Case: Kimbel’s Department Store
Recently promoted to the post of CEO at Kimbel’s, a chain of high-end department stores based in
Atlanta, USA, Frances Patterson has been looking long and hard at the latest “Sales-by-Manager” report
that she receives everyday. Reviewing the figures, she wondered if they were telling her anything about
the success/failure of the company’s recent trial compensation programme that put some of its
salespeople on a 100% commission pay. Like most department stores these days, Kimbel’s must figure
out ways and means to stop losing market share to discount store chains. One of the key strategies the
company formulated to counter this trend is to attempt to revive a great customer service experience
on the store floor, something that gave high-end retailers like Kimbel’s a strong competitive advantage
in the past. While this strategy might appear straightforward in theory, Frances knew that implementing
it in practice would be everything but easy. She knew it as a CEO but it is as a customer first that she
came into contact with the problem. A few years ago, when she stopped by several stores incognito, she
was dismayed to discover that salespersons rarely approached customers; worse still, finding a
salesperson when a customer wanted to pay for an item was often difficult. About a year and a half ago,
the CEO read about a quiet revolution sweeping the department store retailing. At stores such a
Bloomingdale’s and Bergdorf Goodman, managers had started to put all salespeople on a 100%
commission (a compensation plan also known as a straight commission) i.e. that the entire pay of each
salesperson became entirely tied to his/her sales results, a change that also meant that because they
received no basic salary at all under that scheme, employees with no or low sales would receive no
income at the end of the month. While rather intrigued by this new trend, Frances was till unsure that
this new approach to paying salespeople was the remedy Kimbel’s needed to revive its sales so she
decided to proceed cautiously and gave the system a try at 2 Kimbel’s stores for a period of 1 year. Such
a plan, she reasoned, would be good for Kimbel’s if it lived up to its promise of attracting better
salespeople, improving their motivation, and making them more customer-oriented. It could also
potentially be good for employees. Salespeople in departments such as electronics, appliances, and
jewellery, where expertise and highly personalised services paid off, had long worked solely on
commission. But the majority of employees earn an hourly wage plus a meagre 0.5 percent commission
on total sales.
p. 4 /6
Under the new scheme, all employees earn a 7 percent commission on sales. When she compared the
two systems, she saw that a new salesclerk in women’s wear would earn $35,000 on $500,000 in sales,
as opposed to only $18,000 under the old scheme. Now that the 1-year trial period was about to end,
Frances noted that while overall sales in the two stores have increased modestly, so also had employee
turnover at these two outlets. When she further examined the “Sales-by-Manager” figures, it became
obvious to her that some sales associates had thrived under the straight commission scheme but that
some others clearly had not. Most fell somewhere in the middle. For example, Juan Santore was and still
is enthusiastic about the change in compensation plan – and for a good reason: Juan works in women’s
designer shoes and handbags, where a single
item can cost upwards of $1,000. Motivated largely by the desire to make lots of money, he’s a
personable, outgoing individual with an entrepreneurial streak. Ever since the straight commission plan
took effect, he has put even more time and effort into cultivating relationships with wealthy customers,
and that yielded some very encouraging results: his pay has increased an average of $300 per week
since the straight commission plan kicked off. Unfortunately, it’s a different story in the lingerie
department, where even luxury items are sold for significantly lower prices than the cheapest item in
the women’s designer shoes and handbags deoartment. When Frances consulted the Head of the
lingerie department, Gladys Weinholtz, the latter said that salespeople in her department were
demoralised. Several valued employees had quit, and most missed the security of a salary. “No matter
how hard they worked, they simply cannot match their previous earnings.” “Yes, they’re paying more
attention to customers,” conceded Gladys, “but the reality is: our salesclerks in the lingerie department
have monthly bills to pay like everybody else and as a result, they are so anxious to make a sale that
they have become aggressive towards our customers and tend to pounce on the poor women who
wander into the department. Furthermore, the lingerie sales associates don’t’t want to handle
complaints or merchandise returns because such duties don’t immediately translate into sales”. “Worse
still”, says Glady: “the salesclerks in the lingerie department now resent the sales associates in the other
departments where the straight commission compensation plan benefitted them”. The year is nearly up.
It’s time for the CEO to decide what to do about the trial compensation programme implemented
almost 12 months ago. Should Frances declare the straight commission experiment a success on the
whole and toll it out across the chain over the next six months?
p. 5 /6
QUESTIONS:
1. What theory(ies) about motivation underlies(y) the switch from salary to a straight commission pay?
(30 marks)
2. What needs are met under the 100% commission system? Are they the same needs in the shoes and
handbag department as they are in lingerie? Explain. (30 marks)
3. If you were Frances Patterson, would you: a. go back to the previous compensation system ? b.
implement the straight commission plan in all Kimbel’s stores ? or c. devise and test some other
compensation method ? If you decide to test another compensation method, explain what it would it
look like. (30 marks) 10 marks for introduction and conclution.
* Complete all questions at the end of the case.
* The completed assignment should be at least 250 words.
* Please use the Textbooks (Required) for your reference:
Daft, R..L. (2010). Management, 10th Edition: South-Western: Cengage.