Editor’s Note: This is the second in a series of articles based on an over-lunch interview with Case IH’s North America’s Jim Walker, Vice President, and Melinda Griffin, Director, Network Development, at the headquarters offices last fall in Racine, Wis. The first article in the series focused on a new initiative and communication plans rolled out to dealers in early 2017.
You have heard these words before, or something like them, when it comes to incentive plans. “Some dealers would rather learn their spouse was having an affair than to have their compensation plan changed.” This kind of thing can get a comedic reaction at meetings where dealers are gathered, but you see a lot of head-nodding too.
Case IH’s Jim Walker and Melinda Griffin
During a lunch meeting last fall going over several changes that occurred with Case IH initiatives with its dealers in 2017, Jim Walker, Vice President, and Melinda Griffin, Director, Network Development, answered questions on an array of topics, including the changes to the volume bonus program — what can amount to be “lightning rod” topic.
While Farm Equipment and Ag Equipment Intelligence heard that dealers would have just as soon heard Case IH say, “We’re pulling back your bonus because we need to keep those dollars,” Walker and Griffin countered by explaining the logic that went into the changes.
Walker notes that a big problem with the old program was that dealers were relying on volume bonuses as a contribution to their operating profit. That is, it had become an expected part of the revenue structure, not a bonus, per se. Even the professional business consultants who like to take the OEMs to task on their programs say that this a dangerous place to be, as it can motivate the wrong behaviors.
Historically, Case IH’s program paid a volume bonus payment in which half the amount was determined by total Case IH volume, with the other based on cash crop market shares. “The volume portion was paid out at a very low level,” Walker says. “You didn’t need to grow your business much; you just kind of got paid, in all honesty. The share part was a market share that was even below the North America average. So, you were just getting paid to be a dealer, if you will. I’m not saying that’s right or wrong, but it was money that the dealers counted on. You didn’t earn it, you counted on it.”
While the program remained at 50% for volume, Walker says the tiers were raised with the 2017 release of Performance Plus, as the volume bonus is now known among red dealers. “We wanted to drive sustainable growth; not just standing still.”
The second 50% of the new program is now split between the market shares for cash crop and now, livestock. Today, Walker says, “We’re paying for above-average performance.”
"I don’t care what industry you’re in; if you’re looking at volume bonus to survive in running your business, that’s the wrong approach. You wouldn’t count on a year-end bonus to run your family’s finances."
— Jim Walker, Vice President,
Case IH North America
Walker explains that the new arrangement would not hurt a dealer without as much livestock business. “Let’s say the dealership has a $10 million total business so the total volume is still the same. If $9 million of that is cash crop, the cash crop market share additive is on the $9 million dollars. And if it’s only a 10% livestock area or $10 million, the livestock market share is paid on that $1 million. So, it’s fair no matter what your mix is in the marketplace.”
But things do change for dealers in livestock areas whose attention has been consumed by the cash crop customers only. “They have to start paying attention to the livestock business if they want to have that payout,” Walker says. “To get what they’re used to getting, they’ll now need to make sure they are addressing the livestock customer, while also growing their total business.”
The result of these changes, says Walker, is a program that’s now a bonus in the truest sense of the word — a reward for positive performance. “I don’t care what industry you’re in; if you’re looking at volume bonus to survive in running your business, that’s the wrong approach. You wouldn’t count on a year-end your bonus to run your family’s finances,” he adds.
Griffin recalls the dealer meetings when the changes were introduced. “Many said, ‘Well, now, I’ve got to pay attention to the livestock,” she says. “It wasn’t that they didn’t have that opportunity to sell the livestock customer before, it just wasn’t a focus for many dealers. Now it has focus.”
It’s Walker’s and Griffin’s job to make sure they understand the obstacles to a dealer achieving those levels. They say adjustments were made along the way to enhance dealers’ ability to hit the new mark. “But yes, it’s more diversified than it was before, and it’s more difficult to obtain than it was,” Walker says.
He adds, “It doesn’t change the cornerstone of who we are as a brand. We’re a cash crop brand, but we want to sell products to every customer who’s in a dealer’s trade area. We’re not going out and trying to set up dealers in livestock areas. We didn’t change our DNA; we’re just saying that you need to pay attention to every customer in your marketplace.”
And like the new dealer agreement that went into play last year, Walker and Griffin say the dealers knew it was coming (the new Performance Plus program was vetted through the Dealer Advisory Board and various subcommittees in mid-2016), though the same reaction occurred when it took effect, a sensitivity that amplified by market conditions that continued to be soft.
As Walker stated in the first article, the downturn in the cash crop business — where Case IH dealers have historically been weighted very heavily — hit the red network harder than the competition. Walker says he and his team have heard those tensions from their network and working through them.
“Are these the right things to do long term? Absolutely. There isn’t a dealer out there who would say that the plan isn’t sound and solid. What we need to do is make sure we’re providing the tools that will eventually drive a dealer in his revenue base to where he doesn’t need to depend on Performance Plus for his operating profit. That is, it truly becomes a fund that, once earned, can be used for enhanced capitalization, reinvestment back into the business and growth into the business, which is what it’s designed to do.”
Walker hopes that his dealers will see that Performance Plus is that extra incentive that can be used to reinvest in that way. “Build your budget around Performance Plus and order in that way. The fundamentals of our plan is to give dealers a transparency of our production and all you have to do is tell us what you’re going to sell, and then order to it. That will help us immensely in our production scheduling; you’ll be able to slot your production.”
Walker says that the changes, while not always popular at the time, are actually a step to get dealers to be more of a part of the overall Case IH business. “We’d like to have a joint working relationship in driving the business — what we’re driving for, what we’re going to sell and produce.”
Coming Next … Future installments in the series New Communications and Dealer Advisory Board; Clearing the Air on Competing Brands and New Resources in Best Practice Sharing.
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