Managing in the Pay for Performance Environment
At DMSRetail, the retail success company, we operate within the philosophy of the 6 pillars of retail; one of those pillars being people. The effectiveness of that particular pillar is optimized through the implementation and maintenance of strong, performance oriented compensation plans.
Even without knowing much about performance management or compensation plans, a quick look at the compensation practices of big ticket retailers and others who sell to consumers, such as furniture and large appliance stores, new car dealerships, real estate agencies and home recreational equipment suppliers, would reveal that a solid Pay for Performance Program is in place.
The reason: big money is at stake. A simple hourly wage, salary or team bonus arrangement just won’t cut it when the goal is to get top performance from top performers in big ticket sales.
When you consider the above, why would any retailer settle for a compensation plan that is not designed to maximize the effectiveness of people; inspiring top performers to drive the profitability of the business?
The benefits of a Pay for Performance Program outweigh the myriad concerns often associated with that program, as expressed by some management individuals and, indeed, by some sales associates although for different reasons, by a significant margin.
Implementing a properly constructed, well communicated and well managed Pay for Performance Program is critically important to the success of the retailer so, the prudent course of action is to address concerns and present evidence to those who have doubt that, by adhering to a set of principles and behaviors, and with all other things being equal, success with a Pay for Performance Program is sure to follow.
It must be noted that the majority of retailers who have not had success with a Pay for Performance Program, have failed to a) construct a solid plan b) clearly communicate the plan, goals and objectives during roll-out and continually thereafter and, most alarmingly, c) ensure that their management were capable and empowered to manage within the Pay for Performance Program environment.
Any, or all, of the above three important points of failure are enough to thwart any chance of success with a Pay for Performance Program.
Do not question the wisdom of implementing a Pay for Performance Program but, rather, question the organization’s ability to construct, communicate and manage a Pay for Performance Program.
The retailer who accepts that Pay for Performance is the best and most profitable way to run the business will set about ensuring the organization can handle it and will make the changes required to do so.
The Single Most Important Benefit of a Pay for Performance Program in the Retail Organization:
Maximum Customer Loyalty — Superior service to, and treatment of, the employee serving the customer, including the compensation plan, leads to superior service to the Customer, resulting in increased Customer Loyalty; loyal customers being, overall, the most profitable customers for the organization as found and documented in the published Service-Profit Chain by Harvard Professors in the 1990’s.
The expected and desired outcome of maximizing customer loyalty:
Increased revenues and profits for Stakeholders
Let’s take a closer look at how this single, most important benefit is realized through:
Extraordinary Employee Engagement strongly in support of the on-going efforts to strengthen the loyal customer base
Optimum Retention Rate of Top Performers
Significant improvement in all Key Performance Indicators; very notably Wage Cost
Extraordinary Employee Engagement through Alignment with Company Objectives:
A Pay for Performance Program provides the mechanism to link, or align, company objectives with specific targets set for individual employees.
To enjoy extraordinary employee engagement, it is imperative that the company cascade and communicate clear business objectives throughout the organization. This becomes the framework in which to set targets and goals for the individual employee; clearly pointing out the individual contribution expected and required.
Provided the initial roll out with detailed and extensive communication designed to invite all employees to embrace objectives, combined with on-going dialogue backing up those company objectives, is clear and concise, employees will necessarily find that they are aligned with the objectives.
Through various means, the most important being honest, open and on-going face to face communication between superiors and subordinates, regarding financial and general profitability objectives, the alignment will take place naturally and will be reinforced structurally to allow other company goals and objectives to be layered on as required.
Employees who share in company goals and objectives, by having ownership of their piece of it as it has been clearly communicated and assigned specifically to them — a piece that is uniquely their own to be measured against and held accountable for — will, quite naturally, be more engaged.
