Principals, General Managers and Owners was 22% compared to the 42% that the 2016 NADA Workforce Study identified. The discrepancy for the sales team was even larger, with dealer executives reporting an average 40% sales teams turnover rate versus the 67% reported by NADA.

Based on research performed by DrivingSales, each sales person that leaves a dealership can cost the bottom line $45,000 (other sources estimate this number higher) and the total turnover cost per dealership averages nearly $439,000 annually. This means, based on the underestimation in sales turnover, that dealer executives are underestimating the cost staff turnover of their dealership by $97,000, assuming they are even aware of the bottom line loss.

The survey further revealed that most dealers are unaware of the financial impact turnover has within their dealerships and, with a lack of transparency into this impact. The majority (over 80%) of dealerships report that they do not have a dedicated person/team focused on hiring, training or retraining their staff. These responsibilities overwhelmingly are assigned to individual department managers. Not only does the lack of focused attention indicate why dealer executives are unaware of their true turnover rate and the costs associated with it, but it reveals a core issue underlying the problem of staff turnover.

Dealers Are Addressing Turnover, But Is It Working?

Although dealer executives underestimate their turnover rate, they do not ignore the issue of turnover completely. 60% plus executives reported that turnover had a major impact to their operations in all departments except their Internet/BDC department (49%). Dealer executives felt that the sales department was impacted the most by turnover.

64% of dealers report that they have made  some sort of changes to their policies to address the issue of sales turnover. The two most frequent changes to policies were:

1. Changing Commission vs. Base Pay Structure
2. Increasing Entering Compensation.

The majority of dealers focused their Human Resources changes on activities to attract candidates, such as improving income pay structures and increasing employment outreach, instead of making investments in post-hire experience (days worked, vacation policy and career opportunities).

Is This Motivating Employees?

The investments that dealers have made in compensation structure shows that they feel their best tool to attract and retain candidates is through financial incentives. But studies outside of the automotive industry indicate that dollars are not as impactful on retention as other incentives, such as on-the-job career development and flexible schedules. Initial research from DrivingSales indicates that while less than half as many dealerships invested in career development for their employees as those that focused on cash incentives, these alternative incentives are significant (and less costly) retention and recruitment motivators.

In a study, to be fully released in 2017, DrivingSales surveyed more than 1,000 dealer professionals to identify their motivations at work. 47% of sales people surveyed said their top motivator was money, as expected. However, 36% stated that their largest motivations were personal development and career progress.

Although the majority of salespeople are motivated financially, it is important to point out that by not investing in post-hire development many dealers are missing an additional point of motivation. Balancing financial incentives with career development can result in increased retention of their total sales teams.

The results of both this study and the 2016 NADA Workforce Study indicate that turnover is impacting dealer operations -- and the bottom line. Although most dealers are underestimating the impact it is making in their business, they are aware of the issue and are trying to make adjustments to decrease turnover. But are they the right adjustments?