Shrinking profit margins as well as the need to attract “risk-averse” young employees are prompting some dealerships to shift — at least in part — away from commission-based compensation for sales staff, industry experts say.
Fleming Ford, head of people and performance at ESiTrends, a Florida consultancy that has worked with the Trillium Automobile Dealers Association (TADA) in Ontario, said the shift to a salary component allows dealerships to compete for talent with other forms of retail.
“People don’t like risk anymore,” Ford said, referring to millennials and their younger cohorts, Generation Z. “When you don’t feel safe, you can be coming across as desperate and not providing that great customer experience dealers are trying to provide.”
Such was the motivation for Sue Gubasta, dealer principal at Mississauga Toyota in the Greater Toronto Area, who about four years ago switched the dealership from straight commissions to a salary-plus-bonus plan. Compensation includes incentives on all aspects of the sales process, from customer satisfaction to referrals on financial products and a percentage of gross on every vehicle sold.
“If you’re worried about the money, you’re not doing the job at hand,” Gubasta said. “The sales staff loved it. It just provides them with stability for the slower times without it being a draw on pay.”
The change has made it easier to recruit staff and dramatically cut turnover, Gubasta said. “It’s much easier to recruit. ... [There’s] peace of mind so they can focus on selling as it is like a safety net,” she said. “Since we moved to their pay plan, 80 per cent of our sales staff has stayed with us.”
That’s much lower than the annualized turnover rate of about 50 per cent among sales staff, cited in a 2018 dealership work force study commissioned by TADA. Still, not all staff made the switch, Gubasta said.
“One of our top advisers, when we asked if she wanted to go to salary plus commission, said, ‘Can I just stay with straight commission?’” she said. “For us, it’s not either-or. We want to give them that flexibility.”
The costs are about the same as those incurred under the previous commission-based model, Gubasta said. “We have to make sure we stay within the pay structure,” she said.
‘REAL MONEY’ IN COMMISSIONS
One dealership group is using a hybrid approach to drive the recruitment of new staff who might be scared off by a commissions-only structure.
Zeyad Rafih, vice-president of Windsor, Ont.-based Rafih Auto Group, switched from a commission structure to salary plus volume in 2014 but has since backtracked. Rafih Auto instead has moved to a system where sales staff are paid salary plus a percentage of their sales to start but transition after six months to straight commission.
“Anybody who’s any good only ever wants to be paid straight commission,” he said. “Commission is where you make the real money.”
Rafih said his top sellers move about 40 to 50 cars a month and annually earn $200,000 to $300,000 in commissions, which are based on a percentage of the dealership’s profit margin on each deal. Rafih Auto Group owns and operates 20 dealerships representing 30 brands in Canada and the United States.
At Winnipeg-based Crown Mazda, General Manager Mark Carver said he pays sales staff a straight commission. It’s the best way to give employees an incentive to prospect for new business, rather than wait for customers to walk in the door or click through on the website, Carver said.
During slow months, the dealership will continue to pay sales staff, but those earnings come out of future commissions, he said.
“If you offer someone X amount a year, I’m not sure what you get out of it,” Carver said. “They see it as a normal job, not as a career.
“Typically, a good salesperson would say, ‘Why would I want to work in that environment?’ ”
While Ford of ESITrends said shrinking margins — on which commissions are based — are a major factor in moving to a salary system, Rafih argued tighter profits make it more important to have sales staff hustling for new and repeat business.
That’s a key reason that Carver’s Crown Mazda pays a flat commission per sale. While hard work earns more sales and more commissions, grinding a higher price out of a customer won’t, he said.
“It makes it more pleasurable for the consumer,” Carver said, because the sales staff can focus on a smooth transaction.
Gubasta said a key benefit of her switch to a salary is less infighting over deals on the sales floor. She doesn’t think it has made any difference in staff commitment to behindthe-scenes tasks that don’t immediately lead to sales.
“Every activity they need to perform is part of the sale,” Gubasta said. “Not my job ... everything is part of the job. Whatever it takes to make sure we take care of the customer.”