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Strategies For Motivating Mary Kay Employees: Avoiding Negative Consequences When Implementing Changes To Employee Incentive Programs

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Autor:  gwboettcher  04 May 2011
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Strategies for Motivating Mary Kay Employees: Avoiding Negative Consequences When Implementing Changes to Employee Incentive Programs


Gary W. Boettcher

Sullivan University

MGT 510











Executive Summary

This proposal addresses the problems associated with the alarming growth rate of car incentive winners as a percentage of the total number of Mary Kay beauty consultants. Between 1986 and 1988, the number of awarded cars doubled, as did the cost of the incentive programs. Also, an increasing proportion of beauty consultants were unable to maintain sales quotas, forcing premature reclamation of the cars. Mary Kay Inc. needs to reduce incentive program costs as a percent of sales by redesigning the program without demoralizing the workforce.

The proposal recommends changes within the structure of the car incentive programs and introduces new incentive concepts – both designed to reduce costs and increase sales revenue.




Introduction:

Our core tenants of the Mary Kay business strategy are 1) value and recognize the employee contribution and 2) compete in markets that are not saturated. Coincidentally, to the public, the Mary Kay "pink Cadillac" is the corporate image and represents the heart of the women who win them. It is the icon that draws women from their homes and into the workplace. The promise of a shiny new pink Cadillac and self-employment influences many women to abandon traditional careers for the Mary Kay promise – recognition in the form of a new pink car (Underwood, 2003).

Founder Mary Kay Ash held every employee in high regard and expected each manager to do the same. Her company's mission was to enrich women's lives. These Mary Kay Ash quotes are not fluffy rhetoric; rather, every successful employee in the Mary Kay organization imbibes them.

• "If your mind can conceive it, and if you can believe it, you can achieve it."
• "God didn't have time to make a nobody – only a somebody."
• "Act enthusiastic and you'll be enthusiastic."
• "Nothing great was ever accomplished without enthusiasm."

Historically, changes at Mary Kay Inc. have been met with significant employee resistance. Making changes in the automobile incentive program is problematic; employees feel like company executives are tampering with their hearts. The Cadillac is a badge of achievement expressing self-worth. Corporate executives admit that past program changes were made to reduce program costs, a move workers perceived as negative. Future reduction in incentive programs will likely negatively impact our corporate image and annual revenue growth, unless we craft changes with employee input.

Presently, Team Leaders, VIPs and Directors-in-Qualification, totaling 3,300 people, are responsible for motivating and training 175,000 front-line beauty consultants – a ratio of 1 to 53. Consequently, our strongest leaders and most successful sale directors do not provide enough sales and leadership training to the foundation of our sales force.


Corporate Concerns: Employee incentive program costs outpace sales force revenue growth

Profit margins based on double-digit revenue growth cannot be sustained at the current rate of program incentive cost increases. If left uncontrolled, costs will surpass revenue and destroy Mary Kay Inc.

The escalating cost of the Cadillac alone is rising at unaffordable rates; a rate we can no longer fund in our current incentive program structure. According to the Cadillac history Web site, General Motors recommended dealers sell a new 1984 Cadillac Seville for $22,468. In 1989, the recommended price had risen to $29,935 – a 33 percent increase. (http://100megsfree4.com/cadillac/) Table 1 displays the radical change in our car incentive program costs between 1977 and 1987.

Table 1
Growth rate of car incentive program costs
Year
1977 Year
1987 Percent of change during 10 year period
Commission as Percent of Sales 10.1% 20.7% + 205%
Car expense as percent of Net Sales 1.9% 8.5% + 447%
Note: Data extrapolated from Harvard Business School case study

Cost control and revenue generation are inextricably linked. They are directly related to employee morale and motivation. Recognition of the value of the employee contributions and creation of business opportunities for women drive corporate ideologies. We at Mary Kay Inc. need to generate new flexible business strategies with the understanding that every employee has a stake in the success or failure of the corporation.

Employee incentive program reductions are not the answer to improving profit margins. Reducing employee recognition and incentive program costs to improve profit margins will likely demoralize the workforce and negatively impact salesperson productivity. In the long term, it would be a losing strategy for the company. Nevertheless, incentive costs cannot be allowed to grow unabated.



Addressing Corporate Change: How do we avoid employees' resistance to change?

One of the fastest ways to reduce employee productivity and job satisfaction is to create or increase anxiety and stress in the workplace. In a report on readiness for change, Madsen, Cameron, and Miller (2006) wrote, "Effectively managing change is one of the most critical challenges organizations face today. Increasing the readiness for change of employees may be one of the most important interventions an organization can initiate."

