Are Retention Bonuses Effective for Retailers and Sales Organizations?

A recent article by CNN Money profiled a business owner who has made a commitment to give any employee who stays with his business for five years a retention bonus of $50,000.  While he is not a retailer, obviously, this is a business owner who has recognized the importance of retaining qualified talent and the costs associated with employee turnover and he intends to do something about it.

But do retention bonuses of this sort make sense, or is there a better way to invest that money?  Let take a quick look at this question as it relates to retail and other sales-oriented business.

The problem is high employee turnover

Even when you adjust for seasonality, the retail industry typically experiences an employee turnover rate well in excess of 100% per year.  And virtually everyone agrees that this is a big problem.

However when you dig in to the issue you begin to see that the turnover rate for high performing retail associates is much lower – often in the range of 10-20%.   It tends to be the unproductive team members who turnover frequently.  That could mean that investing in a retention bonus simply provides an “unearned” incentive to your productive team members while encouraging the unproductive retail employees to stay with your Company.

A Better Approach to Employee Retention

While the concept of a retention bonus may work for some industries, for retail and other sales and customer service oriented businesses I would suggest that a better approach is to focus on activities that incent your retail employees to achieve their own reward while improving your business’ results.  Top performing retail companies all understand that the best way to create high quality results – and coincidentally to reduce employee turnover – is through the use of incentives, training, and performance management. 

Use the “Rule of Thirds”

To be fair and equitable, you should provide incentives, retail training programs, and implement performance management practices across your entire organization.  But, in practice you may find that it is helpful to mentally divide your retail team into three parts and focus on one core activity with each part.  This is what is referred to as the “Rule of Thirds”.

Top Third – High Performers Want Incentives

If you are a believer in the Pareto Principle then you know that your top performers are responsible for 80% of your Company’s results.  These are the sales leaders that you cannot afford to lose.  But instead of trying to retain them using a time-based retention bonus, stretch them to accomplish even more by focusing on the sales incentives, bonuses, or commissions that they could earn by helping your business to grow.  The incentives could be based on individual results or on having the Company achieve a new performance benchmark.

The Middle Third – Average Performers Need Management

There is an old saying that goes something like “If you are not getting better, you are getting worse”.  And that is particularly true in the retail and sales sectors.  Assuming you have provided the training and support that your average sales representatives need then you need to be working diligently on helping them to move into the echelon of your top performers.  Use retail performance management techniques including SMART goal setting, scorecards, weekly one-on-ones, and written evaluations to make sure that they know where they stand at all times.

The Bottom Third – Provide the Tools They Need to Succeed

If your retail company is like most, your bottom performing employees are likely your newest retail team members.  Being in the bottom third – unless you are tenured – is not something to be ashamed of as long as you and your employees are focusing on the activities that will quickly get them off of the bottom.  This typically revolves around new employee orientation, product training, customer service training, and sales training.  Use all of your techniques including classroom, e-learning, training manual, and role playing to invest in your new team members.  They should respond quickly and move up the productivity chart.  If not, find a replacement quickly!

Want to learn more about how you can use the “Rule of Thirds” to improve your results and improve your employee turnover rate?  Contact us for a free one-hour consultation!

-          David Goodwin is the Principal of the Retail Advocacy Group.  As a 30 year veteran of the retail industry he has hired, trained, and performance managed thousands of retail sales representatives and retail managers.  You can learn more about instructor-led, e-learning, and other training solutions for retailers at www.retailertrainingservices.com.