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Paying Employees, Commission?


#1

What do you think is the best way to pay those talented people who
are in retail jewelry sales.

For the past couple of years we have been paying our employees who
are in jewelry sales a combination of salary with a 1% to 3%
commission. The results have been mixed. While the employees seem
more eager to wait on customers, the teamwork has been reduced.
Additionally, if the staff doesn’t believe a customer has any
"potential," they may ignore that person completely.

Sales have increased in those two years, but I am convinced that is
the result of reason unrelated to commission.

What do you think about commission incentives and what types of pay
have worked for you?

Thanks for the advice!
John Woodside


#2

Hi John,

Many years ago when we were redesigning our compensation program, we
put all of our ideas together, and then we brought in a high-priced
compensation consultant to “critique” our plan. She stared at our
plan for about 10 minutes (felt like 30), and then she looked up and
said,

“You’re a team-based company, right?”
“Right!” we answered enthusiastically, relieved that she was hooking
into something that was really important to us.
“Then why did you design a compensation program that rewards the
individual at the expense of the team?” she asked.

It was one of the most expensive questions I’ve ever paid for, and
probably the best money we ever spent. Ultimately, the plan we
ended up with (the one we still use) rewarded teams first, and
individuals second. But it’s pretty counter cultural in a society
that focuses intensively on competition at the expense of
collaboration.

At The Bell Group we give 30% of our pre-tax profits back to the
employees of the company – divided across all employees, whether
they have a professional role or are a high school student working
their first job in the warehouse. We spend a tremendous amount of
energy (time, training, communication) helping all our associates
stay focused on the fact that if the company does better, we all do
better. Speaking with a community such as Orchid, where nearly
everybody understands both the benefits and the enormous burden of
owning your own business, it’s probably hard to imagine that some
folks don’t appreciate that focusing on the bottom line is the road
to financial stability. Believe it or not, it takes a lot of
training.

We have both salary and commission-based pay throughout the
organization. Both salary increases and commission percentages go
to teams first, and individuals second. I won’t go into the
measurement tools the teams use to determine performance, but suffice
it to say that everyone is aware that the team has to hit their
performance goals in order to gain greater salary or commission pay.
Everyone in the organization understands that they would rather be a
high performing individual on a high performing team than a high
performing individual on a low performing team, because it is the
team’s performance that determines the percentage increase.

So let’s use a commission-earning team as an example: They set sales
and profitability goals at the beginning of the year as a team, with
input from leadership. Say, for example, achieving 80% of their goal
earns 2% commission, 90% of goal earns 3%, 100% of goal earns 4%, and
110% of goal earns 5%. Individual “shares” of the commission are
then distributed out of the percentage the team has earned. So yes,
a higher performer on the team will ultimately earn more than a lower
performer on the team. But would you rather earn 20% of 5%, or 20%
of 1%? That was a real key to increased commitment.

As for the problem of “turning off” customers who didn’t seem to
have potential, we have incorporated important customer measurements
into all of our metrics, in addition to sales and profitability.
Customer satisfaction measurements, customer lifetime value (which
takes into account how many encounters it may take to turn a prospect
into a customer, and then how long the relationship can be expected
to last if you nurture it), and other important customer measurements
are incorporated and trained to help our employees take a more
holistic view of the entire customer experience. Of course this
doesn’t provide a guarantee that discounting a customer will never
happen, but overall our customer satisfaction scores have improved as
we have continued down this path.

The first year we didn’t see the benefits, but by the 3rd year this
system was really making sense to people. Teams today work very
hard to assist one another with sales and service, to make sure they
share knowledge and training and back one another up. They are much
more likely to offer one another both constructive and congratulatory
feedback, and they appreciate the financial benefit of working
together for something bigger than one can accomplish alone.

This type of culture does have its share of risks. A great deal of
coaching and training is necessary to ensure that a low-performer is
not confronted with “mob rule,” but rather, is given the support and
training they need to improve. These skills aren’t taught in our
schools, nor, unfortunately, in many homes. So a commitment to
helping team members be mature and effective in relation to others is
essential.

