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Jared Hamilton
From: Jared Hamilton
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Rafi Hamid AutoExecutive

Rafi Hamid AutoExecutive President-CEO

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Why is the car business so prone to this?

I was talking to my friend at a dealership in the south and she recently left the store. I asked her why, after all it made no sense to me. She is smart, knows her stuff, very successful, the dealership values her and she makes a great living. Why would she leave?

You guessed it, the GM cut her pay because she was making too much. Can you believe that? Unfortunately I can, I’ve seen it so many times. The dealership decides that someone is doing so well, and making more than they should, so they cut the pay back to what they believe is realistic. One of two things usually happens: the person quits (as in this case) or their performance drops. Rarely does the performance increase. So if probability says you will fail with this approach, why do we do it?

I believe we do it for two main reasons; (a) The pay plan was wrong to begin with or (b) We are simply not thinking straight as a manager. Let me explain.

Fixed pay plans represent the most upfront risk to a dealership. If an employee has a 5k salary, and brings in 10k of gross, they effectively are taking home 50% of Gross. Its easy to see it would be tough for the dealer to be happy about that situation. But what’s wrong with the situation its not necessarily the pay plan, it's the employee performance. After all if the employee was on a 5k salary but brought in 100k of gross any dealer would be happy.

At the end of the day fixed pay plans like that where there is a large base to cover are the most risky, but offer the most potential reward for a dealer (from an expense structure.) A variable pay plan, is the hallmark of the auto industry; it represents little risk to the dealer and the employee is rewarded for growth. Meaning, for example, 25% of gross is just that... the dealer only pays out if he receives and he only pays out the 25% weather its a lot or a little.

A dealer should never cut anyone’s pay, on a commission only plan, just because they are making too much money. There are plenty of other reasons, legitimately unless the dealer offered an inappropriate and balance pay keeping the market in mind.

Now like the title says, “Loser pay plans”. A dealership is loosing money and they advertise for a manager. Now their pay plan is geared towards a loosing department & loser manager. They are willing to offer unreasonably high % of commission based on their previous performance in the department. Now a smart manager takes up the challenge knowing the potential and rewards and takes the department to the next level. Now the pay becomes a problem for the dealership and they can’t imagine paying this losers pay plan to a winner. Now they cut this manager’s pay to make sure winner is not on a loser pay plan he will make too much money.

I see this way too many times, dealer principles and General Managers need to drill down and have a balance pay plan that is not a loser pay plan. Is this really that big of a deal. Do you really like to start with new manager every quarter? I would love to hear what you guys think of winner on a loser pay plan?

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