Commissions question—to pay . . . or not to pay?continued from page 1 It’s a sunny Saturday morning, and saleswoman Bernie
Cowen is off to a great start. In not quite 15 minutes, she’s rung
up four sales at Seasons, a suburban Lansing gift and home furnishings
retailer. A devoted husband has carefully selected jewelry for his
wife’s birthday. A father and daughter have wrapped up their gift
shopping, and two women, purchases in hand, have waited to buy from a
familiar face. Former Jacobson’s customers greet Cowen warmly when
they see her at the Okemos store. For 22 years she sold women’s fashions
at Jacobson’s East Lansing store—all on commission. “It can be very stressful. Commissions make for animosities,”
says the Williamston woman, a fashion merchandising graduate of Chicago’s
DePaul University now relishing her new salaried role. Commissions also created potential conflicts at national
electronics retailer Circuit City Stores, Inc, with 23 Michigan stores
employing an average of 50 workers per location, says spokesman Bill Cimino. On February 5, Virginia-based Circuit City announced it
would end its practice of paying commission to sales people and dismiss
3,900 sales counselors. In their place, 2,100 new employees were hired,
to be paid at entry-level hourly rates. Before the move, some employees were paid commission on
sales and others were paid hourly wages, though both were engaged in sales
efforts. About 16 percent of the company’s 42,000 employees were
paid sales commissions. “We do think in the end this will unite everyone
in a team. Everyone will be on the same playing field now,” Cimino
said. Rival Best Buy Co. Inc. has promoted its no-commission
sales force in Sunday circulars. “No commission means no hassle,”
the flyers say. To pay or not to pay commission is surfacing again as
a retailing question. “Commissions seem less popular now,” says James
Nannen, author of the book “Smart Retailers Retire Rich” and
owner of three Florida pet stores. “Commission is sometimes associated
with old-line department stores, customers being jumped on, nitpicking
and backbiting. “But with an hourly wage, you walk in and nobody
pays attention to anybody.” The issue is especially timely for industries like home
furnishings, jewelry, appliances/electronics and high fashion, where customers
have traditionally appreciated knowledgeable, hands-on and highly personalized
service—and where retailers have paid commissions to encourage sales
performance. “Most everybody in the furnishings industry pays
commission,” notes Dale DeKorne, who supervises the salesforce for
the DeKorne Ethan Allen stores. “Everybody does it a little bit differently.” Retail sales people are typically paid in a variety of
ways: in straight salary or hourly wages, a commission based on a percentage
of individual sales, a combination of salary/hourly plus commission or
bonus paid on top of other compensation. Lansing computer retailer Eubulus pays a mix of salary
and commission “to reward performance,” says David Smith, one
of the store’s owners. “I’d like to pay less salary and more commission
to reward people for their efforts,” says Smith. “People like
salaries for the safety of it. A motivated person loves commission. They
can make lots of money.” Commissions are coming under new fire, though, as retailers
continue to look for ways to increase revenue and decrease costs. The goal: “to drive up the profitability of your
store,” says Mark Flavin, leader of the sales force rewards group
for Towers Perrin, human resources consultants. Retailers now face an economy uneasy about war, government
budget cuts and consumers as intent on saving money as they are on acquiring
goods. New technology and employee psychology are also driving compensation
trends. “We have found that the consumer has changed,”
says Circuit City’s Cimino. Electronics shoppers are now combing
the Internet for pre-purchase information. Fully 55 percent of Circuit
City’s shoppers have surfed the ’net before stopping at the
stores. Computers and other electronics, once so technical that consumers needed assistance to buy them, now sell more like commodities not needing high-touch for high sales, notes retail consultant Frederick Marx, of Marx Layne & Company in Farmington Hills. “Your chances of trading consumers up are less,”
he explains. “Your role as a salesperson is less pronounced.” Apple Computer doesn’t pay commissions to its sales
force at its newest retail location at Twelve Oaks Mall in Novi, said
spokesman Todd Wilder. “Since its first store opened, Apple’s
retail sales associates have never been ‘on commission,’”
he said. While commissions may not be disappearing, they are changing,
retailers and consultants agree. Commissions may slide or vary, be added for short bursts
of time and then vanish, be paid only on specified items to send low-volume
items to the top of consumers’ minds, or combined with other forms
of compensation in a “total” package. Commissions may be paid only to those who influence the
final sale, who inform the customer about product features and benefits
or keep a “personal trade book” of repeat customer preferences.
