Exercise - Developing Incentive Plans - Frank Xia [PDF]

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Names: Frank Xia Exercise: Developing an incentive plan Purpose: The purpose of this exercise is to give you practice developing an integrative and aligned incentive plan. Background Information: Express Automotive, an automobile mega-dealership with over 600 employees that represents 22 brands, has just received a very discouraging set of survey results. It seems customer satisfaction scores have fallen for the ninth straight quarter. Customer complaints include:  It was hard to get prompt feedback from mechanics by phone.  Sales people often did not return phone calls.  The finance people seemed “pushy”.  New cars were often not properly cleaned or had minor items that needed immediate repair or adjustment.  Cars often had to be returned to have repair work redone. The following table describes Express Automotive’s current compensation system. Team



Responsibility



Current Compensation Method



Sales force



Persuade buyer to purchase a car.



Finance office



Help close the sale; persuade customer to use company finance plan. Inspect cars delivered from factor, clean, and make minor adjustments. Provide factory warranty service, maintenance and repair.



Very small salary (minimum wage) with commissions. Commission rate increases with every 20 cars sold per month. Salary, plus bonus for each $10,000 financed with the company. Piecework paid on the number of cars detailed per day. Small hourly wage, plus bonus based on (1) number of cars completed per day, and (2) finishing each car faster than the standard estimated time to repair. Minimum wage.



Detailing Mechanics



Receptionists/phone service personnel



Primary liaison between customer and sales force, finance, and mechanics.



Instructions/Task: Your task is to analyze the compensation package for each team at Express Automotive by identifying the ways in which the current compensation plan (1) helps company performance and/or (2) impedes company performance. Specific questions: (1) In what ways might the current compensation plan contribute to the customer service problems (address each plan individually)? Sales force - Current compensation method is based on very small salary (minimum wage) with commissions. Commission rate increases with every 20 cars sold per month. This compensation plan will not motivate the sales force since every 20 cars is a big gap. If one sale saw there is no hope to reach the 20 targets, they will just think they can not make it and refuse to answer any customer phone calls and unwilling to find more customers and serves the current customers.



Finance office ： Current compensation method is based salary plus bonus for each $10,000 financed with the company. Since the job of employee in finance is to help to close the sale and persuade customer to use company finance plan, they will push people to get more finance help from the loans from the company. However, this is not help since there are so many options from customers. Finance people should focus on helping customer make a decision, serves as a resource, rather than to push customer to make a quick decision. Detailing：Current compensation method is based on the number of cars detailed per day. This will promote them to do as many cars as possible in order to make more money However, they may ignore the quality of the work that they have done. Therefore, the company got complains on not properly cleaned or minor items. Mechanics: Current compensation method is based on small hourly wage, plus bonus based on number of cars completed per day and finishing each car faster than the standard estimated time to repair. Again, the compensation plan will encourage employees working quicker to get more cars done instead of focusing on the quality of the work that they have done. No wonder so many cars are returned to have more repair work redone. Receptionists/phone service personnel: current compensation method is based minimum wage. Receptionists/phone service personnel primary job is the liaison between customer and sales force, finance, and mechanics. If they were paid only with the minimum wage, there is no incentive for them to be nicer and be more responsible with their jobs. If phone service personnel are not happy, there is no way the customers will be happy.



(2) Would you recommend a team incentive plan based on the overall customer service of Express Automotive (provide a rationale)? If so, how would you structure and align the two different incentive plans? Yes, I would recommend a team incentive plan based on the overall customer service quality and group goals. The primary advantage of team incentives is to emphasize the attainment of group goals rather than the attainment of individual goals. And in so doing, they should encourage everyone on a team to become united by a common purpose. Everyone should be invested in working on a project or goal, because everyone shares equally in the team's accomplishment or victory. Some personalities may not be well-suited for a team incentive plan. Silent and petulant types may dig in and undermine the plan, and verbal types may openly sabotage the plan. Lessmotivated employees or those who prefer working independently - may unwittingly force others to carry a heavier work load. But if you're still open to the idea and willing to serve the customers better, company should consider additional incentive pay advantages.



I recommend Express Automotive have team incentive plan aligned with individual incentive plan to increase their performance metrics. For example, a 50% team incentive based on customer satisfaction plus a 50% individual incentive based on the number of customers they serviced. Express Automotive offers incentives must be able to measure employee performance to determine who is deserving of an individual incentive. Express Automotive must also be able to assess whether the incentives are having the desired effect on corporate performance. If the incentives are not working, there is no point in continuing them. For example, sales should have an incentive increase on every car they sell rather than every 20 cars sold per month Put another way, Express Automotive may be working with the assumption that if it puts more widgets on the market, it will make more money, so it might provide an incentive to employees to produce more widgets. . (3) What recommendations would you make to improve the compensation system in a way that would likely improve customer satisfaction? Many companies today emphasize total customer satisfaction over short-range profits because excellent customer service leads to good will, repeat business, and referrals. External customers are paying customers including clients, guests, and patients. All workers in contact with customers are required to have customer satisfaction skills. Despite all the talk and writing about customer service in recent years, poor customer service particularly at the retail level remains a major problem. Many customers purchase over the internet to avoid dealing with rudeness and indifference they sometimes receive from store associates It will benefit a company's sales organization and its bottom line to start thinking more about how to influence and increase customer satisfaction. Many compensation plans drive representatives simply to "hit their number." While this is undeniably important, it might make sense to complement the plan with a metric that assesses a customer's satisfaction with the sales experience and ultimate purchase decision. This can help prevent buyer's remorse, improve product retention and generate a more positive customer experience, all of which can help bolster sales. For example, Express Automotive’s current compensation plan for sales force is smal base salary (minimum wage) plus commission rate increases with every 20 cars sold per month. Express Automotive should ask customer to give feedbacks on the sale serves they received and put the customer feedbacks into the into the incentive plan as well. Express Automotive may also ask customer to provide feed backs on the receptionists for how well they are being treated. For the finance team, there is an opportunity to improve the language art of the finance team’s job description to act as more of a resource rather than persuading them to buy a car. For detailing and mechanics, their incentive plan should add the quality of each job and how well the job being done. For receptionists and phone service personnel. their incentive plan should be more



likely to promptly redirect calls to the appropriate team based on current feedback, the minimum compensation is not motivating these employees to perform their jobs at an acceptable level.