20 SEP-OCT 10
Nearly every retailer that I have worked with has asked me at some point if I can help them develop an effective incentive structure that is also simple to manage. The answer is yes but there are some basic rules that must be followed for a bonus plan to work.
Define Your Goals
Begin by deciding what you are trying to accomplish. Are you creating a program for the sales staff the buying department or the management personnel? A one-size-fits-all approach may not work for all three. In some stores these positions may even be combined. For the purpose of this discussion let’s focus on a buyer/manager scenario. We will assume that the buyer in this case is responsible for the department’s sales assortment and quantity of products being offered maintained margin and shrinkage.
Be Clear and Realistic
When introducing any incentive plan it is important to make certain that the rules are attainable measurable and simple to understand. A plan that is too complex or loaded with caveats and disclaimers soon takes on an almost “gotcha” like feeling. Keep it simple and straightforward. Remember the goal is to reward an employee who has achieved his or her corporate goals. Programs laden with loopholes or “outs” for the employer only serve to reduce morale and are therefore counterproductive. Make sure the goals set are realistic. Sure you want to challenge employees and help them grow business but creating an unattainable target may in fact cause the employee to dismiss the plan altogether. Benchmark numbers must be objective not subjective; they must also be measurable. A point of sale system or merchandise planning program that captures this data may be credible sources from which to derive needed data.
I once developed a program for a store that had a rather significant payout if everyone achieved their preset goals. When the program was first proposed however the owner explained that there was no way such a rich payout would ever get his support. “We’ve never done anything like this before” he said. “What if we can’t pay the bonuses?”
Built-in Safeguards
What finally won his approval was the
Fact that the program had built-in safe-guards. If objectives were not attained bonuses would not be paid. If on the other hand all initiatives were met the increase in sales and profitability would offset the generous payouts several times over. He soon discovered that his employees became more motivated and more enthusiastic about their jobs. They actually became engaged in the process which was the ultimate reward. They seemed to embrace the structure the plan provided as well as the potential of monetary gain.
I prefer a four-part program because it satisfies all required objectives and is a win-win situation for the store and the employee.
The four parts of the program are as follows:
1. Sales
2. Maintained Markup
3. Turnover
4. Shrinkage
Each component is worth a certain dollar value. The dollar amount is arbitrary but needs to be something substantial. I will use the figure of my keyword000 to illustrate how this works. The owner and the employee arrive at a sales goal for the upcoming year that fits into the company’s overall growth plans. Previous sales history will be helpful in establishing these goals. A maintained markup goal is then agreed upon followed by a turnover objective for the classification department or store. A shrinkage percentage is the final piece of the puzzle. At the end of the year bonus money is awarded for all met objectives. If an employee achieves all four objectives he/she would then receive $4000. If only two objectives are attained then only $2000 will be paid out.
Variations
I have experimented with variations of this premise that work well. One idea is to use GMROI as a substitute for either the turn or margin objectives if it works in the employee’s favor. This gives the plan added flexibility as the employee can substitute the achieved GMROI goal.
Bonus Structure
If either the turnover or margin goals have been missed another option is an additional bonus which I refer to as a “kicker.” If all four objectives are met an additional my keyword000 “kicker” is paid bringing the total bonus payout to $5000. If three out of the four points are met the “kicker” is $500. If fewer than three goals are met there is no additional bonus money available. The “kicker” encourages focus on all facets of the plan.
Checks and Balances
A common mistake in incentive plans is to pay on sales only. This can be disastrous if the sales are generated through markdowns or aggressive discounting. If the store pays on gross margin or maintained markup only there is no incentive to improve turnover and therefore cash flow. If turnover is the only consideration the objective might be reached at the expense of margin. A combination of sales volume margin improvement and turnover protects the store thus ensuring profitability while providing incentive to the employee.
Review in Private Pay in Public
Always conduct the review when you say that you will. Employees expect this and count on it. Review should be conducted privately and should not be put off. Areas in need of improvement should be addressed at this time. For future reference it is a good business practice to keep signed and dated copies of each review within an employee’s personnel file.
