Case 12-1
Summary
Best Buy is one of the largest consumer electronics retailer in the world. Their organizational strategy has
been to increase store revenues by focusing on providing customers product knowledge and services over
direct sales. This includes not paying employees based on commission and instead a flat rate. Part of Best
Buy’s strategy is to inform customers of their compensation policy as a way to gain trust and increase
sales.
Analysis
The Best Buy case study addresses employee compensation and whether or not the system used by Best
Buy is either a commission system, based on incentives, or neither. Because Best Buy employees are
tracked, even if their base pay is not awarded through commission, performance can be used to
incentivize or severely disincentivize.
Questions
1. What is the definition of an incentive pay system and given this definition does Best Buy have a pay
for performance system?
An incentive pay of pay for performance system provides variable pay (in whole or in part) based upon
some measure of individual or group performance or results which is to award some form of
2. Why would any firm (including Best Buy) use an “incentive–like” pay system?
Incentive plans are employed for several reasons including rewarding better performing employees for
past performance, increasing future motivation/performance through increased pay and recognition,
3. There are two basic choices in incentive pay, which ones do Best Buy appear to utilize in their
compensation plans and “tracking systems?”
The two basic incentive programs include individual- and group-based incentive systems. Individual
systems reinforce performance of a single person with a reward significant to that person, while group
4. The veteran employee claims that Best Buy has created using their “tracking system” all of the
problems of a commission system. What are the advantages and disadvantages of this system in
general and more specifically for Best Buy?
Advantages include easy employee evaluation, matching rewards to employees’ desires, linking
performance to results, and motivating less productive employees. Disadvantages include hard measuring
5. The veteran employee’s perception was that Best Buy’s metric system, which focused on individual
employee’s behaviors, decreased their job performance. What would be the pros and cons of Best
Buy using a group incentive system?
Group incentive systems might avoid the competitive relationships between employees and individual in
6. Best Buy seems to use bonuses and commissions as part of their pay system. What are the effective
and ineffective uses of each system?
A bonus is a lump-sum payment typically given to an individual at the end of a specific period. The
problem of using bonuses tied to time is that, according to reinforcement theory, variable reinforcement
7. What group incentive to you think might work “best” for Best Buy?
Group incentives include profit sharing (providing a portion of the company proceeds over a specific
their choice the employee’s individual performance is not being rewarded.
8. In light of Best Buy’s code of ethics and the opinions reported in this case, do you believe that it is
ethical for sales associates to tell customers that they are simply paid a flat rate?
This question requests students to take a position on whether Best Buy uses incentives at the individual
Case 12-2
Summary
Barclays is a multinational banking company that faced a massive revenue decrease in 2012, but produced
a positive net income in 2013. Despite positive results in 2013, stockholders still demanded far greater
results. In order to achieve those results, Barclays increased the amount of cross-selling of financial
services and emphasized incentive pay (individual performance–based bonuses and commissions) for
salespersons.
Analysis
The Barclays case reflects some of the challenges that exist when a significant decrease of revenue exists,
and stockholders demand more results. In this example, Jenkins had a difficult decision to make in order
to increase the long-term profitability of the organization. Jenkins did not want to lose more highly skilled
employees, and by doing so, increased incentives. When an incentive increase occurs, something has to
be cut, and in this case, it was 10,000 Barclays employees.
Questions
1. The British government took the position that saving 10,000 jobs and deferring employee incentive
pay was more important than immediate extrinsic reinforcement of sales force performance. How do
the notions of entitlement and social loafing possibly explain their position?
With the layoff, Barclays Bank aims to lower its labor costs, but at the same time they know that they
have to promote cross-selling in order to generate higher revenues. On this path, Barclays took action to
2. Individual performance–based bonuses and commissions are one form of incentive pay. Might group
and/or organizational incentive pay systems achieved similar results for Barclays?
Individual incentives tie performance with results and force the less productive workers to try harder. It
also provides the chance to grant valuable rewards that match employee’s needs, therefore individual
3. What other forms of individual incentive pay might Barclays have utilized? Which one of these plans
might have saved the jobs lost to fund the bonus bank?
Other individual incentives that Barclays might have utilized were bonus payments, commissions, merit
pay, piecework, standard hour plans, and other nonmonetary rewards like recognition. The form Barclays
should definitely not use to save the jobs of thousands is merit pay. Unlike the other individual incentive
4. Develop a preliminary individual performance–based incentive plan that you think best suits cross-
selling. Why?
Individual incentives praise the high performance of a single employee with a reward that provides value
to that person. They are the most effective when the company has the ability to isolate individual results
from its total workforce’s performance. Cross-selling is a sales strategy that is designed to generate more
profits by selling more products or services to the customers. In order to implement this strategy, an
5. Given your answer to Question 4, develop a preliminary appraisal system for product cross-selling.
How might this system be different if the incentive plan included group and organizational
incentives?
After carefully analyzing their operations, managing directors of Barclays may come to a conclusion that
they generate more revenue through the sales of a specific product. In order to encourage their workforce
on selling more of this product, they should enforce a commission-based individual appraisal system. A
6. Although Jenkins refused his bonuses in 2012 and 2013, as the CEO, his compensation package would
be quite comprehensive. What other incentives might Jenkins be entitled to beyond his annual bonus?
Executive managers are required to make decisions from which the organization can benefit the most, so
they act on behalf of the company’s owners or shareholders. Executive incentives are provided with the
intention of influencing critical decisions in favor of the owners. The better the profits are, the more