Since the dawn of automotive retail, pay plans have been heavily commissioned to maximize gross and vehicle volume. While this approach may have worked for past generations, it’s unlikely to work for the Millennial generation moving forward. With Baby Boomers expected to retire in droves and Gen Xers settling into mid-to-late career trajectories, Millennials are left to make up the majority of today’s workforce. In fact, they now account for 60 percent of all new dealership hires.
Millennials signify a major change in the automotive industry — specifically, the industry standard for pay. In the past, Millennials have avoided working in dealerships simply because of the lack of a guaranteed base salary. It’s not difficult to see why. Millennials are entering the workforce weighed down by student loan debt, an increasing cost of living and other expenses previous generations never had to think about. When it comes time to find gainful employment, “traditional” commission pay plans offering a $1,500 “base” plus bonuses are no longer compelling — or even practical — to Millennials who are seeking consistent pay.
Evolving Pay Scales to Attract and Retain Millennials
Before incorporating OEM spiffs and bonuses, an average to above-average salesperson can expect to make a little more than $3,000 a month — equating to about $40,000 annually. While you may feel that this is a fair and livable wage, Millennials do not want to earn their living through commission-heavy pay plans, as evidenced by the current whopping 67 percent turnover rate for dealership sales roles. The standard tried-and-true automotive compensation approach for paying employees no longer seems to be working.
To better cater to this growing Millennial workforce, dealers are slowly abandoning the all-or-nothing approach of high-risk/high-reward commission plans. The times are changing, and the rise of cross training and new positions like product specialists is leading to a noticeable shift in pay scales. Dealer principals are rethinking compensation from the rigid commission-based model to a “base-plus-commission” approach that is far more attractive and beneficial to potential Millennial employees.
We recommend implementing a “base-plus-commission” approach, guaranteeing each member of your team a base salary of $28,000 to $36,000, with the opportunity to earn an additional $10,000 to $15,000 for additional units sold. This new compensation model allows you to dictate the minimum number of units you expect your employees to sell because you are now carrying more of the financial burden. Your sales team becomes more accountable for their activities and tasks, leading to increased collaboration and productivity among your entire dealership.
Creating a New Standard for Pay Plans
A permanent change to the “standard” way dealerships pay employees will take some time to catch on, but we are seeing positive strides in that direction. Some dealers are boosting the base pay for entry-level dealership roles while setting unit expectations higher for all employees. Those who have made this change are seeing great success.
Shifting to a more consistent pay program has provided their hires with added financial security and peace of mind. This has also made for a much better customer experience. With a “base-plus” approach, employees can now focus their energy on selling to customers without being overly aggressive. This shift in atmosphere should serve to improve customer interactions and drive significantly more business. Remember, customers seek out and recommend businesses that provide them with a “no pressure” experience and exceptional support.
A New Era for Dealership Employees
This new approach serves to increase your dealership’s bottom line and sets the bar higher for the entire sales team to work more efficiently. As an added bonus, this compensation structure becomes increasingly attractive to non-auto candidates, and payroll expenses are far more controlled. By eliminating or reducing the variable component of the plan, you are able to project monthly costs more effectively.
The dealers who have implemented this plan saw a decrease in compensation as a percent of gross sales due to the break-even being fixed. The key to maximizing this plan is to hold your sales representatives more accountable for their production. Make sure to take the time to work with your employees who are not selling your unit minimums to help them meet your goals. The higher you can push the average units up per person per month, the more money your dealership stands to make.
If your dealership is truly looking to attract and maintain Millennials for the long haul, you will need to rethink your approach to compensation.