DeMarco's Incentive System: Advantages, Disadvantages, And Essay's Impact On Business Culture.

If we change this program. if we keep straight commission (or some and return to  hourly pay for others how does that fit with our new  imager Lauren said to Jack.

How does it deal with the difference in pay scale? How does it assure us that the attitudes of our sales team and the culture of this store will not [et= to what we were before - just another store?

1 What do you sec as the advantages and disadvantages of the incentive system that DeMarco's is using for sales associates?

What impact do you think it is having on the DeMarepOs culture? Explain.

2 you think the complaints of lower-paid sales associates are SL legitimate? Why? How do you suggest Lauren respond to these complaints.  such as theogripe ttte system offers few opportunities for large commissions in some

3 Have the successes of sales associates such as Katherine or Damien created a situation in which loyalty to customers is stronger than loyalty to the store? For example. if a successful associate leaves DeMarco's. might the customer leave also?

De Marco's, hIcekther raInTriartment stores. suffered the Auble whammy of a slitliag .omy and Increased competition from c41 discount retailers and 0 ne shopping.

How could the store, the 'box', compete, retain its old customers and build a strong future customer base?

'We've always known that it all about customer service,' Lauren said 'But what's so great about grabbing a giant plastic shopping cart and slogging through some giant warehouse in your shorts and flip-flops. and then yarning the herd at the checkout?

That is not a shopping experience: wc•r` "di 'And what isn't great about being treated hkeargifrom the moment you hit the door until the sales associate swipes your card and hands over something lovely that you just purchased?' Jack asked. Lauren's idea was that store customers receive that personal.  

Upscale. 'you're somebody special here' treatment at DeMarco's. Sales associates would raise their own professional level, regard customers as worthy_olgessonalleed service and build their own clientele. As added incentive. the entire DeMarco's sales team was calmed over from hourly pay to straight commission. Your pay is built through your own initiative and individualised service that makes customers return to you again NV, again.'

The idea intrialb Corporate. which approved a two-yearci experiment. As expected. the new plan created a minousgslusa5mOlig those who wentm a Ctill An IV of a egular pay cheque.

But as the program moved through Its first year, both store and corporate management was pleasede overall tesullt. Marketing pushed the new image of Cittpersonalised customer service,  and phrases such as 'Katherine at DeMarco's helped me select this out fit or 'Damien always lets me know when something new arrives at DeMarco's that he thinks is perfect for me' became the typical boast of savvy shoppers.

One of the challenges that face the modern brick and mortar or “box” stores is the increased competition from online stores which threaten to consign such stores to the dustbin of oblivion and obscurity. The modern store has to be innovative in order to attract clientele to its stores and give them an experience that will endear them to keep on making repeat visits. Such repeat customers are instrumental to the ability of such stores to survive by also giving positive referrals to friends which will drive sales in the store. One of the ways such a store can attract and maintain customers is through the incentive system that motivates the employee to develop a close professional relationship with the client.

Loyalty- There are several advantages of using incentives at Demarco. One of the incentives is the increased loyalty to the business for those whose income has benefited positively through the incentive system. The employee who is earning more now from the incentive system will be more loyal to the company that has employer and this is translated into a longer professional relationship between the employer and the employee.

Increased earnings- The incentive system will lead to the employee increasing their earnings by completing more successful sales. The increased earnings will have a positive impact on the earnings of both  the employer and the employee. The employee benefits by benefitting from earnings that do not have a ceiling but are determined by their effort. (Carol, 2012). Thus they can earn substantially much more than a fixed salary system. The bottom line that rises with the employee also benefits the employee and this is also an advantage.

Motivation- The incentive system motivates the employee to move from a state of mediocrity to excellence which is driven by the motivation to earn higher income. The shift from a guaranteed salary to income based on sales commission serves as a wake-up call to produce results that will be translated into their income.(Amabile & Kramer, 2011). The increased motivation also drives the employee to be results oriented as that will ultimately determine their continued employment or termination by their employer. This increased motivation is helpful to the company in meeting its quarterly and yearly targets.

