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Title: Non-Financial Incentives vs. Commission for Retail Employees
BACKGROUND Learning Express is a franchised educational toy store. We try to operate the store as a team with each of our employees possessing different skill sets (inventory knowledge, interpersonal skills, tasks). We also prefer that our more experienced staff take care of the checkout procedure. We also offer exceptional and more personalized customer service to encourage them to keep coming back as their toy needs grow and change.
We offer customer special shopping opportunities if they spend a certain amount, sign up for our marketing list or join our Facebook page.
We also offer many free or no cost events for their children such as holiday crafts, singing/ dance classes, and visits from their favorite characters, Elmo and Dora the Explorer. Throughout the year and especially in the slower retail seasons we need to look for ways to motivate our employees. There are two types of incentives, financial and non-financial. Financial incentives can be provided directly or indirectly.
Direct financial incentives come in several forms, such as, higher wages, bonuses, profit sharing, stock options, commission, etc. Indirect financial incentives can include direct phone lines, high quality furniture, subsidized food and more. Non-financial incentives are those that don’t involve money payments. Employees are incented non-financially with perks such as job security, challenging work, recognition, and cross training. No matter what the form, incentives are provided solely to motivate employees.
Due to the nature of the business and reduced cost to Learning Express we would like to offer low or no cost incentives.
For the purposes of this paper, low and no cost incentives will be called non-financial incentives (NFI).
EFFECTS ON EMPLOYEES AND MANAGEMENT NF
Is are used to motivate employees and can allow the employees to continue working as a team since financial incentives can cause isolation. The team approach promotes a high-quality and respectful work environment as employees are given the chance to learn by watching other employees perform.
We would like to stay away from financial incentives, such as commission, that may have the employees competing for commissions and which may draw away from the service to the customer. Also, the price point in the toy store is usually less than $30 which doesn’t allow an employee to make much commission off each item sold without cutting into the profit of the store. Sales people may become more concerned with making a quick sale versus actually learning the needs of the customer. Commission offers the employees a chance to make more money based on performance.
It can also be used to increase sales volumes which would hopefully allow the commission program to pay for itself. Employees that are less focused on sales, such as merchandisers and stockers, may become resentful of the money earned by the more sales focused employees. The group overall may try to focus more on sales leaving other needs unfulfilled. Both NFIs and commission may promote employees to be more “invested” in the success of the store and cause less turn over. Commission can be very difficult for a small business to track and distribute since it is usually long term and considered part of the employees’ pay structure.
Whereas NFIs can be promoted in blocks of time that get the team excited for the duration but allow an end point to make it more manageable to employers. Commission allows pay rates to remain lower but can be a highly variable cost to the employer. It can also be quite variable for the employee which can be uninspiring during slower times of the year. NFI may mean a higher payroll but a less variable cost. NFI can be very small or even non-monetary. Using a commission structure can take away from the neighborhood-toy-store-with-great-service feel to a more corporate initiative.
Employees run the risk of becoming just a number based on their sales and not being appreciated as much for non-sale strengths (merchandising). NFIs would be smaller which would hopefully still motivate the employees to sell but would not be large enough to encourage people from trying to make all the sales by themselves.
RECOMMENDATION
The recommendation is an alternative to a commission structure for retail employees by offering non-commission incentives such as: Low cost incentives Discounts on merchandise- We currently allow employees to take a 25% reduction on any purchases.
We could offer 30% off their next multiple purchase up to a certain amount or 40% off one item. Company parties- This option could take several forms but it would be important to us to keep it low cost. One option may be to close early one night and have a potluck. Or have everyone over for a movie night with popcorn. Tickets/ gift cards- This option has been successful in the past with the employees and seems prudent to continue. We ask the employees from where they would like to receive gift cards. They can be purchased in small increments, which is appealing to us, the store owners.
Employees can work to get more gift cards and save them up for bigger purchases. Some past favorites have been gas, groceries, coffee, and movie gift cards. Non- monetary incentives Wear jeans to work- The employees have “uniforms,” polo shirts with khaki pants. Jeans, for many, are more comfortable and relaxed feeling. We could even post a sign on the door that employees wearing jeans are super stars. Certificates of accomplishment- Everyone likes to be recognized for their hard work. We have team meetings approximately once a quarter.
This would be a good opportunity to give a top performing employee an “atta boy. ” This could also be used for non-sales accomplishments such as training. Parking privileges- Currently employees are required to park well away from the store. Winning a parking privilege would allow the employee to park as close as they want for a day or a week, depending on the program. They can be given a pass that they turn in when they want to use the privilege. This could be especially attractive during the rainy months. ADVANTAGES AND DISADVANTAGES
There are several advantages to implementing a non-financial incentive program in the store. Employees feel appreciated for the hard work. They feel like they are rightly receiving a reward especially if there are employees that are coasting or doing the minimum to keep their jobs. By having a direct effect on the success of the store and their own incentives, they begin to feel a sense of ownership in the store and behave accordingly. The may take more pride in the way the store looks or how they talk about it in public. NCIs have additional intrinsic value over money.
