SALES STAFF COMPENSATION
We depend on our employees to bring customers back to our store again and again. We encourage them to give customers, and potential customers, the best possible service, courtesy, personal attention, product knowledge and individual recognition. Employee motivation is probably the most important single manageable factor for success and profitability of all the facets of specialty store retailing.
To be effective, employee motivation must be a continual, day to-day tool. One of the best ways to motivate is to consciously try to help bring the very best out of your staff and to do everything in your power to develop leadership, talent and knowledge.
Motivation and teaching are closely related. They should start from day one of employment. Discipline as well as rewards are part of the motivation program. Both should be thoroughly and constantly explained to be effective.
Employees want to feel that they are an important part of the business. Loyalty and pride are instilled in them when their opinions are sought and listened to. They need to know that they will share in the success of the business to the same degree as their productivity and contribution.
To that end, rewards are primarily for total sales volume or volume increases and also for selling older merchandise, building multiple sales, trading up, calling customers, maintaining personal trade files, keeping an eye on shoplifting or internal theft, etc.
While money is generally the greatest motivator, but should be used wisely. More isn't always better and how it is applied is very important. In setting up any monetary reward plan it is necessary to establish criteria that relates to the area of responsibility of the individual. It is a mistake to tie a sales person's incentive compensation to gross margin since sales people do not determine markup or markdowns.
Sales contests are often beneficial and have been used with great success to move particular merchandise (maybe older merchandise) or as a side line of a particular customer promotion. Plus, sales contests just change up the rhythm of the day's or week's business and add a bit of excitement.
Any type of monetary compensation should be based on an area of responsibility in which the employee has the ability to control the elements that determine the amount of his reward. Therefore, a single incentive compensation program would not be applicable to every employee of a specialty store. Methods of salesperson compensation in retail apparel stores can vary all the way from straight salary to straight commission with countless variations in between. It is incumbent upon the retailer to use the method or combination best suited to his particular business. It is evident that straight salary is not stimulating enough for most stores and thus is generally used only in establishments which will not tolerate anything that smacks of pressure or in those which need little or no sales talent.
Many stores use salary plus commission of 1%, 2% or 3%. This is simple to explain, understand and operate. It is not as motivating as draw against a commission or straight commission, but is popular, particularly for part-time or temporary help.
A suggested variation would be to set a quota beyond which the incentive would be greater. Assume you pay a rate of (national minimum wage today is $7.25, let's say this employee earns $9.00) per hour plus 1% of net sales and you are willing to accept 7% as your top selling cost. For a 40-hour week the base rate would be $360. A sales person doing $9,000 volume weekly would earn $360 plus a $90 commission for a total of $450 (a 5% selling cost). In such a case you could set a weekly quota of $5,143 (at 7% equals $360) and pay as much as 4% or 5% for sales over quota. Your cost percent would go down as that person reaches higher volume. The savings would go to offset those who do not make quota and thus cost over 7%. A person selling only $3,000 for a week would earn $360 plus $30 resulting in 13% selling cost. Obviously, poor producers must be weeded out because they are too costly.
Another form of compensation is the draw against commission. A draw against commission arrangement is common. The draw should be sufficient for weekly living costs and can be increased as evidence of greater productivity is shown.
A variation of the draw against commission rate which I endorse is to employ a plateaued commission rate. If an employee is to work 40 hours per week and draw $140 per week (3.50 per hour) their annual sales must equal $100,000 if direct selling costs are to be held to 7%. A plateaued commission rate might call for:
7% commissions for sales up to $125,000
At each plateau the higher rate applies to ALL sales so that when sales reach $150,000 the employee receives a $750 bonus. If the draw is increased the sales plateaus need to move up. This allows for inflation. Minor modification permits this technique to be applied to part-time sales people equally as well.
Where draw against commission is used it is desirable to stretch the settlement period as long as possible so that high and low sales months offset. A monthly settlement can be costly. Quarterly settlements are the most frequent that should be considered. It makes more sense to settle semi-annually or even annually. However, by going too long, the incentive effect may be dulled unless regular evaluation and progress reporting techniques are employed.
Any variation of the above plans make work better for your store. Usually, easier is better. It's quick to explain and understand and calculate. It must at least meet the criteria set by the Federal Fair Labor Standards Act.
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