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When Nature Strikes, Should This Owner Take Care of Her Employees or Her Business?

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ROBIN SAGER OF GULFSHORE Jewelers had worked with her mother and father for more than 10 years before their 2015 retirement, and she helped to build the business from a small repair shop into a regional powerhouse. Her dad had always talked about “taking care of those who take care of you.” He was proud of his longstanding friendships with a number of sales reps and of his loyal and long-tenured staff. Once she bought the business and took over day-to-day operations, however, Robin quickly saw that what she had always considered her father’s admirable loyalty was really just his way of avoiding difficult situations with vendors, customers and employees — all of which would need to be handled if Gulfshore Jewelers was to be restored to sustainable health. With a firm commitment to the future, Robin laid out her priorities and chose to deal with the issues decisively yet slowly to minimize disruption.

ABOUT REAL DEAL

Real Deal is a fictional scenario designed to read like real-life business events. The businesses and people mentioned in this story should not be confused with actual jewelry businesses and people.

ABOUT THE AUTHOR

Kate Peterson is president and CEO of Performance Concepts, a management consultancy for jewelers. Email her at [email protected]

Within the first year of her tenure, Robin took on the problem of shrinking margins and obsolete inventory. In some cases, that required severing vendor relationships that her father had maintained for years and building new ones with suppliers of more current lines at more advantageous prices. She also re-evaluated the store’s pricing strategy, re-tagging existing inventory using consistent markups and eliminating large-scale discounting. As expected, several of Gulfshore’s older customers were unhappy when they could no longer claim their usual 30 percent “friend of Joe’s” discount. When the “regular” sales reps stopped visiting and new product started arriving, a number of employees were openly critical of Robin and of what they saw as a betrayal of the friendships that were so important to her father. Much of the grumbling subsided over time as the new product caught the attention of regular customers who recognized the fair pricing.

In 2017, Robin chose to address the issue of the store’s often inconsistent business practices. She worked with an industry consultant to develop an Employee Manual that clearly defined performance expectations and with her (somewhat reluctant) team to implement a mission statement and service standards based on a forward-thinking “extraordinary customer experience” philosophy. By the end of 2017, despite some lingering staff grumbling about missing Robin’s dad and the way things used to be, Gulfshore’s volume had stabilized a bit, and the bottom line was looking healthier.

Robin knew that the last big issue she had to deal with was the store’s payroll. It was clearly high as a percentage of gross profit and was out of line for the store’s volume. She looked at a list of eight employees who had all been with the company for 10 years or more. Each was paid a salary that had been automatically increased by 3 percent per year regardless of store performance to accommodate cost of living increases. They also got a Christmas bonus each year that ranged between $1,000 and $2,000 per person (based loosely on hours worked) because her father had always believed that honesty and loyalty should be rewarded.

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There were no sales goals or productivity standards in place and no commissions attached. It was easy to see that some people worked harder than others. Some were really good at their jobs (jewelers and salespeople with solid relationships in the community) and some simply did a good job of being nice to the people who came into the store. Overall, they all got along well, though — and since it seemed that things were picking up a bit, Robin decided to leave the structure as it was for one more year while she worked on designing a new plan that would be fair to everyone, including the business. Everyone got their 2017 Christmas bonus and a 3 percent raise going into 2018.

Much to Robin’s delight, business continued to improve through the first half of the year. Traffic in the store and in the town overall was up, and everyone’s comfort level with the new product, policies and procedures seemed to be increasing steadily. It all hit a major stall in the fall though, when back-to-back hurricanes blasted through the region, creating major issues for local residents and wreaking havoc on the tourism industry in the area.

By the end of the year, sales had dropped nearly 30 percent, and the bottom line Robin had worked so hard to recover was decimated. Looking at the numbers in December, Robin realized that there was no way she could afford to pay out the usual Christmas bonuses. On one hand, she hoped the staff would understand, since they could easily see the circumstances, but on the other hand, she knew that they were all impacted by the storms as well and that they were likely relying on the money for their own families’ Christmas celebrations. She also knew that without a doubt, there would be no salary increases for the coming year, and that the base plus incentive compensation plan she’d worked to develop would be an absolute necessity.

Though she knew she could stand to reduce staff overall, Robin hated the idea of making life any more difficult for her people and was terrified with the prospect of damaging her reputation.

The Big Questions

  • Are there options that Robin is missing with regard to the holiday bonus?
  • Should she find a way to take care of her people and pay it as usual, even if it means borrowing more money from the bank?
  • Is there a way to change a longstanding (and generally unreasonable) compensation plan without losing long-tenured and community-connected employees?

Expanded Real Deal Responses

Jillian H.
Miami, FL

Are there options? Yes, she can openly address the current financial strain placed on the business due to the inclement weather. Meet with each employee to discuss the impact of receiving a bonus versus receiving a pay increase. From there, the employees should understand the reasons behind a pay change. In my opinion, she has to choose bonus or pay increase; can’t take away both.

