Family Business In Crisis When Everyone Quits

The year was 1989. Mark Moeller was in the process of buying out his father’s ownership stake in the family’s store—R.F. Moeller Jeweler, St. Paul, Minn. Mark, then 37, had big plans.

He firmly believed the store—then an eight-employee operation that generated about $750,000 annually in sales—could become the preeminent jeweler in its region. And he was convinced that a new way of motivating employees would ensure the business’s growth. With the help of Boston consultant Robert Sprague, whose speech at a St. Paul business association meeting had helped him envision the future, Mark revised the store’s compensation system.

The new pay policy made the employees uncomfortable. To them, the risks seemed too great. They were being shifted from a base salary (ranging from $16,000 to $25,000) with an annual Christmas bonus to a much smaller base ($12,000) plus 20% of the gross profit on the jewelry they sold. Instead of being paid a salary for coming to work each day, they’d be rewarded for the work they did, Mark assured them. Hard work would yield substantial rewards, he insisted.

But the employees were focusing on the downside of the new arrangement: If customers didn’t respond to their sales presentations, the associates would earn only a pittance. Mark’s father, Robert Moeller, knew how they would react to a commission arrangement. “In 1988, my father warned me that if I set this up, everyone would quit,” Mark says. “And guess what? Everyone quit.” One by one, the four non-family employees tendered their resignations.

A bare-bones staff. The exodus came as no surprise. “Nobody had the foresight to look ahead,” figures Mark, now 49. “They got scared.”

Jim Thuente, then 35, was one of those skittish associates. “I just thought that maybe this wouldn’t work out for me,” he explains. Under the previous arrangement, “Even though the salary was not great, it was there every month.” A competing jeweler offered Thuente a job with the potential to move into an executive position, and he jumped ship.

Within three months, Mark was left with no employees other than family members—his father, who was stepping back from daily store operations; his wife, Carol, then 34, who was taking over the store’s bookkeeping responsibilities; and his sister Nancy, then 26, who was Mark’s assistant. His father grew “very worried” about the number of resignations, Mark recalls. Faced with a slew of new responsibilities since being named the store’s president and CEO in 1988, Mark was forced to add a new duty to the list: hiring en masse.

Despite the challenges, Mark refused to be swayed from his compensation plan. “When I negotiated the buyout with my parents, one thing that was non-negotiable was that I would be in control,” he notes. “We were going to do things my way.”

Changing roles for family members. Unlike his father, Mark wasn’t fazed by the mass departures. “I kind of anticipated it,” he says. “The consultant told me it was going to happen.” Looking at the big picture, Mark could see that the new compensation policy wasn’t the source of the problem. The real issue, he realized, was that “we didn’t have the right people.” The resignations enabled Mark to hire salespeople who would achieve the results he needed.

One of those salespeople turned out to be Jim Thuente. After two months at his new job, he realized that the promised executive position wasn’t going to materialize. On a riverboat cruise, he encountered Mark Moeller and asked for his job back. Mark agreed to take him back for a one-month probationary period.

Thuente, who had three children to support, leaped at the offer despite the misgivings of his wife, Colleen. “It wasn’t real pretty, I guarantee you that,” he recalls with a laugh. She was nervous about the risk involved in forgoing a salary—but he convinced her that since he had resigned from his job at the other jeweler and faced the prospect of unemployment, it was worth it to take his chances with Moeller. “A leap of faith, it might have been,” acknowledges Thuente, now 47.

The ranks soon swelled as Mark found the driven associates he was looking for. “Within a year, we were fully staffed,” he recalls.

But the store suffered another devastating event in December 1990. Mark’s father, Robert Moeller, died suddenly and unexpectedly at the age of 67. Mark, who had planned to complete the buyout in 1991, asked his brother Bob to come aboard to help out. Bob had graduated from college just two days before his father’s untimely death and had been interviewing at a company that made process instrumentation for airplanes. He was hoping to live in Europe or Latin America, but “in a span of two days, my life changed dramatically,” recalls Bob, now 33, who today is R.F. Moeller’s sales manager.

As the siblings adjusted to the tragic death of their father, the changes in store policies were starting to have a positive effect on the business. The store’s gross margins rose. Mark supported his sales staff by analyzing their sales ability, setting goals for each of them, scheduling store meetings, offering sales training, and focusing on education. He instituted a requirement that sales associates obtain Certified Gemologist Appraiser training and paid for them to take the necessary courses. Bolstered by Mark’s willingness to invest in their professional development, the staff blossomed. “They were worried about their own security, but that was the only worry,” Mark explains.

Bob—who had worked in the store part-time as a student—viewed the commission structure as an exciting opportunity. “I was young, and I didn’t have a lot of commitments,” he recalls. He focused on the system’s upside: If he sold a lot of jewelry, he’d make a lot of money.