Successful companies are constantly changing. We need to address change promptly. Early recognition gives our company executives the opportunity to analyze and then properly deal with problematic change issues. Shortsightedness can lower employees' readiness for change and that failure can lead to "abortive organization development efforts" (Madsen, et al., 2006, p. 96).

The Madsen et al. (2006) report discusses the importance of involving employees in the "participative method of change intervention" when companies want to minimize employee resistance. Simply, in the vast majority of situations, if employees are included in the decision-making process, resistance is reduced and the chance of successful change is increased. Change is particularly effective when workers have expertise to contribute to the decision-making process.

Washington and Hacker (2005) reported on a four-year study of the effects on corporate change that occurred in six different companies. Each company incorporated the same six-step plan. The first three steps dealt with creating a shared vision with employees. The fourth step ensured the change was applied throughout the company. The fifth step institutionalized the change and the final step monitored the events.

The same study also analyzed why change failed at companies. Of the eight factors – four dealt with poor communications and weak plans. The other factors are: a) wrong structure, b) inappropriate reason for change, c) the wrong corporate culture and d) no guiding alliance.

The study group also investigated resistance to change by employees. Results indicated that employees' primary concerns center on fear of losing their sense of meaning and identity. Change is personal and increases stress levels. Researchers learned that the quality of knowledge and information shared with employees mitigated employee resistance to change.
Employee Motivation Factors: What really counts?

According to Frederick Herzberg (2003), what motivates employees is interesting work, challenge and increasing responsibility – which is essentially the description of a Mary Kay beauty consultant job. However, the psychology of motivation is not that simple. Managers today continue to train the workforce to look for the next wage hike and increased incentives. Instead, they should be properly developing worker motivation factors. Nevertheless, once an employee achieves a compensation level, no matter how much job satisfaction or motivation exists, there will be strong resistance to reductions in compensation.

In J. Sterling Livingston's article, Pygmalion in Management, he asserts that employee productivity is directly affected by managers' expectations. If managers expect high sales quotas, then employees are likely to generate high sales. He further intimates that managers' impact is at its peak early in a worker's career. The inference is twofold: a) managers should set high expectations of their underlings and b) experienced managers should set those high expectations as early in a worker's career as feasible.

By combining Herzberg's and Livingston's theories, we formulate two useful guidelines: Give employees interesting and challenging work with increasing responsibility and expect success. Set realistic yet high goals early in their careers and reward them with praise and recognition when they achieve those goals – and if they do not achieve them initially, encourage them until they are successful.

There is a twofold caution to the Pygmalion effect. First, no communication from managers is a communication. It is a subtle, but firm, form of rejection or disapproval. Equally important is the balance of praise among the employee group. Those who are struggling need encouragement. Successful employees need praise, encouragement and guidance to take on the next challenge.

Second, first-line managers tend to be the least experienced. They often lack the knowledge and skill required to develop younger workers. Herzberg wrote: "Although most top executives have not yet diagnosed the problem, industry's greatest challenge by far is to rectify the underdevelopment, underutilization, and ineffective management and use of its most valuable resource – its young managerial and professional talent."


Recommendations: Opportunities for success

Key decision-makers need to realize that change is everyone's business. We need to empower our employees by engaging them in making needed changes to our incentive plans and sales programs – in every stage of transformation. "It has been found that how organizations do what they do matters a great deal. This can sometimes be as or more important even than what is done. (Fedor, Caldwell, & Herold, 2006, p. 4).

Using resources like the Wilson Research Group can help develop solutions based on corporate needs and employee inputs. Selective use of an employee survey or phone polls can provide executives with important information on incentives and sales problems experienced by the front-line sales reps. Wilson's research assistance can also help "…clients improve products, strengthen customer support, gain sales, expand employee satisfaction, retain current business and target new markets" (http://www.wilsonresearch.com/). Our managers need to give employees an opportunity to make inputs to change through surveys and Web-based comment drop boxes.

Restructure car incentive programs by extending the time to qualify by six months – and basing it on average sales verse hard targets. This gives the candidates the necessary time to build a broader customer base.
• A broader customer base means more revenue before awarding a car. It also reduces the likelihood that winners will have to turn the car in prematurely because of inadequate sales.
• To offset the extended time to qualify, the VIP winner can be allowed to drive the car longer.
• To reduce the cost of lease returns, provide winners with the opportunity to purchase the car, if they have increased their average sales by a set percentage during the last year of car possession.
These processes, if communicated properly, will stabilize car possession for the sales reps, reduce company costs and increase revenue.