Resentment- The incentive system can be perceived as unfair by some employees who may feel that particular departments are unfairly favored to the disadvantage of others.(Zhan & Karl, 2016). This is seen at Demarco where a commission on a 50$ belt in one department can compare to the commission on a 2800$ designer dress. The products which are different in the various departments may result in resentments due to the margins each product commands in margins of the sale commission earned.

Unhealthy competition- The employee striving to outdo their fellow employee in making a sale will lead to unhealthy competition that may manifest in naked aggression before the potential customer. (McGinley, 2016). In competing for customers, some employees may become pushy and intimidate employees who may not be as aggressive. The tendency to become pushy will affect the ability of fellow employs to sale as well as intimidating potential customers not to make repeat visits at the company.

Advantages

Team Work- The greatest impact it is having on the Demarco culture is that it is discouraging teamwork and is working towards a culture of individual performance. There is no team work in the different departments that would work together to meet targets as team but rather is left to a few individuals to drive the department targets.

Unethical behavior- The incentive system tends to breed a culture of behavior that is not ethical and moral.(Hilliard, 2013). Employees will regress from the culture that promotes honesty and integrity to one in which closing the sale is the most important mission by any means necessary. This will be achieved by cheating and overstating their ability. This will breed a new culture at Demarco where virtues of integrity and honesty have no value.

The complaints are valid from several perspectives. The first is the metric that is used to calculate the commission on a product worth 50$ when contrasted with a product worth 2800$. The incentive is not based on equity but on equality in that if the commission for both sales is 10%, the income earnings will not be equitable but will favor one side.(Siskin, 2016). The sales commission earned on the 50$ product comes to 5$ while the sales commission on the 2800$ product comes to 280$. The difference is big in that one employee is earning more than 50 times the income of a fellow employee which makes it a valid complaint.(Delaney, 2012). Even though the rate applied to both employees as commission is equal, it is not equitable because it produces different outcomes in earnings.

The second valid complaint would be in the metric system used to calculate the “success” of meeting departmental targets which would also come with added bonuses of having achieved their sales target.(Fehrenbacher, 2013). The department that sells products with a smaller margin may have to sell higher volumes in order to meet the same revenues as the department where the products stocked have a wider margin. Department X (designer dresses) will be able to generate higher sales and revenues than department Y (belts) due to the differences in the margin for each product. The employees together with the departmental head complaining about the system that is skewed to result in lower sales have a valid complaint in regards to the lower commissions they get from their sales.

The ideal response from the management of Demarco would be in two ways so as to achieve equity. The main consideration should be to result in equitable opportunity for each employee to get the same opportunity to earn higher sales commission.(Doellgast, 2012). The first response would be to put in place a system that allows for rotation of the employees from one department to the other so as to provide for equitable opportunity within the store. The rotation can be monthly so as to enable each employee to bridge the gap of income when working in a department with lower margins of sales commission.

The second ideal response would be to use a metric system that measures success differently across the different departments. The rate of commission applicable for products with a higher margin should be calculated within parameters that will not skew the earnings to favor one side at margins which are grossly unequal.(Mercat-Bruns, Holt & Kutz, 2016). An example would be to peg the rate for designer products at 1% margin while still maintaining the rate at 10% for the belts in order to achieve equity. Even though the difference will still favor one side, the gross margin that was considered unfair will have reduced. This will be offset when the employee is rotated to the department with the higher margins and this will address the problem of inequitable distribution of sales commissions earned.

Disadvantages

The success of the sales associates at Demarco has resulted in some of them like Damien cultivating a strong personal brand loyalty that is stronger than that of the store. The customer who forges a strong relationship with the particular sales person is able to purchase and make repeats at the store due to the expected level of personal attention they will receive from the particular relationship.(Pink & 3M Company, 2011). The employee also gets to study and identify the particular taste and preference of their customer to the point where they become a specialist in matching departmental products to each customer. This inherent talent which is nurtured within the competitive environment of the incentive system makes the customer to develop a strong loyalty to the employee and not the store.

