Incentive Case Studies

SUPPLEMENTAL CASE: Chapter 13

Case: Cash is Good, Card is Bad

Arlow’s is a small retail store located in a major midwestern city. Because of its reputation, Arlow’s has been able to attract highly competent professional sales help. All sales clerks are salaried, non-exempt employees who are well paid, but who do not receive commissions.

Recently sales have flattened out because of slower economic conditions. Thinking that maybe an extra incentive will help Arlow’s through the economic dip, the store manager decided to institute a 2% commission on cash sales only. Because of the 4% service charge made by credit charge card plans on all charge sales, Arlow’s manager felt that this incentive plan would appeal to the sales clerks and be advantageous to the firm.

The manager was right—to right in fact. Some of the sales clerks have become so enthusiastic about getting their 2% that they are being very pushy and insulting to customers who refuse to pay cash and try to use a bank charge card. Consequently, the manager has received several complaints in the last few days from irate customers who loudly promise to “never shop here again.”

Questions

1. Evaluate the use of this type of incentive and why the manager is experiencing problems with it.

2. If any incentive system is to be used, what type of system would you recommend? Why?

Issues and Discussion

The incentive scheme described in the case has resulted in problems. By placing emphasis on how the sale is paid for, instead of on the sale itself, the manager has generated counter-productive results. The incentive is not directly tied to the results that the manager wants—increased sales. Also, clerks in department stocking lower cost items are at an obvious advantage because customers are more likely to pay cash. A clerk who sells luggage is at a disadvantage when compared to a clerk selling lingerie.

The manager needs to drastically rethink this...