Barbara Sheeran has been reading about a quiet revolution sweeping
department store retailing and has decided to give it a try. At stores
such as Macy’s and Nordstrom’s, managers are using commission pay to
motivate salespeople. At Nordstrom’s, for example, a top-tier
salesperson in women’s apparel can earn nearly $200,000 per year.
Sheeran wants to implement commission pay at Caprio’s, a regional
chain of upscale department stores based in Tuscon. Caprio’s has long
used commissions in departments such as electronics and appliances where
extra sales skill pays off, but Sheeran believes that extending the
system storewide will attract better salespeople, increase motivation,
and enable employees to earn more money. For example, under the old
plan, a new salesclerk in women’s wear would earn about $18,000 per year
based on hourly wages and an 0.5% commission on $500,000 in
sales. Under the new plan, the annual pay would be $35,000 based on 7%
commission on sales of $500,000. Sheeran implemented the new system in
two area stores first and plans to roll it out across the chain within
the next six months.
Eli Johnson, who works in the men’s shoe salon, is enthusiastic
about the change. His pay has increased an average of $150 per week. But
in other departments, such as women’ s lingerie, employees are less
enthusiastic. Making enough sales per week to earn their previous salary
is nearly impossible, particularly when the economy slows down. Even
during the holiday season, many employees saw their pay decrease an
average of 8%.
Sheeran is keeping a close eye on fluctuations in pay. She’s
becoming concerned that the commission system may not work as well for
small-item purchases as it does for big-ticket items. In addition, she
questions whether Caprio’s can meet its goal of creating more
customer-oriented salespeople when they work on commission. Clerks may
be less willing to handle complaints, make returns and clean shelves,
preferring instead to chase customers. Moreover, it will cost Caprio’s
nearly $1 million per store to install the commission system because of
training programs, computer upgrades and increased pay in many
departments. If the overall impact on service is negative, the increased
efficiency may not seem worthwhile.
Question: What would you do? Be sure to discuss motivational theories, employee needs, and customer viewpoints in your answers.