[Jewelry making - Article 01098] - Re: [Orchid] Paying Employees, Commission?

[Andrea Hill]

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Hi John,

    Many years ago when we were redesigning our compensation program, we
    put all of our ideas together, and then we brought in a high-priced
    compensation consultant to "critique" our plan.  She stared at our
    plan for about 10 minutes (felt like 30), and then she looked up and
    said, 

    "You're a team-based company, right?" 
    "Right!" we answered enthusiastically, relieved that she was hooking
    into something that was really important to us. 
    "Then why did you design a compensation program that rewards the
    individual at the expense of the team?" she asked. 

    It was one of the most expensive questions I've ever paid for, and
    probably the best money we ever spent.  Ultimately, the plan we
    ended up with (the one we still use) rewarded teams first, and
    individuals second.  But it's pretty counter cultural in a society
    that focuses intensively on competition at the expense of
    collaboration. 

    At The Bell Group we give 30% of our pre-tax profits back to the
    employees of the company -- divided across all employees, whether
    they have a professional role or are a high school student working
    their first job in the warehouse.  We spend a tremendous amount of
    energy (time, training, communication) helping all our associates
    stay focused on the fact that if the company does better, we all do
    better.  Speaking with a community such as Orchid, where nearly
    everybody understands both the benefits and the enormous burden of
    owning your own business, it's probably hard to imagine that some
    folks don't appreciate that focusing on the bottom line is the road
    to financial stability.  Believe it or not, it takes a lot of
    training. 

    We have both salary and commission-based pay throughout the
    organization.  Both salary increases and commission percentages go
    to teams first, and individuals second.  I won't go into the
    measurement tools the teams use to determine performance, but suffice
    it to say that everyone is aware that the team has to hit their
    performance goals in order to gain greater salary or commission pay. 
    Everyone in the organization understands that they would rather be a
    high performing individual on a high performing team than a high
    performing individual on a low performing team, because it is the
    team's performance that determines the percentage increase. 

    So let's use a commission-earning team as an example: They set sales
    and profitability goals at the beginning of the year as a team, with
    input from leadership.  Say, for example, achieving 80% of their goal
    earns 2% commission, 90% of goal earns 3%, 100% of goal earns 4%, and
    110% of goal earns 5%.  Individual "shares" of the commission are
    then distributed out of the percentage the team has earned.  So yes,
    a higher performer on the team will ultimately earn more than a lower
    performer on the team.  But would you rather earn 20% of 5%, or 20%
    of 1%?  That was a real key to increased commitment. 

    As for the problem of "turning off" customers who didn't seem to
    have potential, we have incorporated important customer measurements
    into all of our metrics, in addition to sales and profitability. 
    Customer satisfaction measurements, customer lifetime value (which
    takes into account how many encounters it may take to turn a prospect
    into a customer, and then how long the relationship can be expected
    to last if you nurture it), and other important customer measurements
    are incorporated and trained to help our employees take a more
    holistic view of the entire customer experience.  Of course this
    doesn't provide a guarantee that discounting a customer will never
    happen, but overall our customer satisfaction scores have improved as
    we have continued down this path. 

    The first year we didn't see the benefits, but by the 3rd year this
    system was really making sense to people.  Teams today work very
    hard to assist one another with sales and service, to make sure they
    share knowledge and training and back one another up.   They are much
    more likely to offer one another both constructive and congratulatory
    feedback, and they appreciate the financial benefit of working
    together for something bigger than one can accomplish alone. 

    This type of culture does have its share of risks.  A great deal of
    coaching and training is necessary to ensure that a low-performer is
    not confronted with "mob rule," but rather, is given the support and
    training they need to improve.  These skills aren't taught in our
    schools, nor, unfortunately, in many homes.  So a commitment to
    helping team members be mature and effective in relation to others is
    essential. 

    I really believe in performance based pay in additional to paying a
    competitive salary.  I've learned over time that it takes a lot of
    training and communication to help people understand where the
    "reward" pay comes from -- it's not intuitive.  Setting clear
    measurements and goals, reflecting on performance related to those
    goals at least weekly, and constantly reinforcing the power of
    working together for a common goal are all part of the process.  If
    you don't do these things, then the extra money on a paycheck once a
    month, or once a quarter, or once a year won't say very much to your
    employees. 

    Finally, I am a really strong believer in giving profits back to
    employees.  It can be hard to fathom when profits seem tight -- and
    that's true whether you're a large corporation or a small retail
    store. But when you hire the right people, and train them well, and
    genuinely partner with them, they will bring more of themselves to
    work every day -- making work more rewarding for them and for you,
    and making the entire business more profitable for everyone. 

    Sorry to be so long-winded.  I hope this was useful information for
    you. 

Sincerely,

Andrea Hill
CEO
The Bell Group
(parent company of Rio Grande, Neutec/USA, WestCast and Sonic Mill)

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