Or some form of commission may be paid employees at every level. Discount stores may add commission for newly opened in-house
charge card accounts, for example, Marx said. Warranties and accessories
are also commission options. “Even car washes have become master of the upsell,”
he added. “Cashiers who sell may get something. It increases their
hourly wage.” Sales contests are not uncommon, moving the commission
away from the individual and toward team or store efforts,” Marx
said. At Birmingham’s Claymore Shop, sales people are paid
a draw against their commission. Once they cover the draw, sales people
are paid commissions of 7 percent, 7.5 percent or 8 percent monthly, depending
on volume. “It’s a win-win situation,” said Allen Skiba,
23 years at the men’s furnishing’s store and one of its owners. He acknowledges that such pay structures can be daunting.
“It can be very detrimental to someone just breaking in to a (sales)
floor that’s established,” he said. Retail commissions come and go with the economic times,
consultants observe. “It’s part of a cycle,” said Rodney Runyan,
associate professor with Northwood University in Midland. “When sales
drop, the first thought is to cut costs—and cuts usually have something
to do with commissions. Anything like that is usually a short-term effect.” Circuit City estimates its new compensation strategy will
save $130 million in its next fiscal year, and noted barely any change
in consumer sales with the shift. “We saw no apparent disruption in the sales pace
immediately following implementation of the compensation change, reinforcing
our belief that this move was the right one for our customers and our
store operations,” said W. Alan McCollough, Circuit City chairman,
president and chief executive in announcing fourth quarter sales. Newly devised software—built on the power of multi-tasking
processors, optical scanning and high-speed database access—is also
allowing retailers to keep a keener eye on their sales, inventory and
costs, including sales commissions. “The information was always out there. It was too
cumbersome to code and track,” says Charles Ballard, Michigan State
University professor of economics. Enterprise incentive management (EIM) systems allow companies
to revise compensation plans on the fly and communicate them in an instant
to employees who can track personal sales and commissions from a home
computer. “It’s such a competitive environment, they (retailers)
have to be able to have compensation plans they can change on a dime,”
says Jeanne Lyons, senior director of product marketing at California-based
Callidus Software. Founded in 1996 and backed by a bevy of venture capital
firms, Callidus designs automated incentive programs now commonly used
by large firms managing dealer/vendor relationships and complex commission
plans. In time, technology companies predict, even the smallest
retailer will be able to tap into the powerful e-business tools, combining
accounting and human resource management applications, over the Internet. The packages are designed to analyze corporate performance
metrics, identify high achievers and pay them correctly and at the same
time tailor compensation to both corporate and individual goals. Commissions once paid only to those directly involved
in selling could spread to staff professionals, including office and human
resource managers, whose behind-the-scenes activities contribute indirectly
to individual performance. “The general trend is so that all people have a little
bit of their pay at risk,” suggests Jan Blackburn, divisional practice
leader, sales management and rewards, at Watson Wyatt, a firm specializing
in employee benefits and financial services. In today’s high stakes and highly competitive environment,
the latest retail focus is on those who can personally make—or break—the
sale, says Ted Shepherd, an unabashed sales commission advocate. Through his firm, Shepherd Retail Performance of Atlanta,
GA, he has worked with at least a dozen Michigan home furnishings, appliance
and floor covering companies. “We’ve all got locations. We’ve all got
facilities. We’ve all got merchandising. We’re all advertising
our brains out, and the customer, at the end of the day, can’t differentiate
one from another. The last battlefield is for human resources and how
the customer feels about the experience.” This article was written by Cynthia Kyle, a Lansing-area freelance writer. Return to March Michigan Retailer Page one • MRA home
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More information… For retailers seeking assistance with compensation and commission plans, scores of organizations, consultants and professional groups stand ready to assist. Their web pages are all worth a look. |
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Society of Human Resource Management College & University Professional Association for Human Resources The International Association for Human Resources Information Management World At Work (formerly the American Compensation Association) The American Society for Training & Development Human Resources Certification Institute International Personnel Management Association Academy of Management Online American Management Association |
American Society for Public Administration Academy of Human Resources Development Human Resources Planning Society International Society for Performance Improvement Employee Assistance Professionals Association Alliance of Work/Life Professionals The Information Technology Human Resources Benchmarking Association International Society of Certified Employee Benefits Specialists |