You are an HR consulting firm in charge of helping Vintage Royalty. Simon wants to keep an incentive system in place that includes goals and rewards, but also recognizes that something needs to be done.

You are an HR consulting firm in charge of helping Vintage Royalty. Simon wants to keep an incentive system in place that includes goals and rewards, but also recognizes that something needs to be done. In one sentence, explain the fundamental approach Vintage Royalty needs to apply. In other words, you do not have to describe, in detail, the specifics of a solution, but rather, what general management principle does Vintage Royalty need to think about in order to do to develop an effective incentive system? (1 point) (*Only first sentence will be marked*)

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CASE: Vintage Royalty 

Simon Cho was recently hired as CEO of the Canada wide clothing retailer Vintage Royalty. While Vintage Royalty’s sales have remained relatively stable over the past 10 years, their overall market share has dropped by 10%: a massive drop given the highly saturated clothing market in Canada. 

Simon has made it his mission to increase sales. When he was hired, he believed that the main problem at Vintage Royalty was that the sales staff was not sufficiently motivated. Upon taking his post as CEO he immediately recognized that the sales staff was paid an hourly wage, with no real incentive to sell clothes, so he changed things up. However, things are not working out as effectively as he had hoped.

About 6 months prior, Simon rolled out a new incentive system at Vintage Royalty, tied to both goals and rewards. He introduced a commission-based pay program. As part of the new program, store managers were instructed to meet with their sales staff and come up with mutually decided upon sales targets. These targets were individualized such that employees who had been with the company longer would have higher targets to meet than more recently hired staff. In addition, a new pay structure was introduced, such that employees were compensated with a minimum hourly wage, and received a hefty bonus for meeting their sales targets, and an even bigger bonus if they surpassed their sales target by at least 10%. Simon figured the new incentive program would encourage employees to stay engaged with customers when they were at work, and to sell more product as a result. 

At the six-month mark Simon sent out a survey to store managers to assess how well the new incentive program was working. To his glee, sales at the vast majority of stores were up from 10% to 30% depending on the store. Average sales per month had increased companywide by $2,000 per store. Simon also noticed some additional, less positive results, however. While sales were a net positive for the company, he also noticed that there was an average 15% increase in store returns across the same period. 

Simon reached out to a handful of trusted managers to get more in-depth feedback that perhaps the numbers couldn’t explain. Julie, the store manager at the Ottawa location responded immediately to Simon’s request for more information. She said that since the new incentive program was rolled out, she had experienced an increase in customer complaints. She said customers had complained that sales employees had acted rather aggressively towards them. Such aggression included sales staff fighting over customers in full view of the customers themselves, and sales staff pressuring customers to buy clothing that they had been on the fence about and simply wanted the sales staff’s honest opinion. Julie also told Simon that she was finding it impossible to get her staff to do some of the other tasks that she had previously had no problems finding volunteers for and that are important for running her business, such as conducting inventory counts and cleaning/tidying up around the store. Julie told Simon about how they had lost sales because the shelves hadn’t been properly replenished and customers got annoyed and left. 

Simon reached out to several other managers who all reported very similar things. Another store manager, Xin, said that she tried several tactics to try help fix the situation. She started to create schedules that not only informed employees of the weekly timeslots they were to work, but also the specific tasks. In other words, sometimes employees would be scheduled to work inventory and/or housekeeping duties, and during these time slots they were not supposed to be on the floor helping customers. However, she found that as soon as she turned her back or took a work break, employees scheduled for these tasks often went to the floor to interact with customers and sell clothes without her consent. Her staff was also more likely to call in sick during these shifts to the point where from time to time she would have to work overnight to get the inventory done. 

Another store manager, Jeff, reported that some of his staff were getting so aggressive with one another regarding who would get to help which customers that it had made some customers feel unsafe. To solve this problem he started to assign store areas as part of his scheduling. In other words, employees would be assigned a particular area within the store that they were to direct their attention to when helping customers. However, staff complained that some types of clothing are harder to sell, and they all expressed interest in working in the outdoor clothing section. He suspected this was because the coats at Vintage Royalty are expensive and popular and thus it was easy for employees to hit their sales targets when working in this section of the store. 

More and more managers replied to Simon’s request for more information, and all of them echoed very similar sentiments. Simon, leaned back in his chair and sighed. “Now what?” He thought.