It is always interesting to see just how creative some dealerships can be when it comes to designing compensation plans for employees in Fixed Operations particularly the Service Advisor position. Just when I think I’ve seen it all, I’m proven wrong. Usually, pay plans are designed with the best of intentions in mind, for both the employee and the company. Unfortunately all to often the pay plans are designed to focus on whatever the current “hot” buttons of the department might be, which means as the “hot” buttons change so must the pay plan. Frequently changing an employee’s method of compensation has to rank right near the top of the “never to do” list. Pay plan changes are always a traumatic experience for the employee and are almost never received as a positive. Some of the “hot” button pay plans are typically built around are:

	Customer Satisfaction Scores
	Labor sales or gross profit
	Parts & labor sales or gross profit
	Customer pay labor sales
	Flat rate hours per customer repair order
	Customer effective labor rate

Many more exist but these particular elements seem to be the most prevalent. With only one exception to the above list, Customer Satisfaction, I discourage using any of these elements as part of a Service Advisor’s compensation. Employees will “work” a pay plan, which is exactly what you want them to do!

Let’s look at each of these elements individually starting with paying on labor sales or labor gross profit. I don’t know of any Service Manager who includes the Service Advisors in setting the pay scale of the technicians. In addition, labor rates charged are determined either by the factory for warranty & new vehicle inspection, the dealer for internal charges and work mix and prevailing market conditions for customer pay charges. Aside from controlling the customer pay work mix the Service Advisor has very little control or influence over these factors, so why pay them on it? What happens if the warranty rate has been overlooked, for a while and now a substantial increase is made to bring it up to the local market rates? Automatic pay raise for the Service Advisors. What happens if the customer effective labor rate makes a substantial jump due to the implementation of variable labor pricing or properly built maintenance menus? Automatic pay raise for the Service Advisors. What happens if a guarantee program for the technicians is implemented or across the board pay rate increases are made to the technicians? Automatic pay decrease. In either case the Service Advisor had little or no control on the outcome. If time on the job or performance justify an increase in income, give it them, but it shouldn’t be an automatic because of factors beyond their control. Remember you want them to work their pay plan. Pay plans should be “tangible” meaning the employee should be able to see it and watch it grow, daily.

Now let’s discuss adding the parts sales element to their pay plan. This element is usually added in a vain attempt to increase parts sales or to help balance the parts to labor ratio on customer repair orders. I say it is a vain attempt because with just a very few exceptions there are not too many parts the Service Advisors can really sell at write up. Parts sold after diagnosis should be credited to the technician not the Service Advisor. All the Service Advisor really did was quote the cost of repairs, to include parts, to the customer not sell an additional service. All too often dealers and managers get a little too concerned with the parts to labor ratio comparing themselves to some national average or 20-group benchmark. Whenever there is a substantial increase in the customer effective labor rate or with the implementation of a retail parts pricing matrix the ratio will be thrown out of balance. Once again the Service Advisor has very little control over the performance of their pay plan.

I visited a couple of dealerships recently that had implemented new Service Advisor pay plans about a year ago both had based the incentive portion of the plan on customer pay labor sales only. The result, within the last year customer pay labor sales actually increased, at least for one Service Advisor in each store while Customer Satisfaction scores fell substantially. The senior Service Advisors found a way to write the customer pay repair orders while the new or rookie Service Advisors were left to handle the warranty repair orders. The lack of focus or indifference to the warranty customer and warranty type work together with Service Advisor inexperience directly contributed to poor customer satisfaction surveys.  

The next two elements are my personal favorites to discuss the pros and more importantly the cons with a Service Manager. They are flat rate hours sold per customer repair order and/or customer effective labor rate. At the risk of being redundant remember, employees will “work” a pay plan. So here we go with an example, a customer comes in only wanting a lube, oil & filter, just how receptive is a Service Advisor paid on hours per repair order and/or effective labor rate going to be in dealing with this customer. A few possibilities exist in this example, either the Service Advisor will:

1. Gleefully write up the LOF not being concerned about the impact to their income, yeah right, or

2. Use the Service Manager’s employee number or another Service Advisor’s, or

3. Go to the rest room or take a break and let the rookie handle that customer

In this example the dealership could actually improve the value per repair order while selling fewer total shop hours overall. In other words the Service Advisor could win while the shop loses. Pay plans should be a “win-win” for both the employee and the company.

So what is left to base a pay plan on? The Service Department is responsible for the most precious inventory in the dealership, time. Every day begins with a full, fresh but very perishable inventory of time. Any time left unsold at the end of the day is lost forever. Why not pay the Service Advisors on time, flat rate time. I suggest this be based on two parts, one portion and probably the largest portion of their income on the flat rate hours they are personally responsible for and second a smaller, but not much smaller portion on the flat rate produced for the entire shop regardless who sold them, except possibly Internal hours produced depending upon how the shop is structured. The reason for the two parts is to reward the performers for a job well done while at the same time not building little empires as would be the case for total individual compensations plans. Another key ingredient that I feel very strongly about is paying the bonus on these hours together with their weekly or bi-weekly salary pay. This allows the dealership to keep the salary portion of the income lower putting more emphasis on the desired results of the incentives. Paying incentives on a monthly basis requires either a draw or a larger salary portion during the month to allow the Service Advisor to live the 4 to 6 weeks it will take to get the remainder of their income. By “cleaning the slate” every pay cycle the focus should remain high on achieving the performance levels expected, the Service Advisor can not afford to “rest” a week or even a day when the benefits are rewarded so quickly.

Let me close this article by leaving you a list of suggestions to keep in mind when developing new compensation plans for your Service Advisors:

	Spend the time it takes to think the new plan through completely
	Do the math
	Do the math again
	Work examples of the best and worst case scenarios
	Forecast how you expect the Service Advisors to “work” the new pay plan
	Is the new pay plan good for both the employee and the company, remember “win-win”
	Is the new pay plan easily measurable by both the employee and company
	Can the company provide pay period to date numbers for each Service Advisor, daily
	Do the math
	Should the employee achieve the high performance level is the income fair to both parties
	Be prepared to explain to the employee the reason for making a pay plan change
	Don’t attempt to save yourself into a profit

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