We should develop a new profit sharing plan that guarantees money is put in the employee recognition program based on an increasing percentage of profits earned. Use this improvement to mitigate the negative connotations of extending the time to win a pink car.

The ratio of mentor to trainee is 1/53, which is too high. Behavioral science tells us that we need to lower the ratio and increase the contact between high achievers and consultants.
• Executive Directors through VIPs need to become more directly involved in first-person sales and leadership training with both Team Leaders and consultants.
• In addition, competing in markets that are not saturated means expanding internationally. Award the top sales leaders by holding training, leadership and recognition seminars in the new international market centers.
• Highlight the training and award events in the media and it will serve as a public relations recruiting activity in the new markets. This provides us an opportunity to bring a diverse group of successful women together for multiple purposes – at reduced costs.

Modify existing recognition programs:
• Give sales reps a choice of recognition awards. Allow them to pick what is most meaningful to them.
• Add a new cut crystal through diamond jewelry series that forms a set – earrings, necklace, ring and broach – each to be awarded at a new level of achievement.
• Bring National Sales Directors to the local level. NSDs should make recognition award presentations and teach at new local award luncheons. The new award luncheons are a cost effective way to
o Link high achievers with new sales force members.
o Motivate first level sales Directors.
o Spread inspiring experiences to those who interface with clients.
o Show the workforce corporate cares about their success.

Given the high turnover rate of 3,000 consultants a month:
• Streamline the administrative process to reduce time away from sales.
• To reduce consultant inventory. Set up a Web-based product ordering process that requires no human interface and is filled automatically the same day.
• Ensure that a consultant's client base is not lost when she resigns by assigning a backup consultant who can continue servicing the customer. This means we can reduce lost customers by nearly 200,000 annually.


Conclusion: Set challenging and high expectations based on clear two-way communications and flexible strategies

Future changes in employee incentive programs, successful salesperson recognition methodology and expansion of revenue strategies must be developed with beauty consultant input.

Burzawa (1999) recommends that companies address specific communications needs via a method called "targeting" whereby communications are explicitly crafted for each unique employee workgroup. The vast diversity of the workgroup mandates targeted communications to ensure the message sent is the message received.

By co-opting employees' concerns, needs and recommendations in the formulation of new incentive programs and ongoing business strategies, Mary Kay Inc. will minimize employee anxiety and resistance to change. Inevitably this translates to a more productive workforce that generates higher profits for all of us.

The new Mary Kay corporate change strategy should include the following:

• Inform – Keep employees apprised of potential needs and changes of the corporation in a timely manner.
• Involve – When change is needed, engage employees to help formulate solutions.
• Decide – Implement the plan through a targeted communication strategy that employees can embrace and execute. Set high expectations.
• Recognize – Privately and publicly, successful employees need to be commended in front of peers, managers and family.
• Reward – A predetermined amount of profit sharing must be deposited into the employee recognition program each year to sustain encouragement and momentum.

"Successful organizations go beyond brawn and compliance requirements; they engage the hearts and minds of their people in a conscious and deliberate alliance for success" (McLagan, 2003, p. 52).

Together, we can successfully make change a positive experience.


References

Burzawa, S., (1999, December). Workplace trends enhance value of personalized communications, online technologies. Employee Benefit Plan Review, 54,6, 28-30.
Fedor, D., Caldwell, S., & Herold, D. (2006). The effects of organizational changes on employee commitment: A multilevel investigation. Personnel Psychology 59,1, 1-29.
Herzberg, F., (2003, January). One more time: How do you motivate employees? Harvard Business Review, 87-96.
Livingston, J., (2003, January). Pygmalion in management. Harvard Business Review. 97-106.
Madsen, S., John, C., & Miller, D. (2006). Influential factors in individual readiness for change. Journal of Business and Management, 12,2, 93-109.
McLagan, P., (2003). Distributed intelligence: Change is everybody's business. T+D, 57,2, 52-56.
Underwood, J., (2003). More than a pink Cadillac. New York: McGraw-Hill.
Washington, M., & Hacker, M. (2005). Why change fails: Knowledge counts. Leadership & Organization Development Journal, 26, 5/6, 400-411.
Weston, H., (1999, October). Mary Kay Cosmetics: Sales force incentives (A). Harvard Business School, 9-190-103, 1-16.





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