I really believe in performance based pay in additional to paying a
competitive salary. I’ve learned over time that it takes a lot of
training and communication to help people understand where the
"reward" pay comes from – it’s not intuitive. Setting clear
measurements and goals, reflecting on performance related to those
goals at least weekly, and constantly reinforcing the power of
working together for a common goal are all part of the process. If
you don’t do these things, then the extra money on a paycheck once a
month, or once a quarter, or once a year won’t say very much to your
employees.

Finally, I am a really strong believer in giving profits back to
employees. It can be hard to fathom when profits seem tight – and
that’s true whether you’re a large corporation or a small retail
store. But when you hire the right people, and train them well, and
genuinely partner with them, they will bring more of themselves to
work every day – making work more rewarding for them and for you,
and making the entire business more profitable for everyone.

Sorry to be so long-winded. I hope this was useful for
you.

Sincerely,

Andrea Hill
CEO
The Bell Group
(parent company of Rio Grande, Neutec/USA, WestCast and Sonic Mill)


#3

We have always found that a commission in the range you are paying is
a good incentive and a means to increase pay based on how well the
store is doing. Teamwork being reduced means that you need to work
more with the employees about what you expect overall from them.
Also if you add in some incentives that benefit the whole team you
might eliminate some of this problem (like setting monthly sales
goals for the whole store and giving everyone something if the goal
is hit–incidentally we include benchworkers as well in this as they
are helping to see that the goals are reached in a timely fashion as
well). However some companies do complain that they see a decrease in
the willingness of employees to work with all customers or together.
Again I think it has to do with how good a manager you are in terms
of working with your employees. There’s nothing wrong with
experimentation however. If you don’t like what you are seeing try a
different approach for 6 months to a year. If things don’t improve or
get worse, go back to the old way.

Daniel R. Spirer, G.G.
Daniel R. Spirer Jewelers, LLC
1780 Massachusetts Ave.
Cambridge, MA 02140
617-2344392
www.spirerjewelers.com


#4

Interesting topic. I don’t think that commisions ever work out. My
people get about the same as what yours do. I’ve seen very similar
results. I’ve been toying with a different idea. I heard of a company
that leased BMW’s for their employees. ($300 +/- per month)

The lease is less expensive than paying 2% commision to a
$20,000/month producer. It’s a write off for the company The sales
people would have a “threshold” which they would have to maintain.
Seems like a win-win situation. What’s your thoughts?

-Stanley Bright


#5

I want to make a short comment about sales people ignoring customers
who seem to lack potential. Sales people who do this are shooting
themselves in the foot. I know several examples of why this is not
cool, but I will share just my favorite.

When I was a kid, I knew an older man, friend of the family. He was
a farmer and wore overalls, t-shirt, and conductor’s hat every day
of his life. This sweet man gave me a silver dollar and a peppermint
candy every time he saw me. Anyways, he told us about the time he
went in to buy a car for his daughter. He went into a dealership
dressed in his usual manner and stood there for a long, long time.
No one thought the sweet old man could possibly be there to buy a
car. He sat down on the sofa and had some coffee and chatted with
other folks that were there. Finally, a young man came into the
shop, obviously just starting out his shift, and asked him if he’d
been helped yet. The old man bought a brand new mercedes from the
young man, and paid cash!

I don’t know if the story is true or just a great lesson-teaching
story for us kids, but his daughter did drive a mercedes.


#6

Andrea!

Thank you for the advice. I can’t wait to implement your
experiences and ideas into our pay plan.

Teams first and individuals second? What a novel idea!

All the best and thank you again,

John Woodside


#7

Dawn,

When I read that comment about sales people ignoring customers who
seem to lack potential. I thought of my father. He walks around in
his wore out Wrangler jeans and an old scuba diving t shirt. Most of
the time he has more money in his pocket than the salesperson will
gross in six months. If you ignore him he will move on to the next
store. This happen just this Christmas. He went to the mall (sorry)
and was looking for diamond earrings. He got the salesman to help
and they to him right the $99 promo stuff. He bought $1100.00
earrings. I chewed him a new one for not talking to me, but he waits
and shops on Christmas eve!

My father told me to never judge a book by its cover!

