Analysis: Solving the morale dilemma

Keeping staff morale up can be hard when trading is tough

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In what was arguably the most hotly anticipated Christmas trading update to the City last week, Marks & Spencer chief executive Stuart Rose conceded there was a chance that staff bonus targets would not be reached.

With this year shaping up to be one of the most challenging trading climates of the past decade, retail bosses will need to incentivise employees if they are to hold on to staff and maintain morale in difficult times.

As Rose pointed out, it has been almost 10 years since the UK has experienced a consumer slowdown, meaning many of today's retail bosses are not used to working in such a climate. "In terms of bonus, this time last year we were well ahead of our internal forecast," said Rose at the press conference. "This year you don't have to be a genius to work out that we are not so far ahead. Still, we have the last quarter to run. We will wait until we have the knowledge before saying whether we will be able to give a bonus."

Last year, M&S paid out £91 million in bonuses to 72,000 employees including shop floor and head office staff. But retail guru and former Next chief executive David Jones says employees are now used to having a bonus scheme and consider it part of their salary. "Over the past six years people have earned big bonuses, so you can't immediately change the rules," he warns. "Staff on the shop floor, for example, have come to rely on their bonus to get a reasonable wage. They work hard and they need to be looked after. So in the current difficult trading climate, management needs to readjust the bonus scheme so that staff still get something, rather than nothing at all."

Jones adds that bonus schemes may need to be downgraded and made more realistic, with more communication between management and staff key to keep up morale.

Former Speciality Retail Group and Moss Bros chief executive Adrian Wright agrees. "Management should never set bonus targets it can't reach," he explains. "The worrying thing about the M&S situation is that I'm sure many of its staff have already spent the bonus they may well not receive."

External trading conditions will have undoubtedly played a role in sluggish Christmas trading at M&S, but retailers also need to consider internal criteria used for setting bonus targets. One industry insider illustrates an example of a retailer unable to reward the staff at one branch with a bonus, after it failed to consider the effects of a rival retailer opening in the same area and did not adjust targets.

"The staff in that particular store have probably worked just as hard as anyone else, but the shop as a whole has struggled to meet its targets largely because of the opening of a rival store nearby," he says.

Wright says it is easy to blame external factors on poor trading figures, but says that most shop floor staff rarely care about the overall performance of the business they work for – they worry about how a downturn would affect them personally. "Shop floor staff care about three things: financial rewards, job security and their future in terms of training and progression," he says. "So bonus schemes should be tailored to suit those demands. Management should base its staff targets on how much they sell, not how much money they make. The overall figure doesn't matter to shop floor staff, but they need an incentive to sell."

In fact, when many consumers choose to stay at home instead of hitting the stores, shop floor staff play a vital role in converting what little traffic the store gets into sales.

"Retailers will struggle to increase footfall at present, so this is the time when discipline on the shop floor really kicks in," says Dennis Reid, chairman and chief executive of RPS Global, which specialises in improving retail performance and motivating staff. "Management should use these quiet times in store to train staff on selling and the importance of good service. When footfall is down, staff have more time to spend with each customer, so transaction value should be higher."

Pound for pound
As well educational initiatives, Reid says retailers should make the shop floor environment fun, while stimulating staff to sell. He suggests playing a game called "pass the pound". When a shop opens its doors, the first member of staff to sell a product receives £1. The next employee to sell a more expensive product then takes that pound from the original staff member. The process continues until the shop shuts, with the employee selling the most expensive product keeping the pound at the end of the day.

While the technique could certainly make for a fun environment, management could consider upping the value of the reward for an additional incentive.

"About 70% of bonus programmes do not work properly, so companies need to work out what is best for their individual businesses, otherwise they will lose their staff. The cost of training new employees is high, therefore management needs to avoid this," warns Reid.

Wright estimates that it can cost retailers between £1,000 and £3,000 to train a new member of staff. "When I joined Moss Bros, staff turnover was running at 80%," he says. "But when times are tough, the first areas to suffer cutbacks are marketing and staff training because you don't have to spend money there. It's a shame because with an ever-changing retail environment, staff need to be kept informed of new trends."

He adds that communication between management and the shop floor is vital in keeping staff up to date with current trading and to avoid the negative impact that media hysteria can cause, citing M&S's update as an example. "Company managers often talk to journalists but not to their staff, so employees learn about their companies from the press rather than directly from their bosses," says Wright.

Neil Saunders, consulting director at retail analyst Verdict Research, says trading updates should be shared with shop floor staff. "What you have to remember is that staff are the ones liaising directly with  customers, so they know better than anyone what the shopper wants," he explains.

However, keeping up staff morale does not end at shop floor level. Head office staff face the current doom and gloom of trading updates on a weekly basis and are also in need of a boost. At a more senior level, bosses risk losing their directors to rivals.

"You have to be honest with head office staff and not mull over the figures, but you must also offer a strategy for improvement," says Wright. "Do they understand why the current plan is not working and how the future plan will correct the errors?

"Buyers, for example, also need incentivising and this can be done according to how much stock is left over at the end of the season. One of the biggest mistakes retailers make is for management to reward themselves with big bonuses when the rest of the team get nothing, particularly in a tough trading period."

Sharing the wealth
Janet Wilkinson, owner of independent womenswear retailer Jane Young, says her staff do not work on the traditional commission model. "We have a communal bonus pot, which is distributed equally among our staff," she says. "It was actually the staff's idea to change from commission-based bonuses to a single scheme. The shop floor staff said that the alterations department was missing out on bonuses, despite working very hard."

Wilkinson says she rewards her staff in other ways too, such as offering health insurance to loyal, long-serving employees. "But you can't take the financial rewards away from them," she says. "Even in a tough retail climate, you have to play with the numbers and make it work."

Jones agrees: "It's all about the money. An extra day's holiday doesn't pay the bills." Or, to use Reid's phrase: "Money follows management". He explains: "Good management attracts the best people, which in turn is how companies make a profit."