Developing A Compensation Plan with An Incentive

After a few years of selling new cars, you managed to get the funding to start your own small new car dealership as a sole proprietorship. Your starting staff of 10 employees will be as follows:

•    You are the owner/manager and will oversee everything. You will also be the sales manager and do some selling.

•    Sales staff. Three salespeople report directly to you.

•    Service and parts manager. You will have one person supervise the mechanics and detailer.

•    Mechanics. Three mechanics will work on the cars.

•    Detailer. One person will clean the cars, help out the mechanics, and work in parts.

•    Office staff. Two people will answer phones, greet customers, make up the bills and collect money from sales and service, and do other paperwork including bookkeeping. They will report to you.

1. Before beginning work on a pay system, some general questions need to be answered. Important starting points include questions ranging from what is a fair wage from the employees’ perspectives to how much can be paid but still retain financial health. This website will provide six steps to creating a compensation plan. Use it as a guide – https://fitsmallbusiness.com/employee-compensation-plan/ (Links to an external site.)Links to an external site. 
2. After some pay questions are answered, a pay philosophy must be developed, based on internal and external factors. Some companies implement a market compensation philosophy, which pays the going market rate for a job. Other companies may decide to utilize a market plus philosophy, which pays higher than the average. A company could decide its pay philosophy is a market minus philosophy, which pays less than the market rate. For example, an organization may decide to pay lower salaries but offer more benefits.
3. Once these tasks are done, the HR manager can then build a pay system that works for the size and industry of the organization.

Develop an incentive system – 

1.   What type of compensation will each classification of employee receive for their work? Will you give them a wage, salary, or incentive pay (commissions, piecework, or standard hour)?

2.   Will you give incentives (recognition and other nonmonetary incentives, merit pay, bonuses, profit sharing, gainsharing, ESOPs, stock option, and/or stock purchase plans)?

3.   As the only executive, what will your compensation package include?

Create a TABLE in Microsoft Word or an Excel spreadsheet with all of the required information.

Be as specific as you can. I have listed some Websites below that will help you determine exactly what you need to include.

Be sure to CITE YOUR SOURCES.

These charts may be helpful to you in planning your compensation package.

Compensation Planning Sheet.PNG

Pay structure example.PNG

Table 6 Types of Pay.docx

You can find sample salaries and suggested salaries here – https://www.onetonline.org/ (Links to an external site.)Links to an external site. and https://www.careeronestop.org/ (Links to an external site.)Links to an external site.

More information –

Developing a Pay Structure

• The final step in attaching dollar values to jobs using the point method is to establish pay grades, or ranges, characterized by a point spread from minimum to maximum for each grade.
• The actual development of a pay structure is a complex process, but there are certain rules of thumb to follow:
• Jobs of the same general value should be clustered into the same pay grade.
• Jobs that clearly differ in value should be in different pay grades.
• There should be a smooth progression of point groupings.
• The new system should fit realistically into the existing allocation of pay within a company.
• The pay grades should conform reasonably well to pay patterns in the relevant labor markets.
• Once such a pay structure is in place, the determination of each individual’s pay (based on experience, seniority, and performance) becomes a more systematic, orderly procedure