M1 Case Study: Raleigh & Rosse

The problem with the compensation plan was that it was extremely results

oriented based on employees’ sales performance rather than seeing if it benefits the

company from a holistic standpoint in the long term. Sales associates were given a target

of $412 SPH to be accomplished in a 40-hour work week (which would generate 16K in

sales). If they reach their target, they are paid 7.35% commission on net sales. However,

if they fail to reach this target, they are paid their normal hourly wage of $14-$18 while

potentially losing their job if it continuously repeated. While this looks good on paper, it

put enormous pressure on employees to live up to these expectations. Moreover, their

system manipulated by not counting “non-selling” hours where employees have to do

restocking, merchandising, and attending meetings to keep up with their tasks. It was the

tipping point when employees were expected to perform “off hours” to meet the SPH

goal and hence the lawsuit. As growth in the luxury good retailing worldwide was

exploding and R&R was generating significantly higher revenues than industry average,

management might have carried a sense of pride and defensiveness that they can succeed

no matter what. They had failed to realize the importance of their own staff. This is

similar to how GM executives and management felt before learning from Toyota about

their auto manufacturing process. They failed to accept that Toyota was building the best

quality cars and that “a little Japanese company” cannot teach them anything.

If I were Linda Watkins, I would focus on setting a goal of changing the culture to

reduce employee fatigue while still keeping the work environment competitive. This

cannot happen without believing that employees are the real assets of the company. As

mentioned in Producing sustainable competitive advantage through the effective

management of people (Pfeffer), the old paradigm was that assets are things; the new

paradigm is assets are people with customer satisfaction as the true business goal instead

of profits. This is the new philosophy of running a successful business. I would improvise

the SPH program by implementing a performance system that clearly differentiates

between selling and non-selling time so sales associates are given a fair opportunity to

make the commission on net sales. In addition, I would structure their compensation plan

so that they are given equity in the company. This is important because when they own a

piece of the company, it is great for morale, and it gives them opportunity to make

monetary gains as the company value grows overtime, which is both motivating to

perform well, as well as reduces employee turnover. Lastly, I would change the

workplace atmosphere so it is fun, respectful and everyone shows empathy for one

another. Some perks like flexible work timings, team outings once a quarter and weekly

interactive activities would be a starting point to combat the stressful environment.