Employee Contributions and Incentive Pay Options

Introduction

Employee involvement and motivation are among the key factors affecting the company’s performance, profitability, and growth. This is especially prominent in retail business settings, where the employees’ enthusiasm and proactivity largely define the company’s sales results. In order to boost employee performance, companies introduce various benefits schemes. One of the most popular practices for employee benefits in retail is incentive pay, which ties worker’s pay to the volume of sales or company’s profits. This essay aims to explore the incentive pay options and other benefit types that can be used in a retail business, as well as to recommend the specific practices that the given company can use to increase employee retention and improve morale.

Incentive Pay Methods

Two popular methods of incentive pay are commissions and profit sharing plans. Both methods provide financial incentives for improved performance and are considered to be useful in raising employee motivation and productivity. In commission plans, incentives are calculated individually for each sales worker, based on his or her sales in a given period. This scheme takes into account individual performance, whereas group and company performance are not usually considered in the calculation of commissions.

Profit sharing plans, on the other hand, disregard individual performance for group and company performance. In this scheme, the pay of each employee depends on the enterprise’s profitability, and company shares its profit with employees in the form of incentives if certain profit margins are achieved. There are advantages and disadvantages to both methods. For instance, the pay for performance approach, such as commissions, is especially motivating to sales assistants and sales people, and can be used to gain a larger market share by increasing the amount of sales (Zoltners, Sinha, & Lorimer, 2015). However, in some companies, the sales may not be directly tied to profitability (Zoltners et al., 2015).

Employees may try to sell large numbers of low-priced items to gain more commission, and these items do not generate as much profit for the company as more expensive products. Profit sharing plans, on the other hand, ensure that each employee is motivated to contribute to the company’s profitability (Zoltners et al., 2015). The two major drawbacks of this plan include the necessity of sharing profitability information with all employees and the difficulty of determining gross margin at the territory level (Zoltners et al., 2015).

Employee Benefits

Legal Requirements and Considerations

There are five employee benefits that are required by the U.S. law: workers compensation, unemployment insurance, social security taxes, family and medical leave, and COBRA benefits providing insurance coverage to the employees of certain companies. However, in the view of many employees and HR professionals, the provision of these primary benefits is not enough to ensure a stable, motivated workforce, which is why additional benefits may be included to ensure higher employee retention.

Normally, the companies choose to provide benefits such as retirement plans, life insurance, health and dental insurance, and paid leave in their additional benefits schemes to attract employees and raise motivation. However, these benefits are rarely used in retail companies due to the nature of business: most retail businesses have high turnover due to a large share of part-time and temporary workers (Ton, 2012).

In determining the correct benefits plan, the organizations need to consider at least three factors. First, it is crucial to take into account the composition of the workforce. What is the share of part-time workers? Are there a lot of students and recent graduates working in the company? What is the mean age of the workers? Considering workforce specifics can offer new, non-traditional ways to improve employee retention and boost motivation.

Another important factor influencing the choice of benefits is whether or not high turnover is damaging to the company. Induction and training expenses are higher in high-turnover companies; however, retail induction and training can be shorter and thus less expensive than in other types of companies. Therefore, it is important for the company to consider whether the decrease in costs associated with turnover will be sufficient to cover the costs of benefit plans provided.

Finally, many retail companies such as Topshop, Zara, and New Look have moved from monetary and insurance benefit plans to non-traditional benefit schemes, such as offering employee discounts, providing opportunities for transition between stores, and more. For certain categories of workers, such as part-time employees and students, these benefits may be more valuable and attractive than traditional benefit plans.

For companies, on the other hand, providing non-traditional benefit plans may be less expensive and more rewarding. For instance, Topshop employees receive exclusive deals and discounts in stores. By buying clothes and sharing their pleasant work experience with friends and acquaintances, they can act as indirect promoters of the brand, increasing its popularity and attractiveness to the target audience. Thus, the third important concept to consider when designing an effective benefit plan is the opportunity to provide non-traditional benefits and rewards for employees.

Recommendations

There are four key benefits that the given retail company should consider providing to its employees. First, flexible working hours can be offered as part of the benefit plan. In their article on lower-level employee benefits, Harunavamwe and Kanengoni (2013) discuss the findings of the study that aimed to determine lower-level retail employees’ perceptions of the effective benefit plans. They specifically address flexible working schedule in their study; in fact, “Most of the lower level employees indicated flexible working hours as their best reward (40%)” (Harunavamwe & Kanengoni, 2013, p. 3933).

