Retail Sales: Incentive Systems in Times of Transformation
Retail Sales leaders explore how shifts in strategy and operating models are translating to changes in their sales compensation program.
The world of retail is rapidly changing. Companies are racing to activate their digital, omni, service and other strategies to deliver growth and differentiate from the rest. New strategy necessitates physical store transformation. Not only in terms of the look, feel and experience, but also in how traditional jobs (associate, store manager, operations) bring the strategy to life. Management systems–including sales compensation–must align with this new direction.
During a recent Alexander Group roundtable, a team of Retail Sales compensation leaders explored how shifts in strategy and operating models are translating to changes in their sales compensation program.
Participants from apparel, auto, department stores, food and beverage, footwear, luxury and other categories shared their perspectives on four imperatives:
- Align Plans With Store Strategy
- Ensure Plans Reinforce Job Intent
- Design Plans That Nurture Culture
- Operate an Agile and Adaptable Program
Align Plans With Store Strategy
The team discussed how the role of the store is evolving in light of changes to overarching business strategy. Some described the role of the store as Sales–the primary means of delivering products to customers. Others described a shift from Sales to a hybrid of Sales and Service–a place where customers can engage with the brand and purchase. Those migrating to a hybrid operating model described highly immersive experiences where customers can take advantage of value-added services and access fashion or category experts while shopping.
In both cases, the group agreed that the shifting role of the store necessitated a review of incentive structures to ensure legacy systems effectively supported the operating model.
Ensure Plans Reinforce Job Intent
As new strategies and operating models take hold, participants described the impact on sales compensation. Those moving from Sales to hybrid models described the need to shift associates on high at-risk plans to designs with a greater emphasis on base salary (or hourly). This move from commission-heavy programs enables companies to re-scope jobs around delivering service and introduce new non-production oriented measures (e.g., service or operational). The move brings the additional benefit of addressing cost of living issues, turnover and new hire ramp-up.
Those already on salary-based models described introducing incentive programs beyond the ranks of management. This group fell into two camps–those with associates on formal bonus programs and those who preferred to use contests and gamification. Frameworks included individual and store-based bonuses, gamification and contests.
As the discussion progressed, the group took a deep dive into paying incentives on Customer Experience. The group described different ways of collecting the data (e.g., mystery shopper and customer voice). Those experienced in these types of pay systems described the pitfalls including capturing enough stable data for incentive payout. They advocated for having data at a meaningful level (e.g., store) and weeding out the noise (e.g., low scores as a result of shipping or other non-store related issues).
Design Plans That Nurture Culture
In-store culture (along with access to hours and discounts) is an important part of the employee value proposition–on par with the total compensation package. As companies bring strategy to life, there is a need to ensure changes to the incentive plan do not unintentionally disrupt the delicate culture ecosystem.
Participants described the importance of matching the incentive program with the value drivers of the store population. They described the turnover and recruiting headwinds perpetuated by installing the wrong system. A retailer making the move to a hybrid Sales and Service strategy warned of the risk of letting highly commissioned top performers dictate culture. Others making this shift talked about the need to foster a team culture where (full-time) associates are invested in supporting their peers and ramping part-time and seasonal team members.
Retailers with an associate population comprised of 16- to 25-year-olds described the desired in-store culture as a fun, flexible place to work. In these cases gamification, contests and perks bring the right degree of accountability and healthy competition.
In cases of retailers with a population of career retail associates (who value competitive wages, performance-based incentives and stability), store managers need a system that creates connectivity to the business and holds people accountable for results.
In any case, participants agreed that understanding and measuring culture is an important part of the design process. They described using employee surveys and field feedback as a means of aggregating the insights needed.
Operate an Agile and Adaptable Program
The roundtable wrapped with a discussion about how an industry in transition requires flexible sales compensation frameworks. Specifically, participants reported dealing with changes to the mix of full and part-time employees as well as responding to program design challenges resulting from omnichannel.
Changes to headcount planning caused participants to rethink how they spent budgets associated with incentive systems as well as eligibility. As companies move to a greater mix of full-time team members, incentive budgets are stretched as more compete for a fixed pool of money. Those moving to a more part-time heavy mix need to develop new programs that match value drivers and available budgets.
The group outlined the challenges created by omnichannel. They shared how they were dealing with workload related to components such as “buy online-pick up in store” and web returns. In some cases, retailers deployed new operational roles, while others said the work fell on the shoulders of the existing store team. The group agreed there is a need to adjust sales compensation crediting rules so as not to short-circuit the incentive system. Retailers reported adjusting rules so that factors such as web returns did not detrimentally impact payouts.
As retailers navigate the transformation of the store footprint to bring to life new strategy, it’s important to tune management systems such as the sales compensation program. Leading program owners are actively evaluating their programs and responding to the needs of the business.
To learn more/contact us about the topics discussed in our recent Retail Sales Compensation Virtual Roundtable or discuss your sales compensation needs.