Remember the saying your mother taught you about it being better to give than to receive? You now get the best of both worlds. The fact that you are paying bonuses at all indicates some level of success. Too many stores miss the opportunity to celebrate employee achievements. Make the payout a celebration. What better way to instill morale than to recognize an employee in front of his or her peers for a job well done? Perhaps a staff meeting or even a rewards dinner including significant others might be in order. The ultimate goal should be to pay out maximum bonuses to all eligible parties. If you are able to do this you will not only be rewarding the employees that helped you achieve the corporate goals you will be setting the stage for even greater results in the future through the motivation recognition and job enrichment that a well-managed incentive program offers.
Ritchie Sayner
Vice president of business development at RMSA Retail Solutions which works with retailers to improve performance. Contact him at rsayner@rmsa.com.
How to Build a Frontline That Boosts Your Bottom Line
First impressions are lasting. Frontline hourly employees are not.
Before they’ve been on the job just six months over 50% are gone says HR expert Mel Kleiman—and many are gone before the end of the first day week or month. Some were probably not a good fit for the job in the first place but sometimes very productive dependable hard-to-replace employees bolt too.
Kleiman a popular NSRA conference speaker says the problem of short-term tenure—aka turnover—can be remedied with a simple system that leverages the power of first impressions to on-board engage develop and retain great employees. The system requires just five simple interactions with each new hire at specific critical junctures and is detailed in Kleiman’s latest book The 5 Firsts: A Simple System on On-board Engage and Retain Top Talent. The speaker/author also believes that the small investment of time required to read the book will reap long-term rewards in terms of reducing costly employee turnover and helping you build the kind of frontline that will help you boost your bottom line.
Praise for The 5 Firsts
“Mel Kleiman’s new book The 5 Firsts is a MUST READ for every small business owner and hiring manager. So many books are focused on theory but short on practical steps that can be implemented immediately and with little or no cost. Once again Mel has hit the mark providing an easy five-step recipe to help new employees feel respected and valued from the moment they walk in the door.” —Monique Kahkonen Director Human Resources Comfort Keepers
“The 5 Firsts” is an easy-to-understand blueprint for reducing turnover and creating a productive team. It is loaded with tools tips and techniques that will allow every manager the opportunity to make an
Immediate and meaningful impact on their operation build better relationships with their new employees and reduce short-term turnover.
—Chet Enten Vice President of Operations Training Buffets Inc.
To read an excerpt and/or order a copy visit www.the5firsts.com.
I
Mel Kleiman Book World
continued from page 20
Article Summary
The article discusses the creation of effective incentive structures for retailers emphasizing the importance of clear realistic and measurable goals to motivate employees and enhance performance. It outlines a four-part bonus program focusing on sales maintained markup turnover and shrinkage ensuring that incentives align with company objectives and employee engagement. Additionally the article highlights Mel Kleiman’s book “The 5 Firsts” which offers a system to improve employee retention through strategic onboarding and engagement practices.
“Remember the goal is to reward an employee who has achieved his or her corporate goals.”
Real-World Examples of Effective Incentive Structures
Here are some examples of how businesses have successfully implemented incentive structures to boost employee performance and engagement:
- A retail chain implemented a four-part incentive program focusing on sales maintained markup turnover and shrinkage. By setting measurable and attainable goals the program motivated employees to achieve targets resulting in increased sales and profitability that justified the bonus payouts.
- A tech company designed a bonus plan with clear objectives for their software development team. By setting benchmarks for project completion times code quality and customer satisfaction they ensured that employees were aligned with the company’s growth goals while fostering a sense of accomplishment and reward.
- A hospitality business used a variation of the incentive structure by incorporating a “kicker” bonus for their staff. If employees met all service quality and guest satisfaction targets they received an additional bonus which encouraged a holistic focus on all aspects of their roles.
