Architecting Motiving Pay Plans

In the Financial Services office, compensation structures, pay plans, matter. The prosperity and success of any finance and insurance department invariably hinges on five key factors:

1. Unwavering Dealer Support
2. Qualified Personnel
3. Motivating Pay Plan
4. Appropriate Training
5. Efficient Systems and Controls

All these elements bear their own importance, but the architecture of a stimulating pay plan serves as the lynchpin of overall departmental success. As a former F&I Manager/Director turned Agent, I can attest that an ineffective pay plan can detrimentally impact an F&I Manager's morale and send productivity spiraling downwards. Conversely, a well-devised pay plan can drive the department's figures and penetration levels to unprecedented heights.

The Power of Compensation

Let's explore the four distinct types of F&I pay plans:

1. Salary-Based: Enough said here. As straightforward as it sounds. A steady paycheck without the possibility of earning additional bonuses may not suffice in propelling your department to its desired level of performance. An individual who prefers such a pay structure may not be the ideal fit for the role.
   
   
2. Straight Percentage Commission Plan: Paying someone a straight percentage of department gross or net creates the “rate” salesperson, since rate is by far the easier gross to hold on a deal, but difficult to hold onto, as we become the victims of excessive chargebacks. The control of the rate generally lies with Sales Managers, so product sales suffer along with our clients, as they are not afforded the opportunity to purchase products to enhance their ownership experience. After all, what does rate really do other than moving a consumer’s payments up or down a little.
   
   
3. Percentage Penetration Based Plan: Although slightly more motivating, this plan can often be complex and challenging to track on a daily basis. It may breed a morale issue, especially when an F&I manager, who has been performing well throughout the month, experiences a few last-minute cash deals that push their product penetrations below a certain threshold, potentially causing a significant dip in their bonus. Keeping our F&I Professionals motivated and producing all month long is critical. If an F&I Manager can’t look at their production logs after every deal and know what they are getting paid, we may not have the right pay plan.
   
   
4. Production Based Pay Plan: This is the optimal plan, definitely the winner! An F&I department's revenue is sourced from two avenues: reserve income and product income. Allocating a smaller percentage bonus for reserve income and a higher bonus for product reserve communicates the dealership's preferences to the F&I Manager. For instance, a 10% commission on finance reserve net coupled with a 25% commission on net product reserve clearly indicates that we value the presentation and sale of products to our customers. We want products offered and sold to our customers. It doesn’t take an aggressive F&I Professional long to weigh the pay plan options and decide on product sales with this type of plan. Since every deal is now an opportunity for profit the F&I Managers don’t feel burdened by a cash transaction anymore. Depending on the volume in your dealership, owners can decide on the best % of overall payouts that is right for them. A smaller salary might be in order if sales volume is lower in your store. We can also now utilize % penetration levels as additional bonuses to drive certain product sales for the month. Either way our department, manager and ultimately our customers, win!

The Impact of Compensation Structures

It's clear that by implementing the right pay plan a dealer can create a more motivated and productive work environment, ultimately leading to a more profitable and successful F&I department. Consequently, customers also benefit as they receive valuable products that enhance their overall ownership experience. Remember, a pay plan isn't just about compensating your employees; it's a strategic tool that can propel your F&I department and dealership towards its desired financial goals. By thoughtfully considering each type of plan and tailoring one to fit your dealership's specific needs and objectives, you'll not only boost performance but also contribute to a more positive, productive, and engaged workforce. Ultimately, a well-structured pay plan is an investment in your people, your customers, and your dealership's future.

Have more questions about compensation structures at your dealership? Contact Rob Miller today at rmiller@sautomotive.com or on LinkedIn to learn more.