Rodney
RC Gems


#8
    Interesting topic. I don't think that commisions ever work
out.  My people get about the same as what yours do. I've seen very
similar results. I've been toying with a different idea. I heard of
a company that leased BMW's for their employees. ($300 +/- per
month) 

Hi - I ran a specialty retail operation for years. The best thing
the owner did was establish a really good base pay well over minimum
wage; give us excellent health benefits and generous vacation time;
and then added a “bonus pay” system wherein if sales went up, we all
got a percentage of the increased sales (over a set base) added on
top of our hourly wages. At busy times, then, we worked hard but got
excellent bonuses. Peer pressure kept up morale and good work habits.
Parttimers were not eligible until they worked for the company over 1
year. Raises were added to the base pay amount. This established work
ethic, fairness, and incentive to do well and treat customers right.
And this helped the business grow or survive during tough times, too,
keeping employee costs down if needed and up when deserved. Layoffs
were fewer, too.

Roseann


#9
    ...the old man bought a new Mercedes from the young man.. 

Together, we all could assemble enough stories like this to fill
volumes. Proximity to Beverly Hills may give me a slight edge,
though…! Call it the “Pretty Woman” Response -lol!

One of my very best customers at Saks, for well over a decade, was
a woman who came to see me at my monthly shows right after her
exercise class on Saturday. No make up, dressed in a schlubby warm
up suit and scuffed cross-trainers, she looked like the last train to
nowhere. But, she’d buy from the collection and/or place custom
orders, anywhere from 8 to well over 20 pieces at a time, some for
gifts, some for herself. She was an enthusiastic fine jewellery
client for them, as well. She was a highly educated business person,
and one of the most delightful, gracious people I met through this
work.

I had a number of customers who would have been utterly ignored if
not treated even more rudely, had they walked through the doors of
some of the tone-y boutiques, either because of their wardrobes or,
perhaps, their age.

Eighteen years of doing my regular events for Saks provided ample
"people watching" opportunities. Major film and recording stars
generally looked like Road Kill, the busier stylists gradually, over
the years, got younger, ruder, and dressed skankier, transvestites -
always among the best-dressed, A seasoned sales associate (going the
way of the Pterodactyl - or our National Forests) could discern who
was a wanna-be - or a suspicious fake - and who was sincere,
regardless of outward appearances.


#10

I have a friend who one summer day walked into an oriental rug store
with the intention to price and very probably buy. We were dressed
casually. They did not offer to wait on her and she left. The next
week she spent $2000 on a computer. It was going to be one or the
other for her and the rug people blew their chance.

marilyn smith


#11
 My father told me to never judge a book by its cover! 

Dawn and Rodney

another story for you both! never judge a book by its cover? please
read this, very interesting!..:>)

An old couple in dirty old clothes wandered into a university at the
beginning of the last century (1900’s) and wanted to meet the
President…the secretary wanted to know why?..they just said that
they wanted to speak to him, in private…!!! “well, you have to
wait!”

So these two old people sat for hours and watched other folks drift
in and out…till the end of the day and the president looking at
them, finally said “I only have a few minutes what do you
want?”…“we want to leave this university some money”…“I’m too
busy, leave the few dollars with my secretary…goodbye!”…:>(

These same two folks went to another University and in the same
dirty old clothes went to another University with the same
request…this other president immediately escorted them into his
immaculate office and nicely asked them both “how can I help
you?”…"well, you see our son just died, and we would like to leave
you a few million dollars in cash, in his name… end of this very
true story! (university name escapes me)…

Gerry Lewy!


#12

A Father tells his very young daughter 30 years ago, each day I am
with you and visit you in the future years I will put aside some
money…As the years go by, until a few weeks ago in Toronto. This
Father finally collects all of his ‘saved up’ money and goes to a
car dealership…now picture this, he is wearing the dirtiest
clothes imaginable, scruffy hat and unshaven for days…got this
glamorous scenario?

He sits down on a couch at the back end of this "preferred"
dealership and waits, waits and waits for a salesman to approach
him…no one even looks at this strange fellow. Till the end of the
salesman shifts are changed…!

This young salesman FINALLY looks up at this old man and politely
asks “How can I help you?”…“Well, I’d like to buy my daughter a
car, in cash please”… "Which car would you like?

…this very new Mercedes-Benz"…he paid $65,000 cash…paid in
full !!! Moral of the story!.. never assume that every one looks
like they are poor…

Gerry Lewy!