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Business 101: Incentives, bonuses and rewards

An incentive program is a powerful tool that can be used to enlist the creativity of your staff toward increasing sales and profitability, encourage implementation and support for effective cost-controlling measures, and, ultimately, drive meaningful and sustainable growth for your company. Over the years, though, we've seen more of these programs executed poorly rather than successfully. We've blown a few ourselves.


An incentive program is a powerful tool that can be used to enlist the creativity of your staff toward increasing sales and profitability, encourage implementation and support for effective cost-controlling measures, and, ultimately, drive meaningful and sustainable growth for your company.

Over the years, though, we’ve seen more of these programs executed poorly rather than successfully. We’ve blown a few ourselves.

In this article, we hope to shed light on incentive programs and help you decide if you want to take this path in your organization, and how to do it.

It’s important to remember, creating an incentive program is not an isolated decision you make in your company:

Incentive programs are intimately tied to what kind of culture you want to institute and promote.

What we mean by this can be summarized by two statements:

We’re not trying to be facetious here and we’re not making a judgment:

  • You may not want to have everyone thinking about costs and margins and efficiency: “How much are we paying the cleaning service? Couldn’t we do it cheaper ourselves?” “Why do we carry Brand X when the margins are so low?” “We have too many people on staff in the evenings” when one of those people is your brother, Spider, who’s out on parole and you’re doing him a favor.
  • You may not want to share profits. Many of us don’t. A perfectly reasonable decision.
  • You may not want to have a participatory culture in your company. Many of us are not comfortable in that environment.

No one ever said participatory management was easier or more efficient. Autocracy trumps democracy every time, in terms of being lean and mean, but that’s another discussion.

Rest assured, once you install any form of incentive program on the broader indicators of your business, you will begin to change the culture of your organization toward more participation, more caring, more investment and more human complexity.

We tend to think that is a good thing.

More complicated to be sure. Issues will arise you did not anticipate. A good incentive program is not self-managing: It will require your time setting it up, maintaining the data, and educating your staff and explaining your operations to folks who, a year ago, may not have cared as much.

For the sake of the discussion that follows, let’s assume you either already have incentives in place or are considering implementing them.

Let’s also limit what we’re talking about by eliminating those valid incentives or rewards or bonuses that don’t truly fall under the heading of a “program,” such as:

  • Recognizing someone’s work and from time-to-time unexpectedly giving a gift or cash bonus or time off, or simply saying “thank you.” We recommend this, but nothing approaching a “program” is required.
  • Having a staff party seasonally and expressing appreciation is a simple thing to do that builds trust and teamwork.
  • Tying a reward, cash or otherwise, to a specific task can also be done simply and without major cultural convulsions. This might include store cleanup at night, getting the deposit into the bank each day on time or balancing the cash drawer.

But things get more complex when there are dependencies between people or departments, when there are functions that affect one person’s or a group’s reward that are under someone else’s control, and when the incentive reward is tied closer to the business at large.

Here are a few examples of some of the kinds of complaints we’ve heard in the past relating to rewards, bonuses or incentive programs:

  1. A shipping and receiving group talking about a quick receiving turnaround incentive: “We would have made our bonus, but the buyers regularly didn’t have the documents to us by the time the goods arrived, and in most cases, they hadn’t even entered the PO!”
  2. Buyers talking: “I missed my points on gross profit because the manager in Store 2 has an issue with Brand X and refused to even stock the product.”
  3. A salesperson talking: “I’m supposed to earn five bucks each time I sell a Super Gizmo, but the buyers don’t keep them in stock. How’s that fair?”
  4. A store manager talking: “This is goofy. A quarter of my pay comes from a percentage of net operating profits for my store, but guess who spends my SG&A (Selling, General and Administrative Expenses) without even talking to me?”
  5. Manager, buyers and salespeople talking: “Our sales would be huge if we had product, but our credit is so poor, we don’t get shipped and we miss our bonuses.”
  6. Everyone talking: “They told us we’d get profit sharing if we did well and WE DID, but it seems like they just want to keep it all for themselves. It seems they’re just manipulating us.”
  7. Since we opened that new store, we haven’t gotten a dime in bonuses. That was a bad idea.”
  8. “Who does that gal think she is? We didn’t need to hire her. Her wage is coming out of my pocket!”

Et cetera, et cetera, ad tedium. If you have incentive programs in your company, you’ve undoubtedly heard some or all of these complaints. They are all legitimate.

So our goal is to set up our incentive programs to anticipate and preclude as many of these problems as we can in advance.

Here are a few general guidelines we’d like to offer for your consideration:

As you can see, there is much more complexity involved with reward programs than can be covered in this brief overview. But don’t be put off: The basics are quite manageable, even for smaller operations. At the core, a good incentive program, as we said in the introduction, is about changing your company’s culture to reward caring and commitment through sharing the fruits of your enterprise.

Happy retailing!

This article is part of a new Business 101 Training series for store management and owners, produced by SNEWS® and authored by Geoff O’Keeffe and Michael Hodgson. Geoff O’Keeffe has held retail senior management positions at Granite Stairway Mountaineering, Adventure 16, Patagonia and PlanetOutdoors.com, as well as having served as president of Lowe Alpine Systems USA and Mountainsmith. He is currently the president of Slumberjack, and lives in the mountains above Boulder, Colo., where he is a fourth-generation resident. SNEWS® co-owner and president Michael Hodgson, in a former life, was a manager for five years with Adventure 16 and the general manager overseeing a team of buyers and store managers for three years at Western Mountaineering. In those roles, he learned the immense value of skilled, well-trained, and very nimble teams to achieve business success.