Non-Financial Incentives vs. Commission for Retail Employees

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Running Title: Non-Financial Incentives vs. Commission for Retail Employees

BACKGROUND
Learning Express is a franchised educational toy store. We try to operate the store as a team with each of our employees possessing different skill sets (inventory knowledge, interpersonal skills, tasks). We also prefer that our more experienced staff take care of the checkout procedure. We also offer exceptional and more personalized customer service to encourage them to keep coming back as their toy needs grow and change. We offer customer special shopping opportunities if they spend a certain amount, sign up for our marketing list or join our Facebook page. We also offer many free or no cost events for their children such as holiday crafts, singing/ dance classes, and visits from their favorite characters, Elmo and Dora the Explorer. Throughout the year and especially in the slower retail seasons we need to look for ways to motivate our employees.

There are two types of incentives, financial and non-financial. Financial incentives can be provided directly or indirectly. Direct financial incentives come in several forms, such as, higher wages, bonuses, profit sharing, stock options, commission, etc. Indirect financial incentives can include direct phone lines, high quality furniture, subsidized food and more.

Non-financial incentives are those that don’t involve money payments. Employees are incented non-financially with perks such as job security, challenging work, recognition, and cross training. No matter what the form, incentives are provided solely to motivate employees. Due to the nature of the business and reduced cost to Learning Express we would like to offer low or no cost incentives. For the purposes of this paper, low and no cost incentives will be called non-financial incentives (NFI).

EFFECTS ON EMPLOYEES AND MANAGEMENT
NFIs are used to motivate employees and can allow the employees to continue working as a team since financial incentives can cause isolation. The team approach promotes a high-quality and respectful work environment as employees are given the chance to learn by watching other employees perform.
We would like to stay away from financial incentives, such as commission, that may have the employees competing for commissions and which may draw away from the service to the customer. Also, the price point in the toy store is usually less than $30 which doesn’t allow an employee to make much commission off each item sold without cutting into the profit of the store. Sales people may become more concerned with making a quick sale versus actually learning the needs of the customer.

Commission offers the employees a chance to make more money based on performance. It can also be used to increase sales volumes which would hopefully allow the commission program to pay for itself. Employees that are less focused on sales, such as merchandisers and stockers, may become resentful of the money earned by the more sales focused employees. The group overall may try to focus more on sales leaving other needs unfulfilled. Both NFIs and commission may promote employees to be more “invested” in the success of the store and cause less turn over.

Commission can be very difficult for a small business to track and distribute since it is usually long term and considered part of the employees’ pay structure. Whereas NFIs can be promoted in blocks of time that get the team excited for the duration but allow an end point to make it more manageable to employers. Commission allows pay rates to remain lower but can be a highly variable cost to the employer. It can also be quite variable for the employee which can be uninspiring during slower times of the year.

NFI may mean a higher payroll but a less variable cost. NFI can be very small or even non-monetary.

Using a commission structure can take away from the neighborhood-toy-store-with-great-service feel to a more corporate...
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