BW Communities

Case Study: Employer Tactics, Employee Strategies

BW Online Bureau Nov 08, 2014

<?xml version="1.0" encoding="UTF-8"?><root available-locales="en_US," default-locale="en_US"><static-content language-id="en_US"><![CDATA[Darius Mistry was puzzled. he was surprised to know that Mubina Shaikh, who managed the store in Bouquet Hall, Hyderabad, had quit three months ago. Mubina had been there for four years having started her career as a sales assistant in Chennai. Darius had always known her as a very good resource; bright, effervescent, deeply involved with customers... she was a girl with a lot of poise and presence. And, in all her six years with Kosha International, she had never asked for anything. Why was she leaving then? Mubina wore two hats for Kosha International. One was as store manager of the Bouquet Hall store; the other was an informal role — Kosha International received and held stocks for central India in Hyderabad; Mubina managed this warehouse as well. Darius had an opportunity to meet her when, in 2008, a terrible burst of water pipes in the warehouse caused flooding in the basement, damaging the stocks held there. Darius had spent two weeks in Hyderabad handling the insurance company, and Mubina had been swift and capable with making arrangements, calling the right people and putting in place an alternative plan to resurrect the goods. He had come back and told CEO Nayan Shorey that Mubina was the sort of person they needed to head the logistics function. Darius was the CFO of Kosha International, a chain of retail stores that catered to women's needs from clothing to wall accessories to comfort footwear to home enhancements. Kosha was positioned as the one-stop shop for a house-proud woman — for herself, and her home. It had been growing fast ever since it began in 1998, and today had 45 shop-in-shops (expected to reach 300) and 36 stores across the country. The news that Mubina had quit more than surprised Darius. She knew she was valued at Kosha. Then, what went wrong? Darius examined the financial statements sent to him — top line, revenue growth... nothing much had changed since he went on a long medical leave. Last year, Darius had suffered a fall from the treadmill which caused two discs to slip and dislocated his hip bone, leaving him bedridden for nine months. Shorey valued him and had chosen to wait for his return from leave, managing the accounting ledgers with outsourced help. Shorey would never delegate the management of finances; whereas Darius ‘minded his own business', yet ensured that Shorey saw light when he needed to. But the cost lines had changed, noticed Darius. He was shocked to see an increase in payroll figures. Juthika ‘Jo' Vaidya, the consultant who had taken his place for the year, explained: "Soon after you took ill, Shorey began to panic. First, you were not there and, to top that, Silky Weiss opened its chain of home enhancement stores, one of which was right next to our flagship store. To steal a march over them, Shorey set up kiosks at airports, five-star hotels and malls. We were already struggling with our vendors; now he went and added more shop-in-shops. "I cautioned him that these were straining his cash flow, and that he was in a low-credit business. Arstyle, which supplies us carpets and dhurries, had withdrawn credit, and Shorey did not even protest. The next thing I knew was that he had declared a new scheme where 35 per cent of the variable component of salaries would be pegged to sales. He felt this would keep the pressure on the staff at our stores and kiosks to work harder." "Didn't he discuss it with you?" asked Darius. "No," said Juthika; "Strategy, they don't discuss with me; I am to only take care of the general ledger and the payroll, and some minor MIS. But I was talking around and Ami Valecha (HR manager) hinted that Shorey valued scorecards to appraise people. He felt that they removed subjectivity. I asked her then what about the qualitative aspects, how did he expect to evaluate those?" <script type="text/javascript"> var intro = jQuery.trim(jQuery('#commenth4').text()) var page = jQuery.trim(jQuery('#storyPage').text()) if (page.indexOf(intro) < 0) { jQuery('#commenth4').attr('style', 'display:block;') } </script> Shorey's new remuneration strategy differentiated by store in an unusual way where a formula was applied on the sales of each store, which was then shared in a given manner among the employees, weighted for current salaries being earned. So if you sold more (as a store), you earned more as an employee. Darius: Who was meant to keep track of the performance then? Juthika: No one. The sales at the end of the month or year is the only real criteria. It accounts for 60 per cent of the scorecard. Anyway, Darius, nuts and bolts is that 60 per cent of the scores are pegged to sales, and the rest to task objectives. And before you ask, let me add, cost reduction was not one of them! Since I had not been asked to advice, I could not point this out. But I tried to tell Shorey that if he does not put a weight on cost efficiency, the store managers will freak out; and they did just that. Within the next two months, costs on promotion, layout, etc., shot up. And quality of delivery was not even talked about." As soon as the incentive scheme was announced, 14 stores began spending their annual layout budget in the first quarter — huge bills for lighting, laminates, decor layout, etc., were received at HO. In August, Northern Region head Anil Gupta wanted a new team for a new store in Laika Palace, Udaipur. He wanted a well-heeled store manager (SM). The natural choice was Kartik Kawra, SM of the largest Kosha store in Queen's Pavillion, Delhi. But Kartik said his mother was ailing and he could not risk relocating. Jennifer Dey, SM of the store in Gurgaon, also declined — she had just bought an apartment and work was going on, she said. When Anil asked Aparna Saha, regional manager, West, for help, she laughed at him and said, "People from large, higher-revenue stores will not be willing to