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—too right, in fact. Some of the sales clerks have become so enthusiastic about getting their 2% that they are 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
A. Evaluate the use of this type of incentive and why the manager is experiencing problems with it.
B. If the manager wants to use another type of incentive problem for Arlow's employees, what type of system would you recommend and why?
C. Compare and contrast Arlow's incentive program with other forms of individual and team variable pay. Use the materials from chapter 12 of our textbook or any other online sources that you find to answer this question.