Operations - Create a Bonus Program for Happier Employees
Having worked for, or consulted with several retailers, the issue of how to raise the caliber of employees you currently have or want to hire always comes up. Yesterday I wrote about commission programs and the pros and cons of those. Today it's about bonus programs. Bonus programs can be a useful tool in hiring a better caliber of employee. They make you more competitive and the programs tend to be particularly attractive to "go-getter" type personalities - exactly what you want in a retail environment. Many retailers opt to institute a bonus program and you should probably follow suit to remain competitive in today's retail world.
THE REAL WORLD RETAILING TAKEAWAY
Here are the major areas to consider when developing and implementing a bonus program.
Incentivize the leaders. That's your store manager and assistant manager. After all, they're the ones who are supposed to be running the ship. Make sure the manager has the highest bonus potential followed by the assistant. It's up to them to lead and get the rest of the team to perform. The ultimate goal here is to have a great manager and assistant manager who truly know how to lead (part of it is innate and part of it will come from you). That way, when you open another location, you can move one of them to spearhead the new opening without missing a step at your first location.
Bonus by the percents. Remember, it's retail. So for most employees it's all about the almighty dollar. While you might not think a $700 quarterly bonus is much, when someone making $28,000 a year running a store can add up to $2,800 to their salary, that's meaningful (and it is…it's 10% of their salary). Typically you want the bonus to be around 10%. Too often, retailers institute programs that are so complicated that you need a Master's Degree to figure them out. The KISS principle always applies.
A big issue you'll face is employees giving up if they're going sideways toward attaining the goal. So do two things:
Give them more chances to earn a bonus. I always look at three major areas for bonuses.
- Attaining sales goals
- You can improve sales by increasing your average transaction
- If you're entrusting the store management with the profitability of the company, then add a profit component
Another area to look at is conversion rates (if you have a door counter, you can look at the number of customers who walked in and the number of transactions to get a conversion rate (conversion is the percentage of the customers who walked in who bought something).
Pay out more often. Always give the employee more opportunities to earn bonuses than not. You don't want to discourage them. So don't put conditions on the program so they have to attain both goals in order to be paid out. That only breeds discontent. Allow them to earn any component of the bonus and pay it more often, like quarterly.
If the manager's total bonus potential is 10% of their salary (say their salary is $28,000), they're eligible for a $2,800 bonus annually. Now split that up into quarters so they're eligible for $700 a quarter in bonus. Of that $700, pay 80% of it based on attaining the quarterly sales goals and 20% of it based on attaining the average transaction goal. Or split it up based on how many components you have -- three at most.
Finally, if you're going to institute a bonus program, then you have to share the numbers. Does your store team look at a daily report to know what the sales were yesterday, the average transaction, the sales by employee, the transaction count, etc.? If not, then you have to begin sharing the information to institute a bonus program. Nothing gets an employee more excited than to be able to track their progress.
What types of bonus programs are working for you?
