A strong and successful bonus plan should align company leaders towards the same common goals. It should be explainable, understandable and measurable. I think this is even more important today.
With increased pressure on wages, higher costs of doing business, and bigger competition, it’s even more critical that independent hardwares know what numbers to watch and we get our whole team involved.
As a CEO, my job is to know the numbers. I know this. I’ve read it in books, and I’ve heard it on podcasts. But that doesn’t mean that I immediately absorbed the advice that was handed to me.
When Alignment Matters Most
In 2013 I was sitting in our conference room with our CFO and our longtime HR Director. He and I were talking about the upcoming excitement related to opening our next store.
I love people. So I was excited to interview and hire and train and see our new teammates interact with our new future customers. According to research, customer experience drives 2/3 of customer loyalty and I always equated more team members to a better customer experience.
Out of the corner of my eye, I could see that our CFO was getting a little frustrated. He didn’t speak up, so I didn’t pay a whole lot of attention. Finally, he said “We are going to run out of money if you keep hiring so many people”.
I’m embarrassed to say that I laughed, I didn’t think he was being serious – of course we weren’t going to run out of money! But about five minutes later, he stood up, slammed his hands down on the table and he said, “We will be bankrupt within a year”. And with that, he left the room.
Well, our CFO also happens to be my husband, so I couldn’t wait until the next day to talk through his concerns – I was having dinner with him later!
Make it measurable
That night was a pivotal moment in our company’s history. We made a plan to understand, share and bonus to the metrics that meant the most to us – to strengthen our teams’ financial literacy (and my own) so we could align our needs with our actions.
Nothing happens overnight but for the past several years we have used the same metrics we defined that night to build a strong, resilient, and profitable chain of hardware stores.
Our targets might change slightly each year, but we have five metrics we diligently track. Our leadership team, which includes the back-office staff, the store managers and the assistant store managers understand the categories, their opportunity for financial reward, and the reason behind each goal.
We call them our BIG 5
- Inventory Record Accuracy (IRA) – measures if what we have on the shelves matches what our inventory system says we have
Goal: to sustain 80% accuracy. This means 8 out 10 quantity-on-hand numbers match what’s in the database - Scan Rate – measures the percentage of our total customers who use or are encouraged to use their Loyalty rewards card by individual colleagues for transactions against the total transactions rung up at our POS
Goal: 70% of all transactions - Employee Engagement – a measurement of the emotional commitment associates have to the store and our goals.
Goal: 4.25 overall employee satisfaction on a 5-point scale
Note: we increased the goal this year from 4 to 4.25 to demonstrate our commitment to a happy Team - Overall Satisfaction (OSAT) – The OSAT score is based on how many customers rate us a 5 out of 5 for their overall customer experience based on a one question survey – “Please rate your satisfaction with your overall experience at our store”. The question takes into consideration the whole customer experience from the moment the customer walks in our doors up until checkout.
Goal: an average OSAT score of 85%
Note: survey is linked from POS receipt and emailed to our reward customers whose email addresses we have on file - Sales per Hour worked (SPH) – this is our way of measuring the productivity of our staff or how many dollars we’re making per hour per employee. The total revenue number is divided by total labour hours available during the week.
Goal example: $140 per labor hour for Q3, 2024
Note: the goal changes seasonally based on customer volume
To provide even more detailed information, I interviewed Francis Felice, Director of Operations for A Few Cool Hardware Stores with a speed round of Q&A.
Q. Who is included in the company bonus plan?
A. All salaried personnel including Store Managers, Assistant Store Managers and “back office” positions representing about 15% of the overall workforce
Q. What percentage of payroll does the bonus plan represent?
A. Qualified leaders have the potential to earn up to 10% of their salary which is roughly 1.5% of our total payroll costs
Q. Who makes the bonus and KPI decisions
A. Targets are determined by the company CEO, CFO and Director of Operations
Q. When and how are the bonuses paid?
A. Bonuses are paid out quarterly
Q. Do you have any resources or reading material to recommend?
A. I’d encourage those interested to look at Gallup.com and to read the Gallup produced book, It’s the Manager – By Jim Clifton and Jim Harter
Q. Do you anticipate any upcoming changes or ideas as industry trends change?
A. As digital purchases and delivery become an even greater part of our business, we may consider eCommerce metrics being factored into our plan. This could include a goal based on order fulfillment (speed and accuracy), cancellation rates etc.
Using Spot Bonuses to incentivise and say thank you
While our main bonus program is available to the leadership team, we also have annual spot bonuses for our front-line team, who are usually part-time and on an hourly rate, and go above and beyond every day of the week. These come into play at times of the year when we have large storewide events that take more than usual effort.
For example, our annual Garden Parties are like a World Cup of events for us! They happen at all our locations over the same weekend and bring in thousands of customers. Our stores aren’t big, so it takes a lot of work to pull them off. In addition to filling the break rooms with yummy food, and giving everyone new themed t-shirts, we bonus each teammate who works one of those days $25. If they work both days, they get $50.
This is a lever we have to pull at various times if we think it will help with event alignment and team output.
Some final advice
At the end of our formal interview, I asked Francis what advice he would give to you from the perspective of “the Ops Guy” and his response showcases what a thoughtful, engaging leader I know him to be.
He said “Keep the team informed. Don’t wait until the end of the quarter to tell a manager where they are in meeting their goals. Checking in every day is too much, but once a quarter won’t cut it”.
As the CEO, it was always good for me to know that the leadership team wanted to talk about goals, that they wanted to update us on where they were by hitting those goals, and that they wanted to dream big for the growth of our company.
The bottom line is strengthened This plan is well rounded. The Big 5 measure the categories we believe have the most impact on driving performance and increasing our profit dollars.
We are proud to be a healthy place to work and a great place to shop. With this structure we can manage inventory accurately, make sure our customers and team members are happy and have metrics and goals that complement one another.
If I can provide any more details, please don’t hesitate to reach out. I can be reached at gina@acehardwaredc.com
Gina Schaefer is a visionary entrepreneur and dynamic keynote speaker, best known as the founder of a chain of Ace Hardware Stores, acehardwaredc.com. With nearly 22 years of experience, she has transformed a single hardware store in a neglected neighborhood into a thriving enterprise with 13 locations across Washington, D.C., Maryland, and Virginia. Gina’s business not only provides essential services but also empowers the community, including the recovery community, by fostering an inclusive and supportive workplace.
