Assignment
Ruth Diamond, president of Diamond Furriers, was concerned that sales in her store appeared to have flattened out. She was considering establishing a different method for compensating her salespeople. Diamond was located in an affluent suburb of Nashville, Tennessee. Ruth's father had founded the company 40 years earlier, and she had grown up working in the business. After his retirement in 1980, she moved the store into an upscale shopping mall not far from its previous location and sales boomed almost immediately, rising to just over $1 million in five years. However, once it reached that sales volume, it remained there for the next three years, making Ruth wonder whether her salespeople had sufficient incentive to sell more aggressively. Diamond's staff was all women, ranging in age from 27 to 58 years. There were four full-timers and four parttimers (20 hours a week), all of whom had at least three years of experience in the store. All of them were paid at the same hourly rate, $10, with liberal health benefits. Employee morale was excellent, and the entire staff displayed strong personal loyalty to Diamond. The store was open 78 hours a week, which meant that there was nearly always a minimum staff of three on the floor, rising to six at peak periods. Diamond's merchandise consisted exclusively of fur coats and jackets, ranging in price from $750 to more than $5,000. The average unit sale was about $2,000. Full-timers' annual sales averaged about $160,000, and the part-timers' were a little over half of that. Diamond's concern about sales transcended her appreciation for her loyalty toward her employees. She asked them, for example, to maintain customer files and call their customers when new styles came in. Although some of them were more diligent about this than others, none of them appeared to want to be especially aggressive about promoting sales. She began to investigate commission systems and discussed them with some of her contacts in the trade. All suggested lowering the salespeople's base pay and installing either a fixed or a variable commission rate system. One idea was to lower the base hourly rate from $10 to $7 and let them make up the difference through a 4 percent commission on all sales, to be paid monthly. Such an arrangement would allow them all to earn the same as they currently do. However, she also realized that such a system would provide no incentive to sell the higher-priced furs, which she recognized might be a way to improve overall sales. So she also considered offering to pay 3 percent on items priced below $2,000 and 5 percent on all those above. Either of these systems would require considerable extra bookkeeping. Returns would have to be deducted from commissions. And she was also concerned that disputes might arise among her people from time to time over who had actually made the sale. So she conceived of a third alternative, which was to leave the hourly rates the same but pay a flat bonus of 4 percent of all sales over $1 million and then divide it among the salespeople on the basis of the proportion of hours each had actually worked. This "commission" would be paid annually, in the form of a Christmas bonus.
DISCUSSION QUESTIONS
1. What are the advantages and disadvantages of the various alternatives Ruth Diamond is considering?
2. Do you have any other suggestions for improving the store's sales?
3. What would you recommend? Why?
The response should include a reference list. Double-space, using Times New Roman 12 pnt font, one-inch margins, and APA style of writing and citations.