The Greedy Seven

Article excerpt

CASE DESCRIPTION

The primary subject matter of this case concerns a salary increase and the internal and external
compensation alignment of a university. The equity-theory helps explain the conflict that exists
between the faculty members.

To assist in their analysis, students are provided with a timeline of the critical events of the case
and comparison compensation tables. Students are asked to answer four questions that include
solutions to management issues and a recommended long-term solution. This case has a difficulty
level of four. The case is designed to be taught in two class hours and is expected to require
approximately three hours of outside preparation time by students.

CASE SYNOPSIS

The case depicts a business school dean's attempt to raise the salaries of seven School of Business
faculty members to the 25th percentile salary level of AACSB accredited institutions. This was an
important step to retain valuable employees and ensure reaccreditation in 2007. The salary
proposal created an uproar among the non-business faculty at the university. They felt the School
of Business professors were already among the highest paid employees at the university. To make
matters worse, this situation occurred during a financial crisis as many other employees were
denied raises and several employees were laid off due to budget constraints. The problem is
exacerbated by the lack of a clear pay policy and by serious constraints posed by the institution
budget and state funding. This case illustrates the importance of internal and external
compensation alignment within an organization. The President of the university and the Board
of Directors are faced with the enormous challenge of creating cohesiveness among the faculty
despite their irreconcilable differences. Their actions and decisions will shape the fate of the
School of Business and the overall university

INSTRUCTORS' NOTES

Recommendation for a General Teaching Approach

This case encourages students to critically analyze several management principles including
conflict management, decision-making skills, and the equity theory in an applicable, real-world
situation.

This case is structured for senior level management students and should take approximately two
in-class hours to complete. Questions should be graded for the specificity of the answers
provided. The instructor may choose to lead an in-class discussion after the assignments are
completed so that different views can be observed. The instructor can then follow the discussion
with appropriate answers.
Answers to Case Study Questions:

Based on your knowledge of the Pay Equity Theory and provided appendices, evaluate the
Board's decision relative to the proposed salary increases for the seven School of Business faculty
and administrators by answering the following four questions:

1. Using the equity theory, discuss and rationalize the non-business faculty members' and the
School of Business "Non-Greedy Seven" professors' actions toward the salary adjustments for
"The Greedy Seven".

