As the coronavirus crisis intensified in early spring, Asbury Automotive Group Inc. executives made a decision that ended up dinging profit levels in the second quarter — but one they don't regret.
The public dealership group in Duluth, Ga., revamped its pay plans in a way intended to preserve compensation for commission-based employees. Pay guarantees for those employees cost the retailer an additional $8 million during the quarter that otherwise would have fallen to Asbury's bottom line. The company on July 28 reported adjusted second-quarter net income of $48.7 million.
"We obviously did it to take care of our people," Asbury CEO David Hult said. "Our profitability could have looked better than it did."
On April 6, the retailer rolled out pay changes designed to motivate employees during the slowdown. At the time, Asbury cited a "sudden and significant decline" in U.S. vehicle sales and service revenue.
Executive salaries were cut — by 50 percent for Hult and 20 percent for others. Other salaried and hourly employees took a 10 percent cut. Asbury halted overtime pay and contributions to 401(k) plans.
But the retailer took a different approach for commission employees. Sales reps were guaranteed 75 percent of their average compensation in January and February. Sales employees and technicians still had the chance to earn commission. Technician pay was guaranteed at 90 percent.
For much of the quarter, the guarantees meant commission-based employees earned more than they otherwise would have given the business declines.
In May, as sales picked up, commission employees could opt to return to original pay plans. As of July 1, all employees had returned to pre-pandemic plans.
The guarantees were well received, Hult said. Asbury saw a 40 percent gain in productivity per sales adviser in the second quarter and an average of 15 vehicles sold per sales employee.
The guarantee didn't apply to everyone, however. Staff levels were cut by 2,300 in the initial weeks of the outbreak. Asbury rehired half of those employees during the second quarter. The remainder of the cuts are permanent.
Executive compensation was reinstated July 21. The 401(k) match resumed Aug. 1.
"We didn't want to put employees in a dealership where there was fear of catching a virus ... wondering why they are standing there," Hult said. "We thought it was a great way to show our associates that we care about them and that we appreciate them."