Improving Incentive Pay Plans for Buyers
by KENNARD W. WEBSTER Partner, New York Office
Presented before the 44th National Convention of the Controllers' Congress, National Retail Merchants
Association, Hollywood, Florida—May 1964
IN 1957 your organization published a report on "Salary and Bonus Pay-ment Plans for Buyers . . .". At that time it was found that around 90 per cent of department and large specialty stores pay buyers with some sort of salary-plus-bonus arrangement. Finding an incentive pay plan of compensation for buyers that is fair to store and buyer alike is a continuing problem. It will always remain a problem, to some extent, since formulas, no matter how clever or how devious, have ways of "not exactly fitting the situation this year"; or they depend on data, such as share of market or trend of local economic conditions, that are difficult to develop.
We always hope to improve a little, over the years, and improving incentive
pay plans is no exception. But we'll probably never reach perfection or approach Utopia because of the many variables met with in evaluating a buyer's performance. Sometimes I think a sound-thinking merchandise manager who has watched a department's operations for the year, armed with a check list to be sure he has covered the main points, can reach an empirical judgment in the matter of incentive bonus that is as good as any formula. It may be better, as far as paying the buyer what he's worth is concerned, based on performance. But a review of performance, however sound, made after the fact without the bench marks laid down for the buyer a year ahead of time, won't achieve the maximum incentive.
POINTS TO CONSIDER
So we come to a point to be stressed in improving incentive plans: To provide the most incentive throughout the year, inform the buyer what is expected and how his incentive pay will be calculated, so he can work toward as big an incentive payment as possible.
This point rather presupposes that the whole incentive plan is figured out in advance. In that survey of salary and bonus-payment plans for buyers made in 1957, 64 per cent of stores used salary plus year-end bonus with a definite arrangement between the store and the buyer, 28 per cent had no oral or written argeement and 8 per cent paid straight salary only.
Of the stores with a definite bonus arrangement with buyers, about 75