move to smaller, lower-revenue stores, Anil, now that your incentives are pegged to sales! Udaipur is new! Sales will be slow to pick pace!" At this point a very worried Darius interrupted, "A store has employees other than sales staff as well; like the person who packs, the person who bills, and the chap who checks you at the door... what about these people? Did they get an incentive? You mean their role in the delivery of a shopping experience as well as their role in the pre-shopping experience was not considered?" Jo shook her head and said, "They knew they were not part of the incentive." Darius was most uncomfortable. Kosha was a formal organisation with informal processes. He wondered why Shorey had not kept him informed even if he was laid up in bed. And now looking at the excel sheet before him, he said, "I am uncomfortable with excel sheets calculating salaries... where is the human in this? I am not paying them to be a payroll number. I think each one brings a lot of himself and herself into the work they do. That is what we must reward!" Instead what he was seeing was an X-axis and a Y-axis and a formula that apportioned a number. "Where is the weightage for the ‘me' factor?" he asked. Elsewhere in the organisation some people saw huge jumps in their salaries, some saw none; the management staff saw a lot more increases. And then Darius was told that Mubina had joined Banyan Tree, a new chain of book stores that was reputed to pay very high salaries. He called her and said, "Mubina, you left us for money? How stupid is that?" And her reply: "Maybe you will have the answer as well, Darius. You have just resumed I see... hope you are well now? Well, at Kosha people get paid based on their location. Sameer and Rahul work at Churchgate in Mumbai, which is huge, and they stand behind rolls of carpets and send text messages to their girlfriends. Yet they take away higher salaries! If that is not ‘money', what is it?" Now it began to piece together... this incentive thing had caused grief. Darius called Anant Rego, the regional HR head for Central India, and said, "Mubina is clear management material and yet you did nothing to keep her back!" Anant: I did baba! But she refused. I actually offered to promote her, to move her out to a bigger store in Mumbai, but she declined! Darius called Mubina again, "You must give people a chance, girl, to create opportunities for you! Why did you decline Anant's offer?" Mubina: Darius, it was a ‘correction' to save Kosha's soul for the time being! But what about the others? I get a bigger, better store as appeasement! Is that fair? Tomorrow you need someone in a smaller store, that person will see it as a punishment, won't he? Why should a store be a ‘good or bad for my salary' store? And when I get posted in a smaller store, do you need my qualifications and skills and past performance, or you don't because it is a small store? If yes, then do I get rewarded for exerting my goodness in a small Dadar store or the Pune store? No! Why? Because they are not crowd pullers so the bounties for a shared percentage are that much less na? "So why would anyone work at these stores, Darius? Anant's offer was kind but I felt threatened. Won't he later say, ‘Okay Mubina, you have had it good for two years, now be ready to move to the Kipauk Street store, a smaller store...'" Darius called in Vijay Singh, HR manager, Mumbai region. This needed a regional manager's view, he thought. "In Anant's place, could you have protected her remuneration? Would you?" Vijay: No, that cannot be done, that much is obvious bhai! Darius: Why obvious? Say I am in the Mozart Mall store. I have tonnes of expats and rich people coming to my store. Naturally sales are high, opportunity-to-sell is high. Based on this I book a flat in Malad and start my EMI. Then you move me to a smaller store. How do I pay? Vijay: Well, first you don't peg your variable income to the EMI... but then coming to Mubina, I can try and protect her variable if she wants to return. Shorey saab did it for Param Deol. Darius: Talk sense! For how many people can you do that? Sooner or later you will have to link my earnings to the store I am in, and then? Ka-put! I am demotivated! So...? Chalo, let us shut down all small stores then, yes? They don't seem to be worth rewarding people! Pari Guha (head of operations): I don't think it's that bleak, Darius. Yes, we have been miserable with this policy... some of us at least. Now that you are back and can see the results, let us ideate. Darius: Ideate? Say I am a store manager in Parel and there is X who is a store manager in Andheri. Both of us are the same age, same academic background; both of us have the same grade of experience. Now, the Parel store sales lead to me getting score ‘A' and the Andheri store gal gets score B. Please give values to A and B and tell me how their salaries will look? <script type="text/javascript"> var intro = jQuery.trim(jQuery('#commenth4').text()) var page = jQuery.trim(jQuery('#storyPage').text()) if (page.indexOf(intro) < 0) { jQuery('#commenth4').attr('style', 'display:block;') } </script> Pari: Yes, the Andheri lady will earn more anyway... assumption being that the Andheri lady will have to work more, I mean more footfalls... Darius: Aaaa-ha! See how silly that reasoning is? The Andheri store is just located better! In a mall close to a huge residential block, in upper crust society, many new constructions coming up, so many new home makers, so automatically great buying of dinner sets, and crockery and table ware and place mats and what not! Effortless selling is happening in these stores, Pari, that is my point. The only chaps who work hard here are the billing boys, the cashiers, the packing girls and the cleaning ladies! Pari: Actually there is another problem. Both with the same experience could be in different grades. For example, the Parel store being a store with less footfall, cannot afford a higher grade staff. So, you know, she will be a Grade 4. Darius: Fantastic! Now this complicates the situation even