Growth and changes. The business soon grew large enough to warrant expansion. In 1994, Mark purchased another jeweler’s business in Edina, Minn., and converted it into R.F. Moeller’s second store. Sadly, Mark’s mother, Bernice, died the year after the Edina store opened. With operations at the new store up and running, Mark needed to move his sister Nancy into a full-time sales position. That meant putting her on commission.

Nancy, now 39, had a degree in hotel and restaurant management and had worked in hotels during a seven-year leave of absence from the store about two years before her father’s death. As Mark’s assistant, she had worked primarily in advertising, marketing, and tracking employee commissions. She had reservations about moving into commission sales. “I was apprehensive about it because I had always been in a salaried position,” she says. “It was a change, and I was reluctant.” Because of their sibling relationship, she felt comfortable voicing her concern to Mark. “I probably opened my mouth a little bit more than other people,” she acknowledges. In the end, however, she knew it was fruitless to argue about the change. “It was his decision to make—not that I necessarily liked it,” she notes.

She realized the wisdom of the policy as soon as she started cashing her commission checks—”probably within the first year.” Hard work did indeed yield ample rewards. Her reaction? “Darn it, he’s right again,” she says with a laugh.

According to Nancy, Mark is “pretty level-headed in terms of thinking things through. He has a pretty good idea of how things are going to turn out.”

Indeed, the commission policy worked so well that in 1998, all Moeller sales associates were put on straight commission. They no longer get a $12,000 base; in return for the sacrifice, they’re relieved of all duties unrelated to sales. They receive a small base of $2,400 a year (to ensure the employer/employee relationship is preserved), 20% of the gross profit on the jewelry they sell, plus 10% of the repair and service business they generate. “The great thing about my system is its simplicity,” Mark says. “Everybody gets paid the same.”

To help them get acclimated to the system, newly hired associates are given a guaranteed $40,000 draw against commission for the first year. “If they can’t achieve that level of sales in a year, they move on,” Bob says. If their sales exceed the $40,000 draw, they receive a bonus after six months and again after a year of service.

Evidently, the system is a success. Today, the two stores together generate $8.2 million in sales and have a gross margin in the 51% range. The store, which celebrates its 50th anniversary this year, is planning a move to new quarters down the street. Its sales associates are prospering, too: Four of them have six-figure incomes, Mark reports.

For some jewelers, the prospect of paying employees that much is daunting. “My competition doesn’t do it because they’re scared of paying people what they’re worth,” Mark says.

The Moellers, by contrast, have no trouble telling associates to “sell away,” Bob says. “The more they make, the more we make.”

Motivating the sales staff. A commission-based compensation system won’t motivate every sales associate, the Moellers acknowledge. “You need to have self-confidence first,” says Bob.

But a skilled, self-assured associate won’t want to work any other way, Bob adds. “It’s inconsistent with the personality,” he explains. “Why be salaried at $50,000 if you can sell on commission and make $100,000?”

“Some people love knowing what they’re going to make next month; I love not knowing,” says Chris Graham, 27, a sales associate who’s been with R.F. Moeller for almost five years. “If I want to make more money, I can always work harder.”

Money is an extremely effective motivator for sales staff, Moeller employees say. “It’s nice when you see that paycheck—especially at certain times of the year, like Christmas,” says Nancy.

In addition to financial incentives, there’s another motivating factor at work, Moeller associates note. “Pride in where you work is a big motivator—pride in working for a prestigious place,” says Graham. The number of CGAs on Moeller’s staff—now 11 strong—is proof of that prestige, Graham points out.

The commission system makes associates work harder to serve the customer, Moeller staff say. “They have a personal, vested interest in the person that they’re working with,” Bob notes.

“You want to close the sale. You don’t think, ‘I’m going to get paid whether I close this thing or not,’ ” Graham says. Associates know that an aggressive approach won’t work, either: “Our customers are smarter than that—they’ll walk out.”

Thuente, whose “leap of faith” has proved quite profitable, says associates nervous about a commission system should “at least give it a try. It’s really an opportunity to bring out the best they have.”

Shane Decker, a jewelry industry consultant based in Franklin, Ind., who’s worked with the Moellers, notes that a straight-commission system ensures that a customer will get the associate’s undivided attention. “They’re going to take care of the customers, because they want them to come back and ask for them.”

Associates are encouraged to build their own client base, Bob says. “We try to have these people think of themselves as ‘intrapreneurs,’ ” he says. “They run their own business within this organization.”

Keeping in touch. There’s also an incentive for staff to follow up with customers. Moeller associates keep files on clients who’ve made purchases at the store as well as those who have visited the store but not yet purchased anything. A computer database enables store staff to maintain records of important dates in customers’ lives, such as birthdays and anniversaries, so they can remind them to visit the store to pick out gifts. Customers are also reminded to have their jewelry cleaned and checked every six months. Moeller associates are active in community and charitable organizations, which afford an opportunity to make important connections and increase the store’s visibility.