Should she find a way? Not as usual, but yes, she should pay. Whether it is a bonus without a pay increase or no bonus with a smaller pay increase, it wouldn’t be too much out of pocket. If all the improvements increased business as stated, the store’s bank account will be healthy again in only a month or two.

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Is there a way to change? Possibly. If those same employees were to look for a similar job now, they would see what compensation structures are currently available. If those other available jobs are all commission-based and more demanding, your employees will fuss, but most likely stay.

Carolyn W.
Omaha, NE

Assuming Robin has already cut her own wage, she cannot currently afford the entire bonus payout this year. Recommend to her employees that they receive what she can pay, whether it be 30 percent, 50 percent, or 80 percent, and when the rest of the funds are available, she donate them toward hurricane rehabilitation efforts. This will help build rapport with the community and economic recovery as well, meaning there will be less delay in sales coming back into the store and making Gulfshore Jewelers a household name for consumers.

As far as the 3 percent increase to yearly pay, if Beth had not yet announced the reformatting of her bonus and wage system, now would be the perfect time. While everyone is struggling financially and emotionally due to natural disasters, having this as news would show there’s hope for the future and better times ahead for the town and the company.

Overall, these recommendations should at least pacify her workers, prevent layoffs and greater debt, and in the end, benefit the community to some degree.

Tim S.
Harrisonville, MO

A bonus should be contingent upon performance of the employee and the business — not guaranteed. Explain the challenge of a 30 percent drop in business, ask for buy-in to weather the storm.
US Consumer Price Index for Urban Consumers shows inflation was 0.7 percent in 2015, 2.1 percent in 2016, 2.1 percent in 2017 and 1.9 percent in 2018. The historic 3 percent raises paid have outpaced inflation. Eliminate this expectation.

Manage employees according to performance or lack thereof. Employees who are not in alignment with the “team” and “business” may need to find new homes. Keep good faith, be honest. Lead with optimism and fairness. Evaluate performance, conduct difficult conversations, set goals and motivate the team. Convert to base plus incentive pay in lieu of automatic raises and bonuses going forward. Bonuses can be used privately to reward exceptional individual results.

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Focus on employees who are generating the most revenue. Keep their buy-in, ask for more. Reward results. The community cannot run the business. Eliminate entitlement mentality. Complacency cannot persist. Take courageous steps now to be stronger when the whole economy sees recession.

Marc F.
Houston, TX

When the “expert” was making the policy book, a section on “Emergency Preparedness” should have been included. We have had to respond to several natural disasters. Robin should call each employee and let them know the situation. Set a sales goal, and if they meet that goal, they will be rewarded with a bonus. This way, they will feel like they are getting something for hard work. She should not bring up the automatic pay increase; just address it privately if asked.

Valerie N.
Oklahoma City, OK

This is Robin’s opportunity to do three things: inspire her staff, change the automatic bonus structure, and be a local hero. Don’t borrow any money. Share the news of the 30 percent drop in sales with the staff. Explain it‘s not possible to give the bonus; however, a bonus can be paid monthly or quarterly if the following happens: the sales staff calls clients every day about upcoming anniversaries, birthdays, holidays, wish list items and add-on sales, and these result in measurable sales at the expected profit margin. The jewelers need to complete repairs and custom jobs on time so delivery is not delayed. Robin can negotiate new terms for merchandise she can’t pay for. Most vendors will give extended terms with no interest or take product back with a minimal restocking fee. In the end, the staff who prove to be “rainmakers” stay and those who don’t are gone. Now the new bonus system is in place! You produce, you get a bonus! And the company survives.

Jennifer F.
Colorado Springs, CO

This may be the year for Robin to pick one versus the other … and to communicate transparently with her team. People understand numbers when It is laid out in black and white. Share a sales report of year-over-year numbers showing a profit and loss history, and give each team member the option of either a cost-of-living increase or a one-time bonus. If she truly can’t afford to do either, then it is time to make the decision to let go of under-performers or abstain from the wage increase/bonus altogether and let team members leave on their own. If they see and truly appreciate how much the business was impacted, she won’t lose anyone and they will band together to recover together. If the recovery is huge, she needs to be fully prepared to pay it forward to them all in the following year.

Robert C.
Montclair, NJ

Difficult situation; however, her team has been there for years and should know the facts as to the unavoidable downturn in business. It’s not a change of policy implementation without basis.

Her team needs to be introspective. They’re not being “punished.” Unless she makes some changes, the store’s future could be devastating, and that would affect them all, long term.

Her loss is their loss, inevitably.

The “winners” will stick around and fight to put it back in good shape, day by day. Their livelihood depends on their commitment to success.

What’s the Brain Squad?

If you’re the owner or top manager of a U.S. jewelry store, you’re invited to join the INSTORE Brain Squad. By taking one five-minute quiz a month, you can get a free t-shirt, be featured prominently in this magazine, and make your voice heard on key issues affecting the jewelry industry. Good deal, right? Sign up here.

Kate Peterson is president and CEO of Performance Concepts, a management consultancy for jewelers. Email her at [email protected].

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