There are myriad options for compensating and rewarding sales staff. JCK breaks down the payment possibilities.
Coming up with the right balance of hourly pay, commissions, bonuses, and other perks to motivate your employees to be the best they can be is often tricky, but it’s not impossible. What works for one store, however, won’t necessarily benefit another. You need to take into account your corporate culture, image, and the type of atmosphere you want to cultivate. Here’s what the experts have to say about designing a fair and effective compensation package.
Salary vs. Hourly Wage
Most salespeople are paid hourly rates as opposed to salaries, says Kate Peterson, president of Montgomery Village, Md.–based Performance Concepts Inc. “In a retail jewelry store, with few exceptions, there is…maybe one position that qualifies for salary.”
Generally speaking, Peterson says, only employees who are managers—defined as people who spend no more than 20 percent of their time selling or on other nonmanagerial duties—are eligible for salaries. Salespeople who spend most or all of their time on the floor don’t belong in this category. There’s also a minimum wage—it varies by state—that determines how much someone can be paid and still count as a salaried employee.
Determining hourly rate depends on what’s typical for your area and how you want to structure the rest of your payments. Some retailers pay a nominal hourly wage and salespeople earn the bulk of their compensation via commission, while others pay a higher hourly rate and add one or more bonus programs.
How to Structure Incentives
Your sales compensation plan should support your business goals and effectively compensate your sales force. Industry benchmarks can provide guidelines for setting up and maintaining your incentive program. “In a typical retail jewelry store that has a typical support structure, we look for salespeople to earn about 15 to 16 percent of the gross profit they produce,” Peterson says. “If you have a store where the salespeople do absolutely everything, that percentage can be higher. On the other hand, if a store has more support staff, it has to be lower, because their sales have to cover everybody.”
Beware of setting up a commission structure based on sales: Focusing on unit sales can tempt staffers to undercut your margin by discounting merchandise; focusing on gross sales doesn’t incentivize staff to proactively sell higher-margin items. That’s why Peterson recommends basing the percentage employees receive in variable pay—bonus or commission—on gross profits rather than gross sales or unit sales. “You don’t take sales to the bank,” she says. “Calculate your expense of doing business in terms of sales and payroll.”
At Nelson Coleman Jewelers in Towson, Md., a payment structure that includes performance-based bonuses for its 13 employees has been in place for roughly a decade. “It was set up to create teamwork in the store and foster a team atmosphere,” says Peggy Coleman, a buyer for the store (a client of Peterson’s).
“Kate has a formula she uses to help us determine our goals for the year, broken down into months,” Coleman says. “Say, if 20 percent of our sales are in December, 20 percent of their goal will be for December.”
Michael Fleck, general manager of Midland, Texas’ Occasions Fine Jewelry, says his five commissioned salespeople earn some 75–80 percent of their incomes on commission. For each $150,000 in sales, an employee gets a 2 percent bump in commission. The total grows over the year and resets in January—so salespeople are most motivated in the all-important holiday season.
“One of the leading-edge trends, especially for growth companies, is you get a better commission rate if you reach a certain amount of volume,” says Shawn Rossi, Atlanta-based principal at HR consulting company Mercer. A commission structure also gives retailers the flexibility to adjust to temporary or seasonal sales needs by offering employees higher commissions on certain products or higher-margin items.
“We offer commission on every sale from the first sale, and the higher your sales are during the month, the higher your percentage of commission,” says Rick Moore, store director at Bellusso Jewelers in Las Vegas. Salespeople get a set percentage for the first $50,000 in sales they make each month, with increases after the $50,000 and $70,000 thresholds.
With four stores, Bellusso encourages salespeople to refer clients to its sister stores, Moore says. If that leads to a sale, the referring seller gets half the commission. They also earn SPIF (aka “sales performance incentive fund”) rewards selling certain pieces the store wants to move or persuading customers to buy extra items.
Some store owners avoid the entire question of commissions by offering competitive salaries along with employee benefits and the occasional team bonus. “You need to ask yourself, ‘What kind of customer experience do I want to create?’?” Rossi says. “If retailers want consistency and salespeople who act as customer advocates, they’re more likely to pay them a base salary and benefits.”
These stores sometimes turn to group bonuses to reward employees for meeting sales goals. Bonuses based on team performance can promote an atmosphere where taking care of the customer and cultivating long-term relationships is more important than chasing short-term sales.
If you’re competing for talent in a competitive pool, you could be paying up to 9 or 10 percent of your revenue in sales staff compensation, not including benefits. “It’s a little bit more stable,” Rossi says, “but it’s more expensive. You want to keep that talent around.”
Individual and Store Goals
Although individual commissions and team bonuses can both be used successfully to motivate salespeople to do their best, each has its downside. Individual commissions can generate too much competition—sometimes sacrificing customer service in pursuit of a sale. On the other hand, team-only incentives can build resentment among coworkers and alienate those who work the hardest.
An alternative many jewelers embrace is a two-tiered plan that rewards salespeople for meeting individual goals and rewards everyone when the store makes its goals.
Moore says Bellusso operates this way. “When you reach the store’s goal as a team, there’s a monthly bonus paid out and divided among the staff,” he says. To be fair to top performers, he says the distribution is proportionate—say, if a salesperson does 20 percent of the sales, he or she gets 20 percent of the bonus.
Having a storewide goal also lets employees who play an indirect role in sales—including assistants, inventory staff, and bench jewelers—partake in a successful month or quarter.
“Everybody’s under the impression that if you offer them a commission they’ll work harder,” says Kimberly DeVito, store manager of Lily & Co. Jewelry Gallery in Sanibel, Fla. “But not everybody responds that way.” Her store has a tiered program that rewards both individual salespeople as well as the entire staff if the store hits its target. “Employees are really happy,” she says. “The compensation is, I think, above what other people are getting.”
If you have what Rossi terms a “multi-touch environment,” with a designated greeter, cashier, and so on, “that’s where you get at least some level of team performance,” he says. In that situation, Rossi suggests basing at least 50 percent of your at-risk pay on individual performance and 30–50 percent on team achievement.
There are a slew of other rewards out there designed to motivate salespeople, from gifts cards to merchandise to exotic trips. A retailer could offer such incentives or—if so inclined—permit salespeople to accept these kinds of “carrots” dangled in front of them by vendors.
“Trophy value is one of the big values in a non-cash program,” says Michael Spellecy, St. Louis–based managing consultant for incentive company Maritz Motivation Solutions. If you give people cash, they’ll use it to pay bills, he says, but offering the opportunity to earn something fun and discretionary motivates them in an entirely different way.
Should you let your salespeople vie for rewards from outside sources? “As long as the quality of the product is competitive and the margin is the same,” says Spellecy, many retailers are “fine with having somebody else incent their people to sell things,” Spellecy says.
The big plus is you’re not paying for it, points out Rodger Stotz, chief research officer of the Incentive Research Foundation in St. Louis. “You’re having your salespeople incented and somebody else pays the freight. It certainly is a way to have incentives for your sales force without having to fund them.”
But the real question is—do you want someone else to decide what your salespeople do? The experts say you have to weigh that against the merchandise and the program being offered—and remember that at the end of the day, they’re still your employees. Ask yourself: “Is the program aligned with what I want?” Stotz says. “It’s critical for owners to review any such program in light of whether it supports their value and strategy and desires, or if it’s something that could conflict.”