The strong personal brand loyalty that is nurtured by a few to selling employees portends the danger of the customer desisting from patronizing the store in the case of the employee leaving the store. This is based on the premised assumption that the new store where they go to work will offer the same products in terms of quality.(Keeley, 2013).  If the range of product and quality is the same, then the only thing that would make the customer chose store X over store Y is the expected personalized experience they are used to and would like to maintain the same pattern and the same experience. Thus the customer would be highly predisposed to leave together with the employee to the new store where they chose to go and work.

The incentive system has been shown to have both positive and negative outcomes on the operation of a brick and mortar store. The advantages include the increased sales revenues for the store as well as the increased earnings for the employee. The disadvantages include employee resentment amongst the employees as well as the unhealthy competition that is seen within the store between employees. This incentive system also carries the risk of the customer leaving with the preferred employee when they leave their employment. Thus it is a management tool that needs to be carefully considered before implementation by an organization due to the advantages and disadvantages attendant to it.

References

Delaney, K. (2012). Money at Work. In Money at Work: On the Job with Priests, Poker Players and Hedge Fund Traders (pp. 11-25). NYU Press. Retrieved from https://www.jstor.org/stable/j.ctt9qfr3p.5

Zhan, J., & Karl, J. (2016). Investment Incentives for Sustainable Development. In Tavares-Lehmann A., Toledano P., Johnson L., & Sachs L. (Eds.), Rethinking Investment Incentives: Trends and Policy Options (pp. 204-227). NEW YORK: Columbia University Press. Retrieved from https://www.jstor.org/stable/10.7312/tava17298.12

Hilliard, I. (2013). Responsible Management, Incentive Systems, and Productivity. Journal of Business Ethics, 118(2), 365-377. Retrieved from https://www.jstor.org/stable/42921999

Doellgast, V. (2012). Using Power in the Workplace. In Disintegrating Democracy at Work: Labor Unions and the Future of Good Jobs in the Service Economy (pp. 54-121). Cornell University Press. Retrieved from https://www.jstor.org/stable/10.7591/j.ctt7zbdg.8

Mercat-Bruns, M., Holt, E., & Kutz, C. (2016). From Disparate Impact to Systemic Discrimination. In Discrimination at Work: Comparing European, French, and American Law (pp. 82-144). Oakland, California: University of California Press. Retrieved from https://www.jstor.org/stable/10.1525/j.ctt1ffjn61.9

Krakoff, C., & Steele, C. (2016). Incentives in the United States. In Tavares-Lehmann A., Toledano P., Johnson L., & Sachs L. (Eds.), Rethinking Investment Incentives: Trends and Policy Options (pp. 122-152). NEW YORK: Columbia University Press. Retrieved from https://www.jstor.org/stable/10.7312/tava17298.9

Fehrenbacher, D. D. (2013). Design of incentive systems: Experimental approach to incentive and sorting effects. Berlin: Physica-Verlag.

Amabile, T., & Kramer, S. (2011). The progress principle: Using small wins to ignite joy, engagement, and creativity at work. Boston, Mass: Harvard Business Review.

Pink, D. H., & 3M Company. (2011). Drive: The Surprising Truth About What Motivates Us. Penguin Group US.

Keeley, L. (2013). Ten types of innovation: The discipline of building breakthroughs. Hoboken, N.J: Wiley.

Siskin, C. (2016). BLAMING THE SYSTEM—INSTITUTING THE POLITICAL. In System: The Shaping of Modern Knowledge (pp. 149-170). Cambridge, Massachusetts; London, England: MIT Press. Retrieved from https://www.jstor.org/stable/j.ctt1gn69qb.9

Carroll, G. (2012). WHEN ARE LOCAL INCENTIVE CONSTRAINTS SUFFICIENT? Econometrica, 80(2), 661-686. Retrieved from https://www.jstor.org/stable/41493830