Fundamentals of Human Resource Management
Robert N. Lussier; John R. Hendon
Read Case 11.1 on pages 305-306. Briefly summarize the facts. Analyze the facts provided, and then answer the questions at the end of the case (1-8) and support your reasoning using themes from the course.
CASE 11.1 BEST BUY OR BEST SCAM? TRYING TO GET COMMISSION RESULTS ON SO-CALLED NON-COMMISSION PAY
Best Buy is one of the largest consumer electronics outlets in the United States and across the world. Its stores sell a variety of electronic gadgets and wearables, tablets, movies, music, computers, mobile phones, and appliances. On the services side, it offers installation and maintenance, technical support, and subscriptions for mobile phone and Internet services. Best Buy’s operations consist of its domestic and international segments. The domestic segment, which made up 92% of the retailer’s total sales in fiscal 2016 (ended January), focuses on the U.S. market, where Best Buy Mobile (mobile sales and service), Geek Squad (technology support services), and Pacific Sales (kitchen appliance sales and installation) can be found in U.S. Best Buy stores using the store-within-a-store format. Some also operate as stand-alone stores. Struggling from declining sales amid stiff competition from retailers (such as Amazon and Walmart), Best Buy reiterated that it would look for ways to optimize store space, renegotiate leases, and selectively open and close locations to support the company’s long-term transformation.89
One way that Best Buy has tried to increase store revenues is by focusing on providing customers product knowledge and services over direct sales. The Best Buy Code of Ethics is very clear on how customers should be treated.
Customers are at the core of our success and must be treated with respect. Every customer. Every situation. Every day. On the Responsibility to Our Business Partners page, we noted how important Best Buy’s reputation is to the long-term success of our Company. For this reason, every employee is obligated to: • Treat all customers fairly and honestly • Communicate with customers in a respectful and helpful manner • Provide prompt and accurate customer service…. Our customers rely on us to price and present our products and services fairly and accurately…. We do not condone any behavior that would violate their trust in us. Ever.90
Best Buy’s point of pride is that their employees are not paid on commission. Employees are trained to make non-commission statements, informing customers they are simply paid a flat rate in an attempt to gain customer trust and increase sales.91
This can be a great benefit to the customer, but according to one self-proclaimed employee veteran, this is not the whole story. It is true that most customer-facing employees (like Geek Squad agents or sales staff) are not paid on commission. However, sales are still incentivized in ways that create a commission-like atmosphere. For example, managers have the opportunity to make big bonuses based off revenue/margin goals. Lower-level employees can hit Blue Crew Bucks (a bonus tacked onto a paycheck). Some employees (like Best Buy for Business) receive commission on sales. None of these practices is unethical, but giving customers the impression that sales performance is not rewarded seems to this employee to be misleading and wrong. The data below from Payscale indicates that sales associates earn bonuses plus commission.92
Sales Associate at Best Buy Salary Range93
Bonus
$199.11—$2,970
Commission
$122.82—$16,650
Total Pay
$19,262—$28,070
In an attempt to increase in-store sales to combat increased online competition, Best Buy implemented a new sales tracking system. Now, each sales employee’s performance is closely tracked, as it would be in a commission pay system. Employees are tracked on multiple metrics, including sales per hour, protection plans sold, margin and gross revenue per sale, payments made on a Best Buy credit card, and accessory attach rate. By implementing this tracking system, Best Buy has promptly and profoundly changed the work climate within the stores. They have created all of the problems of a commission system, like competitive relationships between employees and in-fighting for sales—both of which damage the customer relationship and defy their claims. It clearly hurts the work culture.
Best Buy understands that such a tracking system has the potential to have a negative effect on the culture, so they instruct management to use the metrics only as a coaching tool. Unfortunately, there is a big difference between the theory espoused and the theory in use. These sales metrics are being used in performance appraisals and to promote and demote employees.94 An employee blog reported the following:
One of the store managers was demoted recently because his department wasn’t meeting the sales numbers all the time even though he was the best manager in the store. He would be constantly running around from department to department helping any customer he could while the rest of the “leaders” stand around or sit in the back of geeksquad and talk, usually personal conversations.95
Is Best Buy getting the best they can from their sales associates given their current compensation system? Working 50 weeks a year, 40 hours a week, sales associates earn between $9.50 and $14 an hour. Is this a “Best Buy”? for the employees, their customers, and, ultimately, their stockholders?
Questions
1.What is the definition of an incentive pay system? Given this definition, does Best Buy have a pay for performance system?
2.Why would any firm (including Best Buy) use an “incentive-like” pay system?
3.Of the two basic choices in incentive pay, which one(s) does Best Buy appear to utilize in their compensation plans and “tracking systems”?
4.The veteran employee claims that by using their “tracking system,” Best Buy has created all of the problems of a commission system. What are the advantages and disadvantages of this system in general and more specifically for Best Buy?
5.The veteran employee’s perception was that Best Buy’s metric system, which focused on individual employees’ behaviors, decreased their job performance. What would be the pros and cons of Best Buy using a group incentive system?
6..Best Buy seems to use bonuses and commissions as part of their pay system. What are the effective and ineffective uses of each system?
7.What group incentive do you think might work best for Best Buy?
8.In light of Best Buy’s code of ethics and the opinions reported in this case, do you believe that it is ethical for sales associates to tell customers that they are simply paid a flat rate?
