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. Very small salary (minimum wage) with
commissions. Commission rate increases
with every 20 cars sold per month.
Finance office Help close the sale; persuade customer to Salary, plus bonus for each $10,000
use company finance plan. financed with the company.
Detailing Inspect cars delivered from factor, clean, Piecework paid on the number of cars
and make minor adjustments. detailed per day.
Mechanics Provide factory warranty service, Small hourly wage, plus bonus based on
maintenance and repair. (1) number of cars completed per day,
and (2) finishing each car faster than the
standard estimated time to repair.
Receptionists/phone Primary liaison between customer and Minimum wage.
service personnel 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. Less-
motivated 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.