The commission pay scheme has solved the discounting problem, Mark says. Associates know that offering a $100 discount means $20 less in commission, so there’s no temptation to reduce the price to close the sale. “They’ve learned how to sell based on value, not price,” Mark says.

A provision in Mark’s policy curbs staff disputes over commissions. If Mark is called in to mediate, he keeps the commission. The policy has forced associates to be judicious in determining how to split commissions and has quelled bickering, Nancy says.

There are some downsides to the Moeller system, Graham admits. The store has a lifetime guarantee policy on diamonds, meaning a customer can return one at any time. If this occurs, the sales associate must forfeit the commission on the sale. If a large diamond is returned during a slow month, the associate could end up owing money to the store at month’s end. In effect, the associate has borrowed the customer’s money for the time the customer kept the diamond, Graham notes. The policy forces associates to be fiscally responsible, saving money to tide them over during a bad month.

Another drawback is that because the policy provides so many income-enhancing opportunities, it can result in burnout among hard-driving associates eager to boost their sales. This happened in the early years of the commission system and resulted in the resignations of some exhausted staff members, Mark says.

But often he has the opposite problem, with salespeople needing an extra push despite the potential rewards. “My biggest problem is the lost opportunity that walks out the door,” he says. “With my commission structure, we should never lose a sale.”

Associates who are less successful need to study presentation techniques or increase follow-up efforts, he suggests. “You have to come in here and be prepared to work and be successful,” Mark says.

The supporting cast. A store that implements a commission-based compensation system must also hire salaried support staff, who will enable sales associates to spend all their time engaging in activities that result in sales. “For some of the older stores, that’s a hard change,” says Decker. Family-owned jewelry stores, in particular, are reluctant to relieve sales staff of duties such as inventory control and marketing, because job descriptions are a part of store tradition, set by the family founder a generation or more ago.

“They don’t have 20 years’ experience—they have one year of experience 20 times,” Decker says.

At R.F. Moeller, the staff of 24 includes 14 sales associates and 10 salaried support staffers. Support positions consist of goldsmiths, an inventory-control specialist, a general manager, an information technology specialist, a director of marketing, and accounting staff. The goldsmiths receive bonuses for exceeding goals Mark sets for them. Goals vary according to individual capabilities and range from $275 to $550 in wholesale labor costs per day. The costs of jobs above this amount are split between the jeweler and the store.

Other employees, such as accounting and inventory control staff, are paid on salary only. While they don’t have the potential to earn six figures, they do enjoy advantages, Nancy says. “They know the hours that we work, and they aren’t interested in that,” she notes. Support staff work 40 hours per week, while sales associates work up to 50 hours.

This year, Moeller instituted a new 401(k) and profit-sharing plan with a 3% employer match, dollar for dollar, up to 15% of the employee’s income. The store pays 75% of employees’ medical benefits (including coverage for their families) and offers paid vacations for salaried staff. Other perks include gift certificates at holiday time, staff parties, and the opportunity to purchase inventory items at 10% over cost.

Right for you? For most stores, implementing a commission system means making dramatic changes—adjusting job descriptions and restructuring staff. Jewelers often are squeamish about such radical moves, Decker acknowledges, noting that “the mental part of the adjustment is harder than the actual change itself.” Staff and managers have to realize that eventually, they’ll be very pleased with the results they’ll see, he says, “But it’s going to be uncomfortable for a while.”

Is a straight-commission system right for your store? It doesn’t work in every case, says Decker, who often is engaged by jewelers to evaluate the feasibility of a change in compensation policy. The success of a commission-based system depends on associates’ selling talent and their ability to look beyond day-to-day sales and envision goals for the year, he says.

Teamwork is key in a commission system, Decker says. Sales associates have to focus on sales, and support staff have to be content with working behind the scenes. But teamwork is sometimes difficult to achieve in a family business, he notes. When there are multiple employees whose last name is the same as the name on the store’s door, conflict often occurs over who is the boss, he points out.

“In a family business, everybody’s got to have a very outlined, detailed job description,” Decker says. Successful business owners determine where each employee’s talents lie and match these talents with work responsibilities, he notes. Anyone who can’t function as a member of a team—be they family or non-family, sales or support staff—must be terminated, he stresses.

Nancy Moeller says she sometimes finds herself having to explain to non-family employees that although she’s a relative, she isn’t the boss. “Sometimes some comments are made in jest,” she says. “I say, ‘Listen, you guys, I don’t know any more than you know about certain situations.’ “

Currently, Mark is developing a succession plan and exploring the possibility of selling Bob an ownership stake in the company. He’s also thinking about adding more stores in light of the boom in business.

Mark’s advice to other jewelers? “Don’t be afraid to pay somebody what they’re worth. Support the people who are good, and get rid of the people who aren’t. A top-notch salesperson is worth their weight in gold—and they should be paid.”