HOLY ANGEL UNIVERSITY College of Business and Accountancy Academic Year 2011-2012, 1st Semester

VTEMENTS LTE A Case Study on Individual Behavior and Processes in YORGBEV

Submitted by: CUARTELON, Mark Anthony P. GOMEZ, Korina Lei G. LOYOLA, Ron Errick R. MUNGCAL, Kerrvee A. PANGILINAN, Kenneth L. A-331

Submitted to: QUIZON, Robert Q. September 12, 2011

I.

INTRODUCTION/SUMMARY

The case presented, briefly titled Vtements Lte, detailed on the issue faced by select members, store managers and sales employees, of an identified organization, i.e., VTEMENTS LTE. Indicated in the account is the friction caused by the new incentive system introduced by the said retail clothing company. As per exhausted, the sales employees, instead of being motivated as a collective team, were encouraged to go on a solo spree. The commitment to serve the organization was hugely tarnished, replaced by a personal longing for self-upholding. More so, in the employment of the new incentive system, the sales employees grew to tag customers of the organization as that of their own, focusing on the fattening of their wallets than the strengthening of the organizations overall performance. Employees, also, abandoned the usually essential tasks of manning inventory and store physicality. Instead, they would stay by the entrance of the boutique, seeming hungry for potential customer preys. As store managers who hold sole responsibility not only to the wellnes s of the organizations financial performance but as well as the satisfaction of each of its employed personnel, they have to decide how to fix the backfire caused by the freshly-implemented incentive system. Numerous methods were beta-tested, such as assigning a one-man-to-duty obligation of an employee on inventories, threatening employees of dismissal, as well as placing personnel on specific locations in the store. All of which failed to desalinate the growing damage of the incentive system, and the store managers were left with few extreme measures to resolve it. The case aims to aid and provide the store managers clearer, crisper, and more bluntly-approached alternatives to satisfy the issue and present a system that is rather more efficient and effective than that of the aforementioned in the account. II. STATEMENT OF THE PROBLEMS Central Problem The new incentive system for the employees which was aimed to boost employee motivation and ultimately to boost sales backfired on the organization. The desire for a higher paycheck of the employees brought by the new incentive system is the one responsible for the tension and resentment among employees and between employees and store managers. The corrective actions implemented by the store managers proved to be insufficient. The said corrective actions further contributed to the resentments and negative feelings felt by the employees.

Minor Problem There is no organizational commitment as the workers focused more on standing near the store entrance and waiting to tag customers as their own to increase their commission. This is continuance commitment because the employees stay in the organization for the additional commission they will get aside from their fixed salary. Instead of working together, the employees worked only for themselves and for the increase in their paychecks. Cooperation and unity were gone from the employees. Consequently, the organization suffered.

III.

ALTERNATIVE COURSES OF ACTION 1. Temporarily withdraw the incentive system for employees Senior management should at least temporarily withdraw the incentive system of the employees and just give them their fixed salary. The plan worked differently as it was originally intended. Until management can think of a better way to motivate employees, it should stop giving additional compensation. Before the new incentive system was introduced, employees worked together even with restocking inventory and completing reorder forms. There was also no competition among them. The organization is better off with the employees working together than with employees working on their own. 2. Measure performance not only through sales but also through other job performance If senior management cannot withdraw the incentive system for the reason that it will result to a worse situation than there is at present in the organization, it should continue giving additional compensation but measure it not only on the sales credited to each employee but also with other job performance that benefits the organization. Management should measure job performance accurately and distribute the reward based on merit, that is, on how well the employee performed the job. 3. Explain the incentive system well to the employees If measuring performance through variables aside from sales and withdrawing the incentive system prove to be difficult, senior management should continue implementing the additional compensation scheme. But management should explain well the goals it hopes to achieve with the continued implementation of the system. Designing well thought-out measures is a good start, but not sufficient to ensure the success of the incentive system. If employees do not

understand the system, they logically will not respond to it or they will respond to it differently from what is intended by management. Good communication between management and employees is the key. IV. ANALYSIS OF ALTERNATIVE COURSES OF ACTION 1. Temporarily withdraw the incentive system for employees Incentive measures, such as salaries, rewards, recognition or sanctions, have traditionally been used to motivate employees to increase their performance. In the problem, the incentive measures are financial the fixed salary and the commission. Before the new incentive system for employees was introduced, performance was acceptable. Employees are doing their jobs. But in an effort to improve their job performance, management decided to implement a new incentive system for them. Clearly, the implementation resulted to poorer performance than before. Because of the employees act of self -interest, the company suffered. To prevent this from worsening, management should temporarily withdraw the incentive system implemented for the employees. Just as some incentive systems really improve performance, it is equally important to remove those incentives that can undermine performance. The expectancy theory of motivation holds that work effort is directed toward behaviors that people believe will lead to desired outcomes. In the case, the desired outcome of the employees is the higher paycheck brought by the introduction of the incentive system. For this reason, they acted by standing near the store entrance to wait for customers and tag them as their own. Doing so increased the sales attributed to them and also increased their commission. The incentive system failed. Until management can think of a better plan, it should withdraw such incentive system. In doing so, management expects that the competition for customers will be eradicated and employees will work again together in all job aspects. Also, store managers will be relieved because the incentive system was withdrawn. They will no longer be subjected to the stresses of no goods in the store and stockroom, complaints from employees and customers and low profits of the organization that all came out of the incentive system. It is also evident in the case that the attachment of the employees to the company is only on the level of financial and economic reasons and they do not really identify with the organization. This is continuance commitment which tends to be dysfunctional. With this, management should still win the employees hearts beyond tying them financially to the organization. Organizational commitment can be developed through justice and support, shared values, trust, organizational comprehension and employee involvement.

