Penney Eliminates Commissions

Discussion
May 14, 2012

In its ongoing effort to reinvent the traditional department store model, J.C. Penney is eliminating commission sales for groups of sales associates. The change will affect sales staff in fine jewelry, shoes, window coverings, men’s suits, and some in its salon department.

The affected workers will be put on hourly wages with the changes taking effect this month.

Penney said in a statement released to news sources that the switch "enables our teams to be even more effective in winning the hearts and minds of our customers."

The statement added, "Our new business model requires that we move away from a commission-based environment so that every team member is motivated by meeting the needs of our customers. Therefore, our commission pay plans will move from a commission-based structure to a competitive hourly rate structure."

The move is just the latest in a series of changes at Penney under its new CEO Ron Johnson, who formerly ran Apple’s stores and was a top executive at Target. In a bid to wean customers off coupons, Penney lowered its overall starting prices as part of its "Fair and Square" pricing policy. In the last month, Penney announced it was laying-off 1,000 employees at its home office and a Pittsburgh call center. The prior week, it indicated that it would let go an undisclosed number of store staff at its 1,100 locations, many of whom were in supervisory positions.

According to the Dallas Morning News, commissioned workers were promised that their hourly pay rate would be increased significantly under a new pay scale based on last year’s averages. But several associates told the newspaper that they expected less pay overall given that they were told they would be given fewer hours and will no longer be full-time workers. According to the report, that means some will not be eligible for health insurance.

Penney spokeswoman Daphne Avila told the Dallas Morning News that the "pay changes" would result in no associates losing benefits eligibility in 2012, even if they start to average less than 35 hours a week.

Discussion Questions: Do you agree that non-commissioned associates are better “motivated by meeting the needs” of customers than those paid strictly by the hour? What do you think of this change in light of all the others made at J.C. Penney?

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33 Comments on "Penney Eliminates Commissions"


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Al McClain
Guest
Al McClain
10 years 1 month ago

Bad move. Department store employees are motivated by commission and hourly wages are not enough for most to survive on. And, assuming the “meeting the needs” of customers really means getting them to buy more stuff, a commissioned salesperson will be more motivated to do that than an associate paid an hourly wage.Jewelry, in particular, depends on highly motivated sales people to seal the deal.

Ben Ball
Guest
10 years 1 month ago

The obvious and probably accurate reaction here is that this move is totally in keeping with the new JCP low cost strategy — by lowering overall labor costs.

Having said that, there is a definite difference in the behaviors of the sales psyche motivated by commission and that which is happy to avoid that pressure. The problem is figuring out which half of those happy on hourly wage are that way because they can just help customers and which half are happy because they can just goof off and still get paid.

Gene Hoffman
Guest
Gene Hoffman
10 years 1 month ago

That wonderful era when people actually wanted to assist other people just because it was a nice thing to do … when filling station people gladly filled your gas tank, wiped your windshields, checked your oil and tires for 25 cents a gallon and then thanked you for coming in … etc., that era has mostly died. But there are still among us some folks who like serving other folks. Those are usually the key employees.

Now J.C. Penny is working hard to change its public image and eliminate commissions. It can work if JCP can recruit the kind of people who really like serving people … and if JCP will pay them fairly.

Bob Phibbs
Guest
10 years 1 month ago

You beat me to the punch; I’m writing a blog on this important topic. Cutting commission sales is a sign of weakness, not customer service. The best employees are motivated to sell the premium merchandise because they get a reward if they do. This idea that kumbayah employees will drive sales is a canard. They are doing it simply to cut costs.

This is a page straight out of Circuit City. And we all know how that played out….

Bill Emerson
Guest
Bill Emerson
10 years 1 month ago

In the abstract, this makes sense. After all, most retailers do not pay commission. In the categories mentioned, however, a successful sale requires a lot of time, attention, and personal interaction. This means a high level of commitment to the customer and not just “the rest rooms are over there.” These are fairly rare individuals in today’s labor pool. They, as a group expect to be paid extra for the extra effort.

My guess is that the really good ones will go elsewhere and that the business will suffer.

Penney’s culture is not the same as Apple. The very hardest thing any business the size and age of Penney’s can do is change the culture. Moving too quickly without first attaining the support of the organization can be disastrous.

We’ll see.

