Bonuses Pay Off for Sports Direct

Discussion
Jul 25, 2011
Tom Ryan

Sports Direct, the U.K.’s leading sporting goods retailer, plans to pay its 2,200 full-time workers a share bonus averaging £44,000 ($71,000) as it exceeded its profit targets for the second year in a row.

The firm’s bonus share scheme pot of £88 million will pay out shares worth an average of about £30,960 to each permanent staff member. Combined with last year’s bonus payout, the Sports Direct bonus scheme, which was first announced in 2009, will see full-time staff awards worth an average of £43,860 — more than twice the average salary of £20,000.

In its annual report, the owner of the Sports World and Lillywhites stores said the bonus share plan was "designed to motivate colleagues, help improve retention of key employees and to align the interests of employees and shareholders."

"We introduced the bonus scheme with the aim of ensuring that the whole group was aligned to try and meet the ambitious targets for the continued growth of the business," Dave Forsey, chief executive, told The Financial Times. "We are looking to reward our colleagues as they truly deserve — we couldn’t have achieved the growth over the past two years without them. There is no doubt that this unique scheme has improved staff retention."

Twenty-five percent of the bonuses will be paid in 2012 with the remaining 75 percent to be distributed in 2013. Part-time workers are not included in the bonus program.

A new bonus program to cover the next four years was announced, although targets would have to be hit every year for a similarly generous payment to be made.

The only other major U.K. retailer with a known bonus plan is John Lewis, which in March indicated it paid out an average of £2,500 in cash to its 76,500 personnel — equal to nearly eight weeks’ pay.

Speaking to The Scotsman, Craig Phillipson, managing director of Shopworks, the international retail consultancy, said he was a big fan of bonus programs.

"I think they help to focus the minds of people and help them realize that better customer service leads to better sales figures," said Mr. Phillipson.

"The only circumstance in which the scheme is not healthy is where the staff become overly aggressive on the shop floor, where customers can feel like they are being harassed. But a well-considered incentive program which applies across the board in a company, such as what’s done at John Lewis, is a very good thing."

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13 Comments on "Bonuses Pay Off for Sports Direct"


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Mel Kleiman
Guest
9 years 9 months ago

If the program is fair, there is really no downside to a program like this.

The upside is simple to see. Better service, better customer retention, a place people want to work. a place for a career not just a job, front-line employees who think like owners not employees, and a refusal of employees to put up with others who are not carrying there own share of the work.

Ed Rosenbaum
Guest
9 years 9 months ago

A brilliant program developed to incentivize employees to do more and feel like more than an employee. Why don’t more companies grab hold of this and let the employees feel an ownership? Is it because so many retail companies corporate structure is tied to shareholders equity? Think about it for a second. If you add employees to this, every one becomes a bigger winner.

Steve Montgomery
Guest
9 years 9 months ago
WIIFM (What’s In It For Me) has always been a powerful motivator. That being said, bonuses the size of what Sports Direct is paying can lead to problems. First, you have to make very, very sure that the program is designed properly or it will drive behavior that generates the maximum bonus but not necessary the intended result. Assuming that happens you need to make sure the metrics are correct. It would appear that Sports Direct may have set the bar too low (or its employees realized the upside potential and really did a great job at bonus management). With payouts that represent twice the annual salary they will have people able to live a life style that they may not be able to do in the future. This has all kinds of potential issues ranging from high turnover as people seek jobs that will pay them enough to support their new lifestyle to shrink as they try to “earn” as much as they did before. I noted that Sport Direct is paying out the… Read more »
David Livingston
Guest
9 years 9 months ago
This is a nice bonus program. But I’ve seen this before with independent grocers who have good key salaried employees. They pay them minimum wage and then let them share in most of the profit. No profit, no pay. This only works with highly motivated people who have the confidence that they will be achievers. It seems to work well with a smaller company that has only a few thousand key salaried employees. It also works well if the company is privately held and they don’t have to dance for Wall Street. Deferring payments until next year also is a way to keep good people from quitting. I’m not going to suggest how bonus programs should be structured because every company is different. The big con of a bonus program is if it is related to stock price or short term profits and sales. Too many loopholes. I had a store manager once whose bonus was based on sales. So he bought up thousands of dollars of merchandise for himself at his store. Got his… Read more »
Ed Dennis
Guest
Ed Dennis
9 years 9 months ago

Well, let’s think about this! The only downside is that the retailer keeps less of its profits, but the upside is fantastic. The employees become very results oriented. The employer becomes the employer of choice for the entire world. Can you imagine the number of resumes that will jump into the queue when a vacancy is advertised? No money has to be spent on consultants because no silver bullets are needed.