2. Measure performance not only through sales but also through other job performance Tasks for which incentives have been provided may lead to neglect of other essential tasks for which there are no incentives. This is exactly what happened to the company. Employees neglected those other tasks like restocking inventory and completing inventory reorder forms because there are no incentives for doing them. And they focused only on the task that increased their commission, that is, on sales attributed to each of them. With this, it is evident that financial rewards are valued by the employees. Thus, management should devise an incentive plan that gives these rewards while including other measurable job tasks which were not rewarded before. According to the expectancy theory of motivation, employees are motivated to achieve goals with the highest expected rewards. An employees effort level depends on three factors: effort-to-performance (E-to-P) expectancy, performance-to-outcome (P-to-O) expectancy, and outcome valences. Employee motivation is influenced by all three factors. When one factor weakens, motivation weakens. Management should increase all the three factors to increase employee motivation and to increase job performance. E-to-P expectancy is the belief of the employees that they can do the task. To increase this, management should assure the employees that they have the required skills, competencies and resources to do the job. Supportive feedback should also be given so that the employees belief that they are really able to do the job is reinforced and strengthened. P-to-O expectancy is the perception that the behavior or performance of the employees will lead to a particular outcome. To increase this, management should inform the employees that a good performance is rewarded by the organization. This can be shown by implementing the incentive plan that covers not only the sales credited to each employee but also other essential job tasks like inventory duties. Here, it is important for management to measure job performance accurately. This is for the reason that management does not want resentment to build up again in the organization. Management should clearly inform employees that higher job performance will result to higher rewards. It should explain how the new incentive system works by using examples and illustrations when superior job performances that really benefited the organization were rewarded. It should also emphasize that acting like the way employees did before is no longer tolerated within the organization. Cooperation and unity are encouraged. Outcome valence represents an employees anticipated satisfaction with the outcome. To increase positive outcome valences, management should give rewards based on individual merit. By not standardizing rewards, all

employees get the reward they deserve and worked hard for. Management should also minimize the presence of countervalent outcomes. The same principles for developing organization commitment as in #1 may be used here. 3. Explain the incentive system well to the employees. If management desires to continue implementing the same incentive system for employees, it should explain such system well to the employees. This can be attained by communicating to employees, store managers, and all other concerned parties the nature of the incentive system and its mechanics so that the linkage between the incentives and the desired improved performance is clear and unambiguous. Management should explain that the incentive offered is intended to create utility value for achieving beyond current levels of performance. It should also inform the employees that it wishes to attain an increased job performance of the employees without sacrificing other essential tasks that are not rewarded and the profits of the company. A good communications technique is to present employees practice sets of data from which they can compute the incentive payment. This approach helps explain the system and provides a tool for determining if employees understand it. The same applications of expectation theory of motivation may be used here like in #2. Upon continued implementation of the incentive system, management should provide support for task performance in the form of clear communication about the incentive system, fair and equitable management of the system, effective work processes, adequate resources, and assistance as required and feasible. Management should employ a transparent administrative system for tracking achievements and rewards. The success of the incentive system is judged by the attainment of performance goals at a lesser cost than the value of the results. Ongoing monitoring of progress toward goal and communication of successes to targeted recipients and other affected groups are necessary to sustain incentive system momentum. The same principles for developing organization commitment as in #1 may be used here. V. RECOMMENDATION As per weighing the strengths and weaknesses of the named alternative courses of action, as well as the attached analysis to each, it is therefore concluded by the researchers on this particular study that measuring performance not only through sales but through other job performance is the

best option to resolve the issue. We have stuck on such as per these reasons: (1) it does not only eliminate the issue involved, but rather patches on the flaws of the cited incentive system; and, (2) employee motivation is still constituted. The second alternative offers a similar but different route in comparison to the original incentive system. In here, the basis of the financial reward is somewhat clung to two criteria (instead of basing it solely on sales); thus, the competition attached is gravely lessened. With this, also, employer-employee and employee-employee conflict caused by the incentive system is rather killed. As also clearly mentioned by the case, employee motivation is the pivotal goal and/or objective of the implementation of the incentive system. If then, for purpose of example, the system is withdrawn. With that, there would be no other way to instigate employee motivation, besides financial rewards. As also presented in the account, the sales employees motivation is backed up by clamor for material form. Hence, its money that inspires them to move, to act, to work. Removing the incentive system would, sure, remove the issue we are trying to deal with, but as well as the goal we are trying so hard to achieve. It is with these said facts that we are firm in saying that the best alternative to solve the stated issue is to measure performance not only through sales but also through other job performance. VI. FALLBACK (PLAN B) If the recommended alternative of measuring performance not only through sales but also through other job performance is deemed ineffective, we would highly consider the first alternative, i.e., to temporarily withdraw the incentive system for employees. The removal of the system is temporary for, basically, you have a better option, but is not executable concurrently. As the first choice alternative fails to deliver, and as store manager, it is your responsibility to act/do something, it is best to take out the bun than let it stay and linger to damage the goods. Analogically speaking, the expected benefit of the incentive system has been startlingly overwhelmed by its unexpected damage. It is by these facts that the group rest in saying that as the incentive system serves no further beneficial sense to the organization and no close alternate replacement is readily available; the temporary withdrawal of the incentive system for the employees is highly advised.