Download SUPPLEMENTAL CASE: Chapter 13

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 incentive plan. One
possibility is to reduce the commission to 1 ½%, but also have it apply to all
sales. Or, the manager might want to go to some type of group incentive system
that would be based on departmental sales increase or profitability figures.