Question

Case Study 2: A New Incentive System at Lane Automotive

You've been hired by Lane Automotive, a relatively large local automobile dealer to design a new compensation and incentive system for several positions that make up the bulk of the firm’s workforce. These positions are:

• 15 administrative positions: These positions involve the day-to-day operational facets of running the dealership—answering phones, working at the customer service desk, filing paperwork, pulling records on cars, and so forth. These employees are currently paid on an hourly basis. The turnover rate is about 35% for these positions. There have been several complaints about the courtesy and helpfulness of employees occupying these positions. Currently, these employees receive annual bonuses if the dealership exceeds its goals and merit pay increases once each year.
• 15 sales positions: The employees occupying these positions are primarily focused on selling cars and are paid entirely on commission. The turnover among these employees is high (about 80% leave each year), although a few of the sales staff have been with the dealership for a number of years.
• 17 service positions (mechanics): The mechanics occupying these positions are paid on a standard hour plan (i.e., their pay is based on how much time it should take to perform each repair). These employees regularly repair cars in less time than allowed under the standard hour plan. The turnover among these employees is very low. As in any other dealership, there have been some complaints about the quality of the service the firm’s mechanics have delivered. A number of customers have had to bring their vehicles in several times before their auto problems were properly repaired.

The goals of the dealership are primarily to make money on the sale of new and used cars, but most of the money is made through the service department. There are several challenges you must consider before you make your recommendations:

• The dealership’s profitability is fundamentally influenced by the number of cars service and the quality of that service. In addition, the dealership’s profitability is enhanced by (1) repeat business and (2) the company’s reputation. Historically, repeat customers represent a sizable amount of business; the dealership gets to sell their used cars they traded in and sells them new cars. Moreover, customer loyalty matters a lot because word-of-mouth advertising generates business.
• Service quality in terms of the sales process, as well as the service department (mechanics), is a critical component of customer satisfaction and affects the amount of repeat business.
• The income salespeople earn is directly related to the profitability of each car they sell. The prices on the cars are somewhat negotiable. Under the current system, the sales staff and the dealership split the profits from every transaction 50-50.

Questions

1. What are the major problems that exist in this case?
2. For each problem you have identified, explain how incentive may be a contributing factor to the problem or a solution to the problem.
3. What changes would you make to the incentive system in place for these three groups of employees?

Answer 1

Ans:-

Productivity of seller is subject to number of vehicles sold, cost of vehicles, repreated clients and notoriety.

All the 3 offices have task to carry out in achieveing the productivity.

• Sales work:-

If they sell more vehicles at right value, it will carry gainfulness to vendor. In any case, turnover is 80% and subsequently vendor can't hold his majority sales group. Holding the top entertainers is significant.

Subsequently separated from current income split, vendor should offer huge extra motivator to top performing sales individuals dependent on their yearly execution. This will help hold the top ability.

• Service work:-

Service mechanics are paid dependent on time taken to each fix. This motivation structure drives mechanics to complete the fix in briefest conceivable time. this may prompt mechanics not doing throrough fix so as to finish the errand as quick as could reasonably be expected.

This would cause cacophony in clients as fix quality is the issue. Thus mechanics ought to be paid for each fruitful fix (client not returning with comparative protest around the same time)

• Administration:-

Since this capacity converses with clients, inadequate treatment of clients can prompt negative verbal. Since their remuneration is hourly premise, there is no impetus to be more client focussed. Subsequently motivating force of this capacity ought to likewise be chosen by consumer loyalty score.