Robert DiPietro
Guest
10 years 1 month ago

In light of all the other changes at JCP this is a step in the right direction. It will align the customer and the associate vs creating ‘shark like’ sales environment. I assume JCP will lose some of the highest earning sales reps but will gain a new sales environment which fits its pricing strategy. It may be a short term hit to sales but could be a tipping point in the overall rebirth of the company. It may be worthwhile to communicate this change to customers “we are here to help you buy, not to sell you something…”

I hope they don’t go the way of Circuit City but it seems to be part of a larger plan vs cost savings.

Raymond D. Jones
Guest
Raymond D. Jones
10 years 1 month ago

Commissions provide a strong motivation for store employees to conclude sales. However, they are just one element of an overall customer service strategy. JCP is clearly pursuing a new strategy that focuses more on improving the customer experience.

The question is whether JCP has sufficiently improved the store environment, product line and pricing to provide a better customer experience and if the sales people have adequate training and tools to provide good customer service in the absence of incentives.

Mel Kleiman
Guest
10 years 1 month ago

I am in total disagreement with the statement than non-commissioned associates are better motivated to meeting the needs of the customer.

Good commissioned sales people recognize that they are not paid by the company they are paid by the customer. They also realize that repeat customers and referrals are the best way to build their business and their income.

Two things are going to happen in the move.

1. The Good to Great associated will go looking for another job because they will be taking a major cut in income.

2. Sales in those departments that used to pay commission will go down based on the quality of the sales people who are left.

Warren Thayer
Guest
10 years 1 month ago

I agree with Al: bad move, and for the reasons he cited. Some associates will now be “motivated” to hide in the back room or goof off more now. And as for the pricing structure, it’s not nearly as simple as the press releases make it sound. We got a catalog recently explaining I think three different tiers of pricing, which seemed confusing and hardly true EDLP. I have a very bad feeling about all this.

Tony Orlando
Guest
10 years 1 month ago

I would go to a minimum wage, plus a new scale for commissions, rather than pure hourly wage. Selling jewelry, and high end clothing is profitable, so don’t take all the incentives from the sales folks. I don’t think this will work.

David Slavick
Guest
David Slavick
10 years 1 month ago

They are motivated by the almighty dollar. This is a very bad move in the short term. The commissioned associate is in a word, invested. Without that motivation their perspective changes and no words can cause acceptance. JCP will lose personnel disaffected by this change in policy. Am certain JCP took this into account. With a marketing campaign that promises treating the customer fair and square this decision certainly doesn’t do the same for valued employees.

Christopher P. Ramey
Guest
10 years 1 month ago

As written, JCP cut the number of floor supervisors and now they’re eliminating commission for the salespeople. The former allows them to miss the issues associated with the second.

This isn’t a strategy that I generally recommend to my clients.

Heinrich Klinge
Guest
Heinrich Klinge
10 years 1 month ago

This below statement from the company says a lot and reenforces the quality standards our great country is lowering itself to. If the weak can’t survive, we lower our standards to even the playing field….

The statement added, “Our new business model requires that we move away from a commission-based environment so that every team member is motivated by meeting the needs of our customers.

Though changes are necessary for this great retailer I think that this is a mistake and that they will in fact lose some great team members. Perhaps a better way would have been to integrate the program in perhaps a fairer way.

Cathy Hotka
Guest
10 years 1 month ago

I’d like to know which non-commissioned retail sales force Penney’s is trying to emulate. Just where is the outstanding customer service, without commissions, in this industry?

Kevin Price
Guest
Kevin Price
10 years 1 month ago

This will be a very interesting ‘case study’ to watch. When sales people are commissioned, they are motivated to sell merchandise (flash of insight!). That’s usually good for a business, of course. But there are many ways to go about ‘selling merchandise’, some of which are unsavory, and we’ve all been victims of less-than-honest tactics. So whether or not this is a good move for JCP, in my judgment, remains to be seen as the result MAY be good or it MAY be bad.

I highly doubt that removing commissions will result in every team member “motivated by meeting the needs of our customers”…sounds like BS to me. I don’t see the connection between the two. But if removing the commission is replaced by some other ‘motivation’, perhaps JCP’s plan can work (as it does at Apple). This one will be interesting to watch.

