Store$24($A$)$: Managing Employee Retention

It was late Friday morning in early May $2001$ when President and CEO of Store$241$ Bob Gordon $($MBA $62)$ met with CFO Paul Doucette and COO Tom Hart. The group gathered in preparation for the upcoming Monday morning executive committee meeting. The Friday agenda focussed solely on discussing strategies for increasing store level employees retention. Gordon started:

We will be considering a number of options for increasing store level employee retention ranging from increasing wages and bonuses to training enhancements to career development programs. I think it would be useful to start the meeting with an overview of the relationship between employee tenure and store$-$level performance. Do we have any research showing the impact of manager and crew tenure on store level operating performance?

Hart recalled that he had recently done a quick analysis to examine differences in employee tenure between the most profitable and least profitable stores $($Exhibit $1).$ He explained that his analysis showed that manager and crew tenure in the top ten most profitable stores was almost four times the level of manager and crew tenure in the least profitable stores. Intrigued by this analysis, Doucette remarked:

We have been collecting data on store manager and crew tenure for years, and we have always set very specific goals for increasing manager and crew tenure. For example, our most recent store manager bonus plan provides a quarterly bonus of $3\%$ of the manager$$s salary for increasing average crew tenure by $1\mathrm{.}38$ months during the quarter. It would be great if we could use this data to get some estimate of the actual financial impact of a $1\mathrm{.}38-$month increase in crew tenure.

Doucette recalled that Sarah Jenkins, the intern hired to assist in the development of a new employee$-$attraction and $-$retention strategy for the tight New England labor market, mentioned that she had received some training in data analysis as part of her MBA curriculum. Doucette thought that Jenkins would be just the right person to help with this sort of analysis and suggested that they all meet with her after lunch.

Posing the Questions

Jenkins headed over to Gordon$$s office curious about the sudden Friday afternoon meeting. After briefing Jenkins, the group began discussing specific questions to be addressed before the Monday morning meeting. Doucette explained:

We are considering many strategies for increasing manager and crew tenure. We would like to use our data to get some estimate of the actual financial impact of increased tenure so that we can make more informed decisions when considering increasing wages and bonuses or how much to spend on training and development programs.

Gordon added:

While site$-$location factors such as population, number of competitors, and pedestrian access are traditionally considered the primary drivers of store success, I have always been a big believer in the power of $$people factors,$$ such as employee skill and experience, in optimizing a given site$$s performance.

Gordon reflected on the analysis that Hart had presented earlier and added $$I wonder if you might be able to use our data to help us understand how important manager and crew tenure are relative to site$-$location factors in determining store level financial performance.$$

Hart agreed with Gordon$$s sentiment on the importance of managers and crew at the store level. Having spent a lot of time in the field at various stores prior to becoming the COO, Hart understood that managers and crew affected store performance in a variety of ways including ensuring compliance with Store$24$ merchandising and operating standards, maintaining in$-$stock position, and managing shrink and cash control. Hart mentioned:

The relationship between tenure and financial performance might not be that straightforward. Many of our stores have very low levels of tenure. Increasing tenure in these stores may have a relatively large impact on financial performance since managers and crew are developing new skills on a daily basis if we are able to retain them. In stores with our most experienced employees, these skills have already largely been developed and, hence, an increase in tenure may have a relatively small impact on financial performance.

Jenkins understood that Hart was essentially saying that the relationship between tenure and financial performance might vary with the level of tenure. She recalled that this meant there could be a nonlinear relationship between tenure and financial performance; however, she was not sure how she would incorporate this into her analysis. Jenkins knew that she had to find out what the implications of such a relationship would be in determining how bonuses and other incentives should be tied to retention.

Exhibit $1$ Fiscal Year $2000$ Store$-$Level Profitability $($fiscal year $2000$ ends April $30,2001)$ Top $10$ most profitable stores: Bottom $10$ least profitable stores:

Store # Profit Manager Tenure