Reward Management: PRP Case Study Performance-based Reward at DIY Stores Background DIY Stores (DIYS) is a chain of large warehouse-style stores selling DIY equipment, self-assembly furniture, plumbing appliances and garden tools. It is a wholly-owned subsidiary of a larger retail group and is ranked in the top five in terms of its UK market share. Its annual turnover exceeds £50 billion and its annual profits are around £1 million. DIYS currently runs 250 stores across the country, serves over a million customers a week and employs 12,000 people. In response to a slight fall in market share over the past year, the board of directors has recently produced a new company mission statement. High on the list of core aims for the coming two years is the desire to substantially improve efficiency and performance levels. Ambitious targets have been set, and statements issued about the need to create a more dynamic, performance-focused corporate culture. Reform of the existing approach to performance management in DIYS is now very much on the agenda. The present approach is well established and clearly understood by all DIYS employees. It is distinguished by the emphasis it places on the role of the store manager (ie the general managers responsible for running each of the 250 stores). Store managers are rewarded with a standard package of terms and conditions which are noticeably more generous than is offered to other managers and staff. In addition to the basic salary they enjoy a range of benefits (including private health care and additional holiday), the right to purchase share options and substantial discounts on products sold by DIYS and its parent company. In addition, they each receive an annual, individual, performance-related pay (PRP) award dependent on the extent to which their stores meet pre-agreed targets. Performance objectives are all specific and measurable, being made up of targets in five categories: • • • • • target increase in total store takings (eg 5% over the year) target reduction in stock loss (eg 7% over the year) target increase in average spend per customer (eg £3.00) target improvement in product availability (eg to 97%) target increase in customer care (eg by 10%).
This last measure is determined by the scores awarded to each store b y 'mystery shoppers' employed by the company to visit stores incognito. Other members of staff, including managers below store manager level, receive a considerably less generous reward package and no performance-based reward. Managers are expected to raise performance levels and achieve their targets through effective supervision, "pats on the back* and, where necessary, the application of disciplinary measures. For senior staff, the expectation of promotion into a store manager role has for long been used as the main method of motivation.
The Problem A number of criticisms have been made of existing performance management arrangements. The most important are as follows: 1. Managers working below store manager level can improve their financial positio n only through promotion. Those who are performing very effectively in their present roles and have no interest in promotion are not properly rewarded for their efforts. This leads to dissatisfaction and avoidable staff turnover. There is also a failure t o maximise performance among this group. 2. Store managers are limited in the range of performance-management techniques available to them to apply within their stores. No financial incentives can be given, beyond a few pounds in the form of 'employee of the month’ prizes and small gifts at Christmas. This means that managers have to rely on close supervision and the use of disciplinary approaches in order to achieve their targets. The result is demotivated staff, high employee turnover and a low-trust employee relations culture. 3. Store managers themselves, because of the way the PRP system works, are encouraged to focus wholly on the performance of their own stores. Overall corporate performance is of less interest to them, as is the performance of their regional divisions. Indeed, there is huge competition between store managers in each locality, leading to situations in which they fail to co-operate with one another. Ideas are rarely shared and there is resistance to transferring staff from one store to another to cover sickness and holidays. More damaging is the tendency to hold on to stock, even when other stores have run short due to unexpected high demand.
The Task W hat changes would you suggest were made to the established performance management and reward procedures? How would you justify the changes you have recommended if asked to do so at a presentation to the board of directors?