more! Now I see why Mubina quit! It did not make sense to me that she did... such a bright girl! Her job at Bouquet Hall was always uphill — central warehouse management, tough targets, worked harder, got less and because she is Grade 4, her base is low, because Bouquet Hall is not a premium store! Oh man! Pari (groaning even more now): Okay, Darius, just shoot me; it gets worse. Because BH Hyderabad was a low-value store, she had tighter budgets and hence could not even afford peripheral staff; her budgets did not permit even temp staff! All in all she was in the dog house. Darius called the marketing head, Balu Krishnan, and asked him. Balu said, "I explained to the board that this remuneration policy does not incentivise a desire to excel. See, to begin with the targets were upped by 50 per cent over last year's best estimates, can you believe it? The fallout was crazy. Say, the new target is 100. If I achieve it, I get bonus; if I don't, I get no bonus. "I had at least 55-60 per cent of front-end people who were not being fairly compensated and who could thus impact productivity. It was like working with your hands tied behind your back. You are seeing it as a potentially unhealthy financial policy — arre, what finance when your sales itself are threatened because of an incentive scheme that is damaging more than encouraging? Ami: Look, I stand to be blamed. I didn't have the script you people speak. I was told this is what we want... and the man who designed this was our ex-HR head who is the MD's advisor! Right in the first month, I saw some salaries being out of whack — there was demotivation at all levels. You know how our sales are region-based; Mumbai and Delhi are already exalted being ‘expat filled' cities, so they have English-with-an-accent-speaking store heads; and they are already at a high salary level. So, for example, Kartik Kawra in Delhi earns 32 per cent more than someone like Mubina in Bouquet Hall! And Kartik is not hot property anyway. Balu: My fear is the brand erosion. Just yesterday, one lady, the admin head of a large MNC brought back some cutlery sets she had bought from our South City store. She had spotted rust marks on some of the pieces and was annoyed that they had not been checked before packing. The staff told her, "Leave it here, the head office will get back to you." The South City store manager is not proactive! The customer's angst then slowly seeped into the periphery: ‘I had to wait so long, no queue system, such indignant behaviour, people not wanting to help...' I went to the store to check, and found that her complaint had not even been addressed! The vendor had not been contacted! <img style="width: 200px; height: 200px" src="http://www.businessworld.in/bw/image/CaseStudy/case11-10-2010-2-mdm.jpg" alt=" " width="200" height="200" align="right" />Darius: I thought if the bill is Rs 88,000, you would simply replace her goods immediately and wring your vendor's neck later? Balu: That is correct, but truth is they didn't have stock. And this is our fast-selling item! My question was: how come you don't have stocks? I checked the order book — orders were placed last month but no follow-up. And that customer had come to the store thrice about her complaint! A proactive manager will take the call, close the matter and report to HO for quality issue resolution; if it is a smaller store, then he will call the regional head and conclude!" Darius recalled Mubina's continuous engagement with her regional head for resolving the stocks crisis. He said to Balu: "If there are rampant cases of customer dissatisfaction, it can reach you only if a market head or market region head tells you?" Balu: Correct. Darius: So, as marketing head how and in what manner did you experience brand erosion? Or are you saying you were noticing the brand was losing steam but you had no hard facts that pointed to the reason... so you decided to do store visits during peak hours? Balu: Simple! Customer feedback. Darius: So... you, as marketing head, had on hand the fact that salaries were unfairly skewed; that good people in small stores could be unfairly paid less; that inefficient people in big stores could unfairly reap largesse just because they were accidentally in the right place at the right time. Now you are saying you also saw feedback that showed customer dissatisfaction. So what did you do? Did you link the unfair incentive scheme to the problem? Balu: I spoke to the MD and explained to him that I did not see the new remuneration strategy motivating people to excel. If anything, it increased the people cost of the business, that we were probably going to start a virus. Darius (interrupting): I don't like the size of our wage bill. I know this is a people-driven business, that it is not self-service but aided selling — all that is fine if the strategy is good for all. But it's not helping anyone. Worse, every key performance parameter has gone haywire. I understand there is an aggressive plan to take the number of mall kiosks up to 300; that end of the business is not for me to comment on and I guess the business side can advice. But if that 300 is good for business then we will soon be knocking on HSBC's door for working capital line enhancements... and these new performance ratios are embarrassing, to say the least. Ami: So...? Darius: So, the incentive scheme will have to go. Ami: Oh! That will be dicey, Darius. After eight months of having had this incentive, won't this bomb employee morale? Darius: Who knows? Maybe it will, maybe it won't. Yes, it will impact work to an extent. But that will wear off. Ami and Balu exchanged glances, they did not think so. Worse was going to follow they knew. Classroom Discussion Why do employees have to be challenged or incentivised to do what they ought to? casestudymeera at gmail dot com <script type="text/javascript"> var intro = jQuery.trim(jQuery('#commenth4').text()) var page = jQuery.trim(jQuery('#storyPage').text()) if (page.indexOf(intro) < 0) { jQuery('#commenth4').attr('style', 'display:block;') } </script>