5 6 7 8 delete +backspace ntials You Alwan all the time f quity analysis the quantitative obs. use when T unintended grams is owever tive plan is Total Rewards CASE STUDY: Incentive Plan Return On Investment 91 The following case study will give you a chance to practice calculating the return on investment of an incentive program. Reference the "Measuring the ROI of Incentives" section of this chapter for a refresher, and example of how to complete the case. Overview He Anderson had worked at Cell U Max for about five years. started as an HR generalist right out of school and was grateful for the experiences that he had been able to gain in such a short time. After three years as an HR Generalist, he moved into his current role in the compensation department. He really enjoyed compensation and was interested in learning more. He was an up-and-comer in the HR function and really had a knack for understanding how compensation worked. His next project was going to put that to the test. enter His next task was to create a compensation plan that would incentivize salespeople in the cell phone stores to sell more high- margin items. The company was going through a restructuring and had realized that the incentives did not align to the new behaviors that it wanted its employees to exhibit. Anderson oversaw the creation of the new incentive program that would align to the new business model of maximizing profit margin. shift 92 Cell U Max HR Analytics Essentials You Always Wanted To Know Cell U Max was a national cellular phone chain that sold all different types of cellular phones, provided service for those phones, and sold several different types of cellular phone accessories. Throughout the years Sell U Max was quite profitable and had focused its salespeople on selling phones. After all, that is how Cell U Max made it big. It was one of the first companies to embrace cellular technology and market it to a broad population. Over the last several years competition had snuck into the market and Cell U Max was questioning whether it had the right structure. Its current line of thinking was to minimize the selling of hardware and, eventually, get out of the hardware business altogether. Instead, Cell U Max would focus on providing service which required less overhead and fewer deals with external hardware providers. Current Sales Model wincentive Scheme Hing been in his role for a coup he was going to have to run a pi ww.ntive plan to the entire orga stores in which he could do selected five stores for wh ach employee's bonus. In the o me and accessories was weight de salesperson was awarded 3% c the new model, selling cell pho acts was 70% and accessorie pit Anderson knew that, by ch yee's monthly bonus by the as for cell phones would be a additional four service contr sories sold did not change Using the data from the pil unthly incremental revenue age income per salespers bis analysis, he sat back in hi ht incentive plan for what The current incentive plan at Cell U Max was set up to maximize the sale of cellular phones. After all, each cell phone cost approximately $850 compared to the average service call which was $400 and the average accessory which was $25. On any given month a salesperson would sell an average of eight phones, five service contracts, and 20 accessories. The average margin on a cell phone was 10%, service calls was 40% and accessories was 30%. Cell U Max's new model was attempting to maximize service contracts and the hefty margin that came with them. Anderson's project was the key to executing this new strategy. Case Assignment 1 What is the total sales re per month for each of th accessories? What is th slesperson overall? 1 Compare the average U Total Rewards New Incentive Scheme al cellular phone chain tha ones, provided service rent types of cellular ph ears Sell U Max was q e on selling phones. Ab was one of the first com d market it to a broad pp etition had snuck into the tioning whether it had ing was to minimize be out of the hardware bui uld focus on providing ewer deals with extend Max was set up to After all, each cell pha verage service all v ich was $25. On any p age of eight phone average marginma d accessories was to maximize serviz with them. Andes trategy P [ Having been in his role for a couple of years, Anderson knew that he was going to have to run a pilot before he rolled out his new incentive plan to the entire organization. Luckily, he had several stores in which he could do this. Taking advice from his manager, selected five stores for which he changed the percentage of each employee's bonus. In the old model, the sales of phones, service and accessories was weighted the same (33.3% each) and the salesperson was awarded 3% commission on each item sold. In the new model, selling cell phones was weighted 20%, service contracts was 70%, and accessories were 10%. Having run the pilot, Anderson knew that, by changing the percentage of each employee's monthly bonus by those percentages, the incremental sales for cell phones would be an additional two phones, and an additional four service contracts. Surprisingly, the number of accessories sold did not change. Using the data from the pilot, Anderson calculated the average monthly incremental revenue to the organization and the total average income per salesperson per month. Once he completed his analysis, he sat back in his chair and asked himself, "Is this the right incentive plan for what we're trying to accomplish?" Case Assignment 1. What is the total sales revenue for Cell U Max, on average per month for each of the three items (ie, phone, service, accessories)? What is the total incentive earned per month per salesperson overall? 2. Compare the average income per salesperson per month in the old plan versus the average income per salesperson per month in the new plan. What are the differences? www.vibrantpublishers.com 94 HR Analytics Essentials You Always Wanted To Know 3. If you were Anderson, how would you design. an incentive scheme to align with Cell U Max's new strategy of maximizing high-margin products? Y Datal Rewards Quiz 3 1. Job a. C d b