Incentive Compensation in Retail Industry

incentive_compensationThe retail landscape is increasingly dominated by stores. But the headlong rise of e-commerce has put extreme pressure on retailers to become more efficient, and to justify their bricks and mortar existence to customers. Retailers are recognizing that traditional retail needs to be retooled and their key differentiator could be that employee standing in the store.

Employee motivation is probably the most important single manageable factor for success and profitability of all the facets of store retailing. There are almost as many effective ways of motivating employees as there are ways of enticing customers into a store but money is generally the greatest motivator of all.

Retailers offer incentive compensation plans to promote employee motivation. These plans are tailored to the unique situation of each store.

Some of the factors used by retailers while building a compensation plan for a store are

  • Y-O-Y growth ($$$)
  • Y-O-Y growth percentage (%)
  • Achievement against the target ($$$ – A grid of growth $ against various bonus %)
  • Achievement against the target (% – A grid of growth % against various bonus %)
  • Inflation
  • Seasonality
  • Store factors (Age of the Store, Store Hierarchy, Geography)
  • Non-comparability against last year performance (New Store, Store Expansion, Store Relocation, Cannibalization against new store)
  • Employee role, grade/band, salary etc.

While measuring achievement, Targets are usually the store turnover or the profitability or a combination of both. It is better if the plans are simple. However, simplicity itself cannot be given excessive consideration since it is necessary to cover every major measurable factor.

The master data required to build and roll up compensation plans are either defined at the Incentive compensation platform or flows to the platform from upstream systems along with achievement (turnover, profitability) details.

Master data is typically validated by financial controllers and relevant entities before getting fed for compensation consideration.

Incentive compensation platforms help in performing calculations using a set of complex rules and the final rates and amounts are dispatched to the payroll department for validation before they are broadcasted to the stores.

Store employees access these details through employee portals or other methods set up for them.

Compensation platform facilitates regular reviews of performance against compensation plans to stimulate store level efforts. Data is archived to facilitate the audit.

The installation of an effective incentive plan is the foundation of a successful motivational compensation program. To optimize results retailers should regularly nourish and promote the program and a regular review would make sure it is still working to expectations.

 

5 thoughts on “Incentive Compensation in Retail Industry

  1. Hi, I am really happy to found such a helpful and fascinating post that is written in a good manner. Thanks for sharing such an informative post.

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