Transitioning Employees from Incentive Based Pay Plans to Salary

pay plans

We all know the auto industry is a fast-paced, cutthroat world. From salespeople to service advisors to service technicians, almost everyone in the dealership expects some sort of incentive for good performance. That being said, there may be positions or employees where a salary makes more sense.

While you don’t find many dealerships with salaried salespeople or service technicians, there are still plenty of opportunities where a transition to salary could be very beneficial to the employee as well as the dealership.

Does it Make Sense to Transition to Salary?

Before we examine which salaried positions would work best at your dealership, it is important to explore the psychology between salary and incentive based pay plans. Every employee responds differently to different pay plans. Some employees feel much more secure with a salary, while others prefer the thrill of the chase that comes with commission or incentive based income.

For simplicity, we can categorize every employee one of two ways. 1) The employee who feels that a salary creates stability and allows them to work without becoming paralyzed by fear of not earning; or 2) The employee who quickly gets bored of salaried work, becomes complacent and loses motivation.

Obviously, the personality of most salespeople falls in the second category, whereas your accounting department and many of your fixed ops employees might fall more in the first category. This does not mean that you don’t have type 1’s in the sales department and type 2’s in fixed ops, but it brings up another important thing to consider. Does the position in question lend itself to a salary, or incentive based pay?

It is important to examine the objectives of the positions in question as well as the personality profile of the employees in those positions. Will a transition to salary improve overall performance, or will it hurt performance?

Advantages and Disadvantages of Salary Pay

One advantage for salaried employees is that salaries tend to foster teamwork. When everyone gets paid the same regardless of who wins, there is more opportunity for honest collaboration. Incentive based pay has the potential to discourage team work, as the parties involved are often forced to compete in order to get paid.

Another advantage is that a salary based pay can promote honesty and integrity. When pay is based on incentives, it can create more temptation to cheat or bend the rules to get paid. This is not to say that you cannot be an honest person with an incentivized pay plan, but anecdotal evidence would suggest that (if left unchecked) some employees are more likely to cheat when money is on the line.

With the advantages to salaried pay, however, come some disadvantages. As mentioned above, salaries for the wrong employees can lead to complacency and poor performance. It is completely natural for a driven individual manipulate the balance of minimal effort and maximum reward. With salary this balance becomes very lopsided.

There is no magic formula to predict which positions and/or employees will do better with a salary, but the first vitally important step is to understand the personnel and the positions in your dealership. It is equally important to identify the areas where the most improvement is needed, and then examine the current pay plans to determine if a transition to salary can be part of the solution.