Professional Jeweler Archive: Confronting Compensation

September 2000

Managing: People

How to Find and Keep Good People

Part III of this focus on employees outlines various ways to handle compensation

Confronting Compensation

Your goal should be to compensate for individual as well as group performance

‘Compensation is not an expense,” says Kate Peterson, of Performance Concepts, Olympia, WA. “Your payroll is an investment in your business. As such, Peterson suggests following these rules, before you begin to devise specific compensation plans:

1. You Get What You Pay for. Sales associates are like rhinos or cows, says Peterson. Cows stay where they are, while rhinos charge forward and keep going. Peterson says jewelers should consider which they prefer: Challenging their cows to move or harnessing the energy of their rhinos. As a general rule, lower salaries bring cows, who may follow the rules and go through the motions but never charge forward no matter how much you prod. Higher salaries attract rhinos, who bring thoughts and ideas that move a business forward.

2. Pay People for the Job You Expect Them to Do. Compensation should be based on creating results you’ve articulated clearly. Be sure your new employee is able to control the elements on which his or her salary is based. Is it based on sales or gross profit? Unless the associate has the ability to help decide retail prices, basing compensation on the latter is unfair.

3. Employees Should Always Know What to Expect. Once you’ve laid out a compensation program, be consistent. Don’t keep changing the rules. Avoid “surprises.” Even good surprises can be wasted: let people know now you’ll give them a bonus for extra Christmas sales instead of waiting to surprise them later. It will motivate them and be more effective.

4. Keep it Simple, Stupid. Whatever program you choose, practice the KISS method. “New employees shouldn’t have to wear out a calculator battery to figure out how much they’ll make,” says Peterson.

5. Meet Basic Needs. All the compensation in the world won’t buy loyalty if your employees’ basic needs aren’t met, says Peterson. Offer creative benefits that give them choices – and ask what they want. Remember each has his or her own job/home conflicts, time concerns and lifestyle issues that can affect the ability to do a great job. You may be considering opening on a Sunday, for example, but you won’t have much success if your staff universally hates the idea. Such attention to employees’ personal needs demonstrates a respect that’s critical to a successful enterprise. Keep the dialogue going with each employee concerning his or her growth and long-range prospects. Remember growth is a benefit too.

All Salary vs. All Commission

Salaried-only sales associates put less pressure on customers and have fewer conflicts with each other, says Peterson. But paying a guaranteed salary minimizes the incentive to perform.

Commission-only employees understand good performance means better pay – the great motivator. They’re likely to be better at client development and follow-up too. However, it also can work against team effort. “You’re buying only individual performance, not time or effort toward the common good,” says Peterson.

Salary, Commission, Team Rewards

Peterson suggests that instead of all-salary or all-commission, you should consider a combination of salary and commission plus an extra incentive for teamwork. Pay a livable hourly wage for the salesperson’s time and effort. Then create an incentive or commission plan to reward individual productivity. Then add a substantial extra incentive if the team of sales associates achieves its goal.

For individual and team incentives to work, it’s important to post store goals and individual goals. “People have to know what they’re shooting for,” says Peterson. It’s also not fair to change them midstream. Peterson says she’s heard sales associates complain about managers who set a goal then change it once they reach it. She suggests adding more incentive for doing more.

By the way, don’t forget to offer bonuses to office and support staff if sales zoom. These hard workers take on much more responsibility in boom times. Bench jewelers might get bonuses for increased productivity as well.

How a Sliding Incentive Scale Works

Structure store and individual goals for challenge and achievement, says Peterson. The “must” goal is each sales associate’s minimum performance expectation to meet the store’s financial projections. The store’s “reach” goal is a comfortable challenge that exceeds expectations. The store’s “stretch” goal is still achievable but well beyond expectations.

Peterson suggests a typical system might be to offer a base pay plus 4% of gross profits to reward individual sales. The team goal, if reached, would mean an additional 1% of the store’s total gross profits and, if the team reaches the store’s stretch goal, an another 1% of the store’s total gross profits.

Contests and Coaching

Peterson suggests restricting the length of sales contests because most employees lose interest quickly. Focus on an immediate and simple objective such as: each sales associate picks a favorite piece and whoever sells their piece within a week gets an extra commission. Cash is often a good way to pay commissions in these short contests, says Peterson. Employees love it because it’s not part of their pay packet and feels more like “found money.” She warns that jewelers should keep good records because this is still compensation.

If you’ve created true team incentives, your top achievers probably will spend time informally coaching lower producers. Let the team decide how to split commissions if two people are involved in a sale. But regular coaching should be a key job as well for the boss or sales manager.

Compensating Managers

Be sure you also compensate a good sales manager with a combination of base pay, a portion of the store’s sales commissions and perhaps an extra bottom line bonus. Don’t pay him or her individual sales commissions, however. “The sales manager’s job is to motivate the whole team,” says Peterson.

Jewelers looking to keep excellent managers should discuss their long-term interests in the business. Are they looking for shares and ownership possibilities or management of a second store?

Finally, how do you decide what to pay a store manager if you expect him or her to do everything you do? Peterson’s answer is simple and fair: Pay ’em what you pay yourself. “Who would do what you do for less money?”

– by Peggy Jo Donahue

Copyright © 2001 by Bond Communications