Make Your Retail Compensation Plans Work for You and Your Employees

When it comes to creating loyal and productive employee relationships, retail and human resources consultants  – including myself – often speak of the “4 R’s of Motivation.”  These are:


Each of these components plays a big part of ensuring your retail sales representatives and other team members are motivated, loyal, and productive.  But it is undeniable that without a properly designed compensation program, the other factors are that much harder to implement. 

Let's be honest, getting a “thank you” from your supervisor, understanding that selling accessories and attachments is important to the business’ health, or winning a big screen TV are great, but the bottom-line is that people need money to survive and they want to be rewarded for helping you to achieve your retail business’ goals.  So, here are 4 things to consider when developing a retail compensation plan for your team members.

1) Share the wealth and reward achievement:  At its worst, the retail industry has a reputation for being a dead-end job for many workers or as a stopping point for people who are on their way to a better opportunity in another industry.  This is because most workers are paid at low hourly rates with no opportunity for growth.  But that does not have to be the case.  Retail can be a highly rewarding – and lucrative – profession.  That does not mean that you need to pay your retail sales associates on a pure commission basis or that your compensation plans need to be complicated.  It does mean that if your business is doing well you should reward the retail associates who helped you to get there.  This reinforces desirable behavior and encourages employee loyalty.

2) Ensure your retail compensation plans support company objectives:  Every successful retailer has a set of objectives and a clear-cut mission statement.  Objectives could include increasing revenue, improving gross margin, reducing inventory shrink, controlling payroll costs, increasing customer loyalty,  or any number of other factors.  Make sure that your retail pay plans motivate your team members to achieve these objectives and do not hesitate to make adjustments based on position (sales rep vs. manager vs. cashier) or changing business needs.

3) Make your retail compensation plans easy to understand:  I once worked with a retailer who had a compensation plan for store managers that had them earning bonuses based on 8 different factors with partial monthly and quarterly payouts plus an annual payout.  That meant that they had to be able to do 24 different calculations to determine their compensation.  Based on real company objectives we changed this to a monthly bonus based on gross profit and an annual basis based on net profit.  We then invested in a retail management training program to teach them how to attain the objectives.  The result was an 8% increase in revenue and a 13% increase in net profit!   

4.) Provide easy-to-follow compensation reviews or bonus forecasts:   Periodically you should sit down with your retail team members to review their paychecks or monthly bonus statements.  Once you do, you can make a mutual plan to achieve better results.  After all, one of the ways to understand where you want to go is to know where you are.  Over 60% of the Fortune 1000 execute this as a best practice and you can too!

Compensation is a key part of your overall program to ensure that you have a motivated team of retail sales associates.  You will still need to ensure that you have appropriate recruiting, retail sales training and product training programs, marketing plans, and retail operations processes in place to ensure success.  But when an effective compensation plan is in place you have laid a strong foundation for future success.

Would you like to improve the quality of your retail store operations?  If so, contact us for a free one-hour consultation!