The Cost of Commission Overpayments

The Cost of Commission Overpayments

There have always been debates about which form of incentives are truly best for a company’s employees, but the general consensus is usually that incentives make employees want to work harder and do a better job. Therefore, it makes sense that many managers and business leaders put effort into incentivizing their employees to keep their business competitive and successful in their respective markets. This is no different in the world of car sales, as many car salespeople are eager to received bonuses and commission payments.

Calculating the Cost

However, a huge problem arises when commissions and bonuses are overpaid. In fact, a Gartner study approximated that overpayments account for between 3% and 8% of total compensation spending annually. Crunching these numbers, based on statistics derived from the Bureau of Labor, overpayments account for between $1.92 and $5.11 billion of all commissions per year.

Not only can this do damage to your car dealership’s ROI, but it also creates more work for you since you have to take steps backward to locate errors and try to remedy them for the next pay period. Depending on your incentive program’s structure, it may also cause employees to miss out on other bonus opportunities you might be able to provide. Of course, it is illegal for an employer to ask for money back from employees in most circumstances and many employees would not admit they were overpaid, so overpaying commissions and bonuses will most likely always come at a loss to the dealership.

Despite these possible pitfalls, you want your employees to be happy and motivated to sell as many cars as possible, so you can’t completely forget about incentivizing them. Instead, there are some steps you can take to ensure you are more careful when paying out bonuses and commission payments. 

Errors in Excel

If your dealership has the funds, it might be very beneficial to get a system that automates incentive compensation. HSF Research reported that “as high as 87% of businesses still use spreadsheets or homegrown systems to calculate incentives.” This astronomical number is staggering because, as a Forbes article reported, almost 90% of spreadsheets have errors in them and this leads to unnecessary losses.

Automate the Compensation Calculations

Nimble Compensation negates the need for you to handle spreadsheets and calculate things yourself; instead, it does the calculations for you. These also reduce the time you have to spend on calculating each employee’s incentives and bonuses individually and improve the accuracy of commissions.

Overall, auto salespeople rely on incentive compensation to supplement their salaries and sometimes even make life decisions based on how much they have brought in through incentives (e.g. choosing to go on a family vacation or buy a new car if they make X amount of money in commission and/or bonuses). Dealerships shouldn’t shy away from incentivizing their employees, as it heightens motivation and keeps them happy; however, taking steps to ensure proper payments are given can be a driving factor in the longevity of any dealership.

Nimble Compensation is a cloud-based software solution designed specifically for car dealerships to make compensation calculations the easiest part of payroll.