Optimum Talent Retention:
Super Performers expect to be rewarded accordingly. In any environment, if a Super Performer is treated the same as a non-performer, there would be no incentive for that Super Performer to:
a) Continue to perform at a higher level and
b) Remain in that environment when there are so many other opportunities available
The result, for the company, would be undesirable in either case. If the Super Performer drops to the level of the non- performer, the company loses. If the Super Performer leaves for the competition, the company loses.
With a Pay for Performance Program in place, the Super Performer will be taken care of naturally. S/he will take responsibility for his/her targets and be accountable for personal results compared against those targets. S/he wins both monetarily and non-monetarily, with prestige, recognition, team acceptance and camaraderie being the most important of the non-monetary rewards.
It is the responsibility of management personnel to ensure that the true Super Performer (who is naturally so inclined anyway) behaves according to the company standards, at minimum, and preferably better.
Performance Management:
A Pay for Performance Program allows management to pull all working parts together to develop an unbiased, totally objective, employee evaluation Program to be used frequently, if not necessarily always officially, at various times throughout the fiscal period.
It is well known, among retail executive and retail consultants, that the primary reason for push back against, and general apprehension about, any sort of individual Pay for Performance Program is erroneous predicted outcomes that may, in fact, have been evident during prior experiences with such programs. One of those most dreaded and most often commented on such outcomes being unusually aggressive employee behavior, on the sales floor, leading to customer dissatisfaction and an erosion of the team concept.
This, however, is a misconception and will not come to fruition when the Program is properly managed by competent, well
informed management personnel who fully understand the Program and who, when witnessing negative behavior of any description, are both empowered and capable of taking appropriate action to manage it within the framework of the Performance Culture established.
To be sure, poor behavior is not the result of a Pay for Performance Program. Rather, it is the result of management actions, or lack thereof, when faced with an inappropriate hire, possibly one with a poor attitude, without respect for the customer, company or fellow employees; even an associate who is pessimistic or possibly lacking the required level of intelligence to handle the job. The list of possible deficiencies is endless but none of them can be left ‘untreated’ by management. Deficiencies causing behavioral issues must be addressed swiftly and in an unambiguous manner.
Done properly, within the framework, the expectation of unusually aggressive or otherwise poor behavior can be completely eliminated.
It is, however, important to understand that an appropriate level of aggressiveness is normal and, indeed desirable within the established Performance Culture.
Without a doubt, a Pay for Performance Program which is properly constructed, rolled out and managed, will enhance the Customer experience in store and will have the added benefit of creating a rock solid team environment; one in which any results or performance oriented individual will thrive.
Reduced Wage Cost:
As one of the highest in store controllable expenses, Wage Cost, or Payroll deserves and receives a lot of attention throughout the retail organization.
Without reducing the size of the workforce and without reducing the number of employees available, at any given time, to respond to the customers in store, retail organizations must, nevertheless, keep very tight control of this high expense category.
This is one of the very best, but often misunderstood, reasons for the implementation of a Pay for Performance Program because it provides insurance against non-performing employees and their burden on payroll. See the example of a simple Pay for Performance Program below.
With a properly constructed, properly managed Pay for Performance Program Wage Cost will be optimized. The benefits accrue from two sides:
1) Revenues will go up and those employees responsible for the increases will receive appropriate rewards for their performance. As the Pay for Performance Program has been constructed with various performance levels in mind, the amount paid out will be in line with the wage cost budget that was determined at the outset.
2) For those employees who are not performing at the desired or targeted levels, the money they would receive beyond their normal hourly rate or salary which, in a properly constructed Pay for Performance Program would be at minimum levels leaving the opportunity open for them to create more income for themselves, through their own abilities and level of performance would be minimal.
Keep in mind, the employees, in the underperforming category, would be managed very closely to ensure they quickly move into the higher performing category to enable a comparative reduction in their personal wage cost. But, in the meantime, they are not a burden on the extra payroll dollars designated for high performance rewards. You can read more at http://www.dmsretail.com
the extent that they are in a position to have that impact.