The annual grants replace a program of stock options, and there are restrictions. General managers must stay on the job at least four years to keep the stock. And managers who take part in the program no longer receive cash bonuses.
"We think 90 percent of our general managers will take the stock grant," says Lithia CEO Sid DeBoer.
The ownership stakes that private dealerships offer are enticing, DeBoer concedes. But, he says, they have disadvantages as well.
"The only market to sell that minority interest (to) is back to the original owner," DeBoer told Automotive News. "The current market value is determined by negotiations, and it is difficult to figure out what that value is. If you have it appraised, the value of a minority interest is typically discounted 50 percent."
Because Lithia's shares are publicly traded, the market sets the value of its stock, DeBoer says.
Lithia is the second publicly held automotive retailer to develop an incentive program for its general managers to compete with private dealerships and groups. Sonic Automotive Inc. launched a bonus program for general managers last year.
DeBoer says the grants are a better incentive than the stock options they replaced. The grants have value even if the company's stock price levels off or falls, he says.
"Stock grants have more perceived value than stock options," DeBoer says. "A stock option is valuable (only) if the stock goes up a lot. Options also aren't tradable."
Lithia has given its general managers annual performance bonuses. The cash bonuses are tied to such objectives as customer satisfaction scores and sales.
The company assigns each manager a year-end performance rating of A, B, C or D. Those in the D category get no bonus. Those with higher ratings qualify for a cash bonus. Under the new program, general managers can choose a stock grant instead.