W. Frank Dell II, CMC
Guest
10 years 1 month ago

The issue of sales commission is not as simple as yes or no. Commissions are associate incentive systems which must be align with type of merchandise and target consumers. Just ringing up the purchases should not require incentives. When providing real customer service in support of repeat purchases, there may be value. Most often I see sales commissions used to replace poor education, training and associate motivation. Store profit sharing may be a better system.

Evan Schuman
Guest
Evan Schuman
10 years 1 month ago

The big problem with this commission change is that it happens just as JCPenney is trying to fight off online incursions (showrooming). Customer service and store experience is critical to that fight and this commission change undermines that sharply. When we looked at this issue last week, the problem is not removing commissions per se, but it’s the mechanisms that a chain needs to put in place to replace it. That’s a huge investment that it’s unlikely JCPenney will pursue any time soon.

Also, the relatively new CEO is trying to adopt Apple’s successful store techniques (their store reps also do not get paid commission), but Apple’s situation is radically different from JCPenney. Some techniques may translate, but not this one.

John Boccuzzi, Jr.
Guest
John Boccuzzi, Jr.
10 years 1 month ago
Not sure there is a correct answer. Commissioned sales associates have a clear path to earning more revenue. An hourly associate has a tougher time measuring this. “If I help customers and sell more the company does better which means I might get a raise” is tough to swallow. That said, many retailers have this model and it works. Part of this relates to culture and the passion of management that trickles down to associates. On a recent store visit, I had the opportunity to speak with an associate about the recent marketing and in-store changes and she said both employees and shoppers have had very positive feedback. It would be interesting to go back in and get her thoughts on new pay structure. Ron Johnson has a huge ship to turn and it appears he is not making any change decisions in a vacuum. Mr. Johnson clearly has a bigger plan and this move is part of it. How he gets associates to be passionate about helping consumers will be his next step and… Read more »
Kelly Ruschman
Guest
Kelly Ruschman
10 years 1 month ago

I like this move. Rather than muddling along in mediocrity, Mr. Johnson is making bold moves in order to separate JCP from the competition. It is easy to be the naysayer, but if he doesn’t shake it up, JCP will simply become irrelevant. As a consumer, I am looking forward to experiencing the new J.C. Penney.

Ed Rosenbaum
Guest
10 years 1 month ago

I disagree with Penney’s position in moving commissioned staff to hourly wage rates. Where is the incentive if not the commission? Penney’s said they would increase the wage rate to “compensate” for the loss of commission. This never happens. First, watch out for hours being reduced, as the article states. Then look for those good people to begin searching for another position to make up for the loss in income.

I can’t see how this is going to be a positive game changer. It almost appears to be blindfolded management throwing darts at a board and then reacting to where the dart lands.

Zel Bianco
Guest
10 years 1 month ago

It’s all about building relationships with a customer for the long term. This means providing value to that customer, whether it’s men’s suits or your next home. A real estate broker makes his or her living on commissions; if they do the right thing by you, you will use them again and again.

Craig Sundstrom
Guest
10 years 1 month ago

“…commissioned workers were promised that their hourly pay rate would be increased significantly under a new pay scale based on last year’s averages. But several associates told the newspaper that they expected less pay overall.”

And here we have the story in brief. This is beginning to sound like Circuit City…you know, that retailer that isn’t around any more; but I could also emphasize that it’s only beginning to sound that way, and if JCP is proactive enough to do all the things that desperate companies usually end up doing after the bow is under water, then it might not come across as desperate. I wish the employees well (though sadly I think they’re going to need more help than I can offer).

Norma Kvool-Brooks
Guest
Norma Kvool-Brooks
10 years 1 month ago

This is a mistake for JCP. I worked for Macy’s in furniture sales for 16 years and the last 5 years included a cut in vacation pay, commission, and of course an increase in my cost of medical benefits. All of this did NOT inspire me to work harder. Look what is happening to Best Buy who “proudly” advertised as non-commission business which would “increase” their customer service. I found just the opposite when I went to buy a digital camera. Several associates “ignored” me until I finally asked for some help. I repeat — JCP is making a mistake! Sales associates need positive incentives.

Tina Lahti
Guest
Tina Lahti
10 years 1 month ago

Wow, cutting hours and benefits and eliminating commissions, “so that every team member is motivated by meeting the needs of our customers.” I would laugh if it weren’t so sad for both associates and investors.