Money is spent and gone and soon forgotten. Small awards have memory value. When something like a certificate or mug is given it can stay in a place where the employee sees it and is constantly reminded of their success. The also receive enjoyment from showing these items to fellow employees, friends and family. NCIs can help the bottom line. The employees are selling more products in order to achieve their incentive goals. And NFIs cost the store little or nothing so overall the store makes more money and the employees feel appreciated.
A NCI program can also help with employee turnover. This can cut down on waste and costs caused by turnover. New employees have to be trained and are usually not selling at the same level and long time employees during this training period. A NCI program can also be used in the recruitment of more qualified staff that would potentially require less training. One disadvantage that may arise is that employees may focus too much on one product and ignoring other products. Each week only one toy will be chosen but this toy is not appropriate for every customer’s need.
Employees may “push” the product to make the sale and achieve the incentive goals but do not satisfy the customer. This will negatively affect the customers’ impression of our customer service and product knowledge.
IMPLEMENTATION
To run a successful incentive program it needs to be clear and measurable. These five steps help to outline the program so that any concerns before implementation can be caught and addressed. It also sets up the framework for successful implementation. Strategic Planning It is important to set a plan for the incentive program.
Programs should “address specific objectives with specific strategies and tactics that generate measurable results. ” (Smith 2007) One idea is to promote a Toy of the Week. We can communicate to employees the highlights of the toy such as age, price and developmental purpose. While this uses incentives to encourage employees to sell it has other purposes, which can prevent the focus on just the incentives. Employees learn more about a toy and can be more informed when selling to a customer. It can also be a good way for us to see if the toy can be successful in our store and determine future buying.
Another advantage of a selling program like this is that it can help identify areas of training if an employee struggles. Understanding the Desires of the Employees While people like to be noticed and thanked for their good work, the way that they like to receive their accolades may vary. As part of the incentive programs we will find out how each employee prefers to be recognized. Would they like a big announcement at a staff meeting or a quiet thanks by the owners? Also the type of incentive may be different among the employees.
Someone may prefer a day to wear jeans. Someone else may prefer the closer parking spot. Each employees should have input into their incentive program otherwise it may be less effective. Fact finding It is important that we try to identify and address and barriers to implementation. Some employees have been with us since the store opened but many have not. We are constantly hiring so there is always a learning curve. Have all the employees been properly trained for effective selling? Are they confident enough in their selling and product knowledge to participate?
As management we are trying to make the store the best it can be so we may be away for training or on buying trips. This scheduling will be important when starting a new incentive program so that it can be overseen for any issues or questions. Once the program has ended, management will need to calculate the data and give out incentives quickly to keep employees interested. If it goes to long between implementation and reward they employees may feel discouraged and be less likely to participate in future programs. Structure The goal will be to sell the most of that toy for the week, Sunday to Saturday.
We have employees that work one a day a week and employees that work full time so it will be important to implement a reward program that is fair to all. We would take the number of toys sold and divide it by the number of hours worked that week. For example, April works one day a week, usually 6 hours. Lynne works fulltime, approximately 35 hours. If April sells 2 toys and Lynn sells 6 then April would actually win the contest. April 2 toys/6 hours= 0. 33 Lynn 6 toys/ 35 hours= 0. 17 Whatever the program it should be transparent to the employees.
They may even appreciate a chart of progress for longer term programs. The will feel that they have more input in the program and the competition can be motivating. Communication We have several ways to communicate with our employees and typically use each of them with new programs to ensure that each employee has received the message. In the stock room we have a central message center where we post employee-centric communications such as schedules. We also have an email list used to communicate with the employees as a group or individually. Many times we request that employees acknowledge receipt of the email.
The most effective communication vehicle we use is our staff meetings. This gives us a chance to ask and answer questions in a group setting. This can be a place to fine tune programs and address any employee concerns. However, these meetings only occur quarterly so this might not be effective if we wanted to implement an incentive program quickly. If we had plenty of lead time for the program this would be effective. MEASURING OUTCOME With any incentive program the outcome with need to be measured. In this program example where the employees would sell a toy of the week measurement should be fairly easy.
We can look at the sales for the toy before the program and afterwards. Was there and uptick in sales? If not, why? It would be important to talk to the employees directly if they sales volume has not increased. Did the sales fail because the toy was unpopular? These answers can help us decide if we should try a new toy for the next program or even bother to reorder the toy.
CONCLUSIONS
Incentives are a great way to motivate employees. However, financial incentives such as commission can have negative, unintended consequences while costing the company money.
NCI cost the company little or nothing while avoiding many of the pitfalls of commission structures. Employees will feel more invested in the job which will increase goodwill while decreasing turnover. Implementation will require the program to be clear and measureable. It will require effective strategic planning, understanding of employee desires, fact finding, clear structure, and effective communication. Overall, NCIs have great potential to motivate employees while increasing the company’s bottom line.
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