This can be justified by the nature of business and workforce examined: the study focused specifically on lower-level retail employees, which tend to be part-time or student workers. For these employee categories, flexible schedule is important as it provides an opportunity to tailor their schedule in a way that does not affect their college studies or other part-time job commitments. Providing opportunities for flexible scheduling as part of the benefits plan would be an effective and relatively low-cost choice for a retail company. Another benefit that could be included in the employee benefit plan is the employee discount scheme.

This type of reward is offered in many retail companies around the world. Apart from allowing employees to buy the shop’s products at discounted rates, the company can also offer employee-exclusive deals and discounts at partnering stores. I believe that employee discounts would be useful in boosting employee motivation; moreover, they would also increase the workers’ knowledge of the products offered, which will make them more effective in promoting them to customers. For instance, if a customer cannot decide between two similar products, the employee could share his or her experience of using them and provide useful advice.

This will improve the image of the store in the customer’s eyes and increase the customer’s willingness to buy one of the products. In addition, this scheme can also attract valuable new employees into the company, including those who are already familiar with the product range and have the desire to work at this particular company. Workers who are interested in the company are generally more likely to be effective in assisting customers, which may lead to increased sales.

Free training and career advancement opportunities should also be offered as part of the benefits plan. Most lower-level retail workers tend to leave the company when an opportunity for a solid full-time position with better career prospects is available. At the same time, higher-level workers who are familiar with the company and its culture are likely to be more effective in leadership and management positions, which is why offering career growth opportunities would benefit both the company and the workers.

Free training, on the other hand, would be appealing to the employees as it could enhance their CVs and make them more attractive in future job search, while at the same time increasing their effectiveness in the current position. Based on the results of training days or courses, the companies can also choose promising candidates to fill in store manager or team leader positions.

Another important factor that should be considered by the company is offering the same kinds of benefits to full-time and part-time workers. In many retail companies, part-time workers receive few to no benefits that are available to full-time employees: “For example, 23.5 percent of part-time retail workers had supplemental health benefits in 2001, as compared to 64.2 percent of full-time workers” (Carré & Tilly, 2012, p. 7).

Given that many of the employees in retail are part-time, marginalizing them from the available benefit schemes lowers morale and motivation, which can be damaging to the business. Providing benefits to part-time workers, on the other hand, will increase their productivity and the desire to work for the company.

Conclusion: Incentive Pay Ethics

There are two main ethical risks that can arise if the incentive pay represents a large portion of employees’ total compensation. First of all, as Zoltners, Sinha, and Lorimer (2012) argue, incentives may lead to undesired behavior in salespeople. For instance, in some cases, employees can charge customers extra for different services or products in order to gain higher incentives (Zoltners et al., 2012).

In addition, they can focus exclusively on selling tasks while ignoring other duties or try to sell more products or more expensive products without considering the customers’ needs (Zoltners et al., 2012). As a result, the customer satisfaction decreases, as the products do not meet the buyers’ needs (Zoltners et al., 2012). Secondly, a large share of incentive pay may promote unhealthy competition among the employees, which will shift the attention away from providing quality customer service, impair communication, and hurt teamwork effectiveness.

In order to mitigate or reduce these risks, the company should consider offering non-monetary benefits instead of higher incentives. This could help to improve motivation and service, while at the same time reducing company costs. On the other hand, the company could change the method of incentive pay, for instance, by providing incentives for positive customer reviews.

References

Carré, F. J., & Tilly, C. (2012). Work hours in retail: Room for improvement. Upjohn Institute for Employment Research Policy Papers, 2012-012, 1-13.

Harunavamwe, M., & Kanengoni, H. (2013). The impact of monetary and non-monetary rewards on motivation among lower level employees in selected retail shops. African Journal of Business Management, 7(38), 3929-3935.

Ton, Z. (2012). Why “good jobs” are good for retailers. Harvard Business Review, 90(1-2), 124-31.

Zoltners, A. A., Sinha, P., & Lorimer, S. E. (2012). Breaking the sales force incentive addiction: A balanced approach to sales force effectiveness. Journal of Personal Selling & Sales Management, 32(2), 171-186.

Zoltners, A., Sinha, P. K., & Lorimer, S. E. (2015). When sales incentives should be based on profit, not revenue. Harvard Business Review. Web.