J. Stacy Adam's equity theory helps us understand why there was a controversial concern over
the salary increases for the School of Business. Equity theory is based on employees' perceptions
of fairness relating to their job. Using the equity theory, several non-business faculty members
compared his/her input (effort, experience, education, and competence) and output (salary,
recognition, rewards) to those of the business faculty members. Since they perceived the ratio
was unequal, an equity tension existed. Therefore, the non-business faculty members could
either choose to reduce his/her effort or strive to increase his/her output to make the
relationship ratio balance. In this case, two main points can be noted to help illustrate the
perceived work ratio imbalance. First, the non-business faculty members felt that the business
faculty members were already overcompensated. …
What does the Future for Incentive Compensation Design in Retail Hold?
Employee motivation is a critical factor in retail. And let’s face it: money talks, but monetary
rewards need to be used and managed wisely in this ever-challenging sector.
Across the globe, retailers are encountering roadblocks: increased online competition, slim
operating margins, pricing pressures, increasing living/minimum wages, as well as the need for
omnichannel strategies, meaning a single customer view through which retailers are able to
personalize the shopping experience.
Not to mention that in today’s digital age, consumers no longer require the help of retail
associates, in a traditional sense. Thanks to technology, consumers now have everything they
need to know about a product and/or service right in their hands—before they even enter a
store. In a few swipes and couple of clicks, consumers are able to search, compare, and read
reviews for whatever product they’re seeking, ultimately enabling them to become self-
sufficient shoppers.
And retail employees are feeling the lack of love—it’s been reported that the average turnover
for part-time sales associates has been as high as 66%. Those departures and required
replacements aren’t cheap, either, as one CAP study found that to replace a $10/hour retail
employee, the cost, on average, to search for, hire, and then train someone new is $3,328.
Putting Together a Retail Sales Incentive Program
So, then, how can retail managers continue to motivate their employees while facing these
challenges head-on? To find success, we’ve found that retailers must:
 Transform their organizational culture
 Define incentive criteria by each specific role
 Tailor plans to the organization’s situation and circumstances
 Solidify the incentive calculation framework and process
 Promote incentives on an ongoing basis
Transform the organizational culture
In the face of customers shunning retail associates, retail managers must not simply stop
worrying about training and development, and instead, should be driving even harder to the
hoop. This means enabling their employees with the skills they need to complement and add
value to the in-person experience. While they no longer need to be product information
experts, per se, sales employees can still enhance the buyer journey during this critical last stop.
In fact, having to worry less about convincing a customer to buy (because the customer has
already done the research and more or less has their mind made up), the sales associate can
help a customer dive deeper into a product choice in order to get them the most value out of
their purchase.
For example, a customer might know the general type of laptop they want, but do they fully
understand all of the available product options? The employee can also assist in validating the
customer’s decision, and can still actually sell, by pitching relevant upgrades and more. And
how about the employee’s role as information gatherer? Nobody is in a better position to solicit
customer complaints or kudos about a specific product or the brand itself.
With all of this, managers can reinvigorate staff, showing them they still have plenty to offer,
and setting the table for an incentive scheme that speaks to each of these newly identified
tasks and outcomes.
Define incentive criteria by role
It’s only at this point - having transformed the organizational culture - that you can start
thinking about designing an incentive plan. But before jumping in, organizations must first
define the criteria that relates to the area of responsibility for each role—or what we
compensation experts call “line of sight”.
For example, it wouldn’t be prudent to tie a salesperson’s incentive compensation to gross
margin since salespeople do not determine markups or discounts. Likewise, in a centrally
controlled, multi-store environment a store rep or associate should not have their incentive
based on net profit because they cannot control many of the elements that determine that
number, such as costs and overhead for the store.
What does make sense, though is aligning retail employee behavior with the customer
perspective. Specifically, customer experience is broken down into three categories:
effectiveness, ease, and emotion, where sales associates must be able to make a personal
connection with the customer in order to be successful. As Terry Lundgren, former CEO of
Macy’s, said during a roundtable discussion, the top sales reps are successful because they
become friends with clients.
Thus, it goes beyond just selling and meeting quotas; it is building a trusting relationship, which
in turn increases the chance of repeat purchases. This is the area where retail employees
should be positively reinforced through proper incentivization.
Tailor schemes to the organization’s situation and circumstances
Next, programs should be tailored to each organization’s situation. For example, some retailers
pay their selling staff an hourly rate plus commission. Others pay just an hourly rate. With the
increasing minimum wages in the US and increasing living wages in the UK and Europe, we may
see a shift to lower commission rates or elimination of commission programs altogether.
On the other hand, with the increasing popularity of BOPIS, or “buy online pickup in store,”
(50% of consumers expect to buy online and be able to pick up their goods in the store),
retailers may decide to maintain their commission plans.
One thing is clear: flexibility is critical in designing incentive compensation programs.
Solidify the incentive calculation framework and process
And speaking of flexibility to rapidly react and adapt, retailers should consider how they
calculate their incentives.
Are the plans administered in Excel or do you have an Incentive Compensation platform to
calculate and report payments, and automate sales compensation management? With
increasing challenges in the sector, including demand volatility, labor management, and hiring
demands, more and more retailers are investing in Incentive Compensation Management (ICM)
or Sales Performance Management (SPM) platforms to provide rigorous planning to meet ever
changing business needs—effectively enabling them to track store and employee performance
across the organization, as well as calculate and administer incentive compensation payments.
Did you need to adjust your plans due to Snowmageddon 2016? No problem. Having a flexible
ICM platform enables retailers to effectively manage their plans throughout the year with
minimal disruption by providing robust plan modeling capabilities to quickly assess different
scenarios prior to finalizing for deployment to employees.
Promote incentives on an ongoing basis
And last, to be effective, employee incentives should be promoted on an ongoing basis,
particularly in retail, and must adapt to the new profile of your sales people and your buyer, in
particular, millennials.
The entire sales force is shifting and millennials is not just a fad. The way this new talent learns,
engages, and executes their jobs, aspirations, and goals is completely opposite from prior
generations and sales leaders must take notice and accept these changes.
As it relates to the retail industry, most employees are paid an hourly wage vs. a salary, so
frequency is important. Retailers may want to plan specific SPIFs (Special Performance
Incentive Funds) throughout the year to generate excitement and “sweeten the pot,” in
addition to their standard incentives. They can be designed for individual winners, team against
team, store against store(s), or managers versus managers.
Challenges against quotas for individuals, departments or total store can be just as productive
and exciting, and can be adjusted on the fly, in real-time, with the right solution—not
something you can typically do with multiple spreadsheets. Contests can run for a length of
time, whether it is based on seasonality or customer trends, and variety is important. And don’t
forget variety when considering the type of award. Gift cards and time off can be as motivating
as cash.
Retail Incentive Compensation Plan Design Examples
Now, where do you go from here?
The following are some high-level incentive compensation plan designs for different roles
within the retail sector:
Salesperson: Compensation for retail salespeople vary from straight salary to straight
commission, with many variations in between. The most commonly used scenarios are draw
against commission and base rate plus commission. (Note: US employers should be aware of
the overtime exemption provided in the Fair Labor Standards Act if their salespeople work
overtime hours.)
Store Managers: In a centrally controlled environment, store managers typically have effective
line of sight in three areas: volume, selling costs and shrink.
Buyers: Buyers usually have responsibility for margin, turn rate and volume, so their incentive
plan should be based on these criteria.
Top-Level Executives: Incentive plans for top executives should include a net profit measure,
such as EBITA or EBITDA.
The decision of whether or not to utilize incentive compensation is one that each retailer must
make depending on the organization’s circumstances.
Once the decision is made to utilize incentive compensation plans, they must be adapted to the
organization’s unique situation and designed to result in increased sales and profits.
My mantra as a compensation professional is “keep it simple.” If you ask an employee how
they’re compensated and they cannot explain it to you, you may want to consider taking a look
at your incentive plan design.
OpenSymmetry’s Strategy Team can assess and help design motivating incentive compensation
plans and provide implementation services around the implementation and ongoing support of
your enterprise ICM/SPM platform.