Lee Peterson
Guest
9 years 9 months ago

The upside is, you create employees for life. The downside is, you’ve created employees for life. Having said that, I feel the upside is worth it. Look at Publix; they’ve been doing it forever and they’re consistently rated very high amongst consumers. I think, in a tough economy like this, it’s about time it was brought back in a big way–think long term!

Anne Bieler
Guest
Anne Bieler
9 years 9 months ago

Incentive programs can be highly motivating when structured fairly. These programs can drive great results, as it is very clear what the objective is for all. Going forward, it’s important to keep focus on all areas of business that support the operation–there can be a real divide if support staff feel they don’t share the rewards in a way that is perceived as fair.

Are the bonuses individual, for the store, the region, or the business as a whole? Better programs may have multi-part incentive schemes, as perception that some stores have an advantage, etc., and need to reinforce success at all levels of the operation. The in-store experience, supply chain, etc., all contribute and must be well managed so that sales efforts pay off as intended.

Ted Hurlbut
Guest
Ted Hurlbut
9 years 9 months ago
Let’s talk this through a bit. If this is so obvious, why isn’t everybody else doing it? We’ve had a good year, business was up nicely. We’re going to pay out bonuses averaging twice the annual salary of our employees. Shareholders will be happy, at least initially. They’ll ask, though, why we’re paying three times the market rate for labor. Was our nice increase really the result of so many motivated employees? (If so, why are we paying management so much?) What factor did our management play, and what factor were market and economic conditions? Before long, shareholders will start to wonder if the balance of payouts to stakeholders is really balanced. After all, they invested in order to be the beneficiaries. I’m sure the institutional shareholders are going to be thrilled. And I’m sure there will be a few vultures out there thinking this cash cow is ripe for the pickings. Employees will obviously be ecstatic. They’ll feel like they hit the motherlode, especially if they feel they didn’t have to actually work three… Read more »
Craig Sundstrom
Guest
9 years 9 months ago

To say the least, this sounds very irregular…I’m wondering if the “average” is really a handful of managers getting half million pounds each and the floor jockeys getting a few quid.

The problem with bonuses is the (potentially) huge swings in income; this is true from the perspective of both employees and employers, though of course the situations are reversed (employees happy to share the rewards when times are good, and employers all too willing to share the pain when times are bad). From a practical perspective, I would think a company with a largely bonus-based compensation plan would have trouble attracting first rate employees unless it had an established history of actually paying them out (YOU can control your income!!!…yeah, right).

Ralph Jacobson
Guest
9 years 9 months ago

David Livingston mentioned the independent grocers that have, or actually HAD, this type of program. At first blush, it seemed generous and likely to motivate employees. However, I have seen most of these programs stopped due to the fact that this money typically does not drive employee performance. The culture of the organization day-to-day as well as the individual employee’s personality are the drivers.

Michael Greenberg
Guest
Michael Greenberg
9 years 9 months ago

The linked Scotsman article states that the bonuses are intended to top out at 1x annual salary, so the average overstates the benefit to some extent.

This is a great idea at first glance, but it’s hard to see how an incremental 87.5m payout on EBITDA(?) of 200.4m (quoted in the Scotsman) makes sense. His employee turnover costs must have been huge, since this payment structure ensures virtually no one will leave for 24 months. He may have other reasons tied to his ownership of Newcastle United.

W. Frank Dell II
Guest
9 years 9 months ago

A company is made up of people. When the company succeeds then the people should as well. Just like with any incentive, there must be rational goals and boundaries. The wrong measure can kill a company. One board set one measure for executive bonuses. The management team made all decisions based on this one measure. The result was management got maximum bonus and the company was broken up and sold as long-term viability had been left out.

As an employee-owned company, Publix rewards all associates by increasing stock value, which helps explain why consumers rank them highest. The two greatest problems with incentives are unattainable goals which turn associates off and overly complicated structures which takes the inventive away. Simple is best, as is fair sharing.

Larry Negrich
Guest
9 years 9 months ago

Metrics. Metrics. Metrics. If this plan is showing itself to incentivize store employees to better execute against corporate goals (selling more product, improving customer experience, retaining the best employees, etc.) at a cost in line with expectations, then it’s a success. The key will be to keep measuring results and tweaking the program to continuously achieve desired results. When these types of compensation programs go on autopilot is when problems arise.

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