A low payroll is virtually always more than offset by low production, poor performance, mistakes, inefficiencies, lack of motivation, and poor retention.
Retail has no jobs for which the quality of the employee is unimportant. Top salespeople create high sales; poor salespeople waste opportunities. Good managers develop long-term employees; bad managers create turnover. Smart buyers find saleable products; poor buyers waste resources and accumulate dead stock. Skilled office workers provide timely and accurate information; less competent workers make mistakes that require hours to unravel and render information useless. Even a parking lot guard must be dependable, vigilant, and honest—hardly universal traits.
The bargain is not in paying less, but in employing better people.
Most retail jobs have long learning curves. (Many consumers probably doubt this, but their opinions are based on what the typical retail employee knows rather than what he should know.)
New employees in any position become profitable only after they learn their jobs and gain some experience. The tuition is high in mistakes, inefficiencies, overlooked opportunities, and trial and error (mostly on our customers)—and we, not they, pay it. Salespeople, particularly for high-end goods, often take a year to reach breakeven and two years or more to show their potential.
A good long-term employee is a treasure; losing one is a tragedy felt all the way to the bottom line.
Tying a portion of each person’s pay directly to his results automatically rewards good performance and weeds out poor performance. Managers are relieved of the unpleasantness of riding herd and can focus instead on assisting team members in achieving mutual goals.
Good employees are motivated by the challenge of the incentives and appreciate the opportunity to control their pay. Those who don’t respond to incentives are probably in the wrong jobs.
The production of salespeople is easy to measure and reward, but most other jobs have objectives that can be tracked and rewarded too.
Thinking through the objectives of a job usually makes potential incentives obvious. They could be based on quantities, such as invoices produced, packages shipped, receivables collected, etc. But other measurements are sometimes more appropriate—turnaround times, error rates, satisfaction surveys, inspection results, deadlines met, etc. The incentives can be earned individually or as a group.
(The use of incentives doesn’t imply that employees respond only to their own self-interests. Incentives emphasize the team’s objectives and are like the score in a ballgame. They provide feedback and a source of the accomplishment, respect, recognition, and teamwork that make work interesting and fun. When incentives are earned, the whole company benefits.)
Employees are generally eager to please management. They listen to everything the boss says, particularly about objectives and what they’re expected to accomplish. They set out with determination to meet and exceed expectations—to make a real contribution to goals.
But too often they discover the job’s incentives don’t match the goals as management explained them. The result is not only confusion concerning the objectives but damage to management’s credibility.
A manager’s words resonate for a while and then fade. Incentives speak with every pay check.
A high-paid, high-selling salesperson is more profitable than an average salesman often simply because his payroll is a smaller percentage of his sales and gross margins.
But he brings other advantages, too. The good salesman often talks to the same number of customers as the average salesman; he just sells to more of them—he’s more efficient with the customers the store attracts. His sales are also usually “cleaner,” resulting in fewer returns and better customer satisfaction. And he provides good example to the other salespeople.
The high pay of a top salesperson shouldn’t be a concern when it’s within an acceptable percentage of his sales and gross margins. More often it’s a bargain.
The idea that pay is a private agreement between employer and employee sounds good and makes sense; it just doesn’t work.
Pay information is just too enticing and there are too many ways to discover it for it to stay secret long.
Telling employees not to tell other employees what they make only means precede it with “Don’t tell the boss I told you.” The result is often dissatisfied and distrustful employees who can’t tell you what’s bothering them.
Better to assume pay will be discussed or at least discovered, maintain consistency, and keep channels of communication open.
Discussions of raises can be welcomed and focus turned to potential improvements in performance: “Let’s talk about how you’re doing and what you might do to increase your value to the company. Maybe we can find a way to accomplish what you have in mind.”
(Employees who are on commission don’t need to ask for a raise, but the discussion can still be worthwhile.)