In 1998, Jamba Juice, a successful purveyor of blended smoothies, fruit juices, snacks and hot soups, found itself in a very tight retail labor market. In the booming quick-serve industry, it was difficult to find and retain superior management talent. To address this problem, Jamba came up with a plan it dubbed the J.U.I.C.E. Plan. The company decided to compensate managers for providing high-quality customer service while increasing store profits. It also planned to tie a retention bonus to staying at one shop for a full three-year period.
The J.U.I.C.E. Plan turned out to be too complicated to calculate with the payroll tools Jamba had at the time, so the company turned to Incentive Systems, a Bedford, Mass.-based compensation incentive software vendor. "The incentive program was well into the works before we brought Incentive Systems into the picture," says Katy Schmidt, payroll manager at Jamba. "We devised this plan and then essentially realized, well, this is really complex. We needed something a little bit more robust than an Excel spreadsheet, so we signed up with Incentive in August 1998 and started the implementation process then. It was just at the time we went live with our plan."
Now, with the J.U.I.C.E. Plan in place and the Incentive system to support it, turnover is down and job satisfaction is up, which directly impacts Jamba's bottom line. "It's absolutely sending some signals that managers are looking at their jobs very differently than they did before," says Bob Andrews, director of human resources at Jamba.
A Piece of the Action
Andrews describes how Jamba came up with its incentive plan. "About three years ago, we wanted to look at some sort of a program to incent general managers and assistant general managers in our stores to choose to work for Jamba Juice in a very tight and competitive job market. We wanted them to stick around, as well. The goal was to reduce turnover. We also--and this is very much a big part of our culture--wanted to do something out of the box. We did not want to be the traditional bonus organization, where if you make a plan, you get a certain amount of money; if you save labor dollars, you get a certain amount of money. That's pretty typically in the food industry and in the retail industry how store managers are bonused. We wanted to be different; we wanted to be much more progressive. And we wanted to give the managers a piece of the action."
According to Andrews, Jamba researched what is known in many companies as an "owner-operator program," where the manager of a location actually buys into the business and into the location they manage. As an actual investor, the manager gets a percentage of the profits. "We looked at that type of plan and tossed it around. But the result was that with the target audience of our general manager candidates, we didn't feel comfortable asking them to make some sort of a cash investment, $5,000, $10,000--especially when you're dealing with a group like we are in the quick-serve industry. They don't have that kind of money."
But the company still wanted to motivate these employees by giving them a piece of the business they manage. The answer lay in a program in which the general managers and the assistant general managers are given a percentage of their location's cash flow. "It incents them to control all of their controllable expenses, from labor costs and food costs, to all of their perishable and nonperishable products and supplies," explains Andrews. "At the end of the month, they then are managing the profits of their location more closely and more tightly. They are then given a percentage of those profits."
Jamba's J.U.I.C.E. Plan has three critical components.
A bi-period incentive: Every eight weeks, the managers have the opportunity to receive a cash bonus, which is a predetermined percentage of their store's cash flow or profits and customer service score.
A retention bonus: A payment is awarded to the manager at the end of the year. It's not given to them in the form of cash or a check but goes into a piggy bank for them. The agreement between the manager and the company is that they're going to manage that specific location for three years. The pay out is at the end of three years.
Time off with pay: There is also at the end of the three years the option for sabbatical. Before managers go on to their next assignment with Jamba Juice, they can go on a three-week paid sabbatical. This is not charged against their vacation time off. They can add it to their vacation.
Andrews explains the attraction of the sabbatical and how it works extremely well as part of an incentive plan. "Let's say a manager takes three weeks' vacation plus a three-week paid sabbatical and takes his family on the dream vacation that they've always wanted to go on for six weeks before starting his new assignment. The cool thing about this is, he just got his retention bonus, which could be a sizable amount of money, and they've got all this time off. So managers do have the opportunity to take that dream vacation or sign up for that very special workshop that they've always wanted to do and have the money to pay for it."
While this new plan looked great on paper, calculating bonuses became difficult when considering individual managers' hire dates, which often meant new managers worked only a partial interval in a particular bi-period. Jamba wanted to reward the managers for this time.
Schmidt describes other exceptions. "Things get a little hairy when someone transfers from one store to the next. One of the purposes of the J.U.I.C.E. Plan was to disincent transfers because our perception is that the business will grow if there is some stability in a store. Stability in a store comes with having a general manger there for that three-year contract. Well, if we move that GM from one store to the next, we're kind of taking away from that stability. This is when the plan gets complex, because there are always specific situations with each individual person that drive us to look at it a little bit differently."
The increasing number of exceptions to the plan led Jamba to search for an incentive compensation management tool that offered much more flexibility than an Excel spreadsheet. "At this point we started looking at different vendors," says Schmidt. "I know that we looked at three or four before we decided on Incentive Systems."
According to Nina McIntyre, vice president, worldwide marketing at Incentive, the solution Jamba chose enables users to design and maintain effective, accurate compensation programs. "It's a place where companies can easily author the business rules for paying incentive compensation," she says. "For example, if you want your sales team to focus on closing new accounts, you would have an incentive plan that rewarded people with compensation payments as a result of the number of new accounts they sold. If you don't want to encourage your sales reps to be closing new business, but instead selling larger orders, you might reward based upon the size of the deal."
McIntyre goes on to explain that once a plan's rules are written, the system can calculate incentive results based upon all of the sales transactions or all the data that it receives from enterprise resource planning (ERP) packages like SAP. "Potentially it's data streams from point of sales systems, from cash register systems, wherever they capture their transactions, that are being measured. We can integrate with those software packages and that data flows into our incentive management system and then we calculate the incentive payments."
Incentive Systems' solution is a comprehensive application that incorporates two views of a company, says Bob Conlin, Incentive's vice president of marketing. There is the role-based organization view, in which company structures are defined, with various roles. Then there is the payee view, with information about individual employees, partners, contractors and the like. The plans, where the formulas live, are matched to the roles in the organization.
Conlin explains how that works for Jamba. "On the organizational level, Jamba Juice created organizational tables that mimic the way their company is structured. So they have a western region; they have stores within that region; they have store managers within those stores; and then they have employees underneath those store managers. They did that throughout the entire country. Then they created payees and associated their payees with various roles of the organization. Then they created plans for the different roles within the organization. They have plans for their store managers; they have plans for their regional managers; they have plans all the way up to the executive level. What they had to do is create within those plans the rules by which they'd do their calculations."
And these plans, from the managerial to executive levels, all rest upon the accurate reporting of numbers, which is a major functional component of the Incentive solution. "Users can actually, whether it's via the Web or e-mail or printed reports, see their performance measurement; they can see how they're doing against their goals," says McIntyre. "That's what provides the motivation for the people on the incentive plans.
"It's very well known in organizational behavior that if you set goals for a team or for individuals, and if they can actually see how they are doing against their goals, their performance will improve," she adds. "We've seen sales productivity increases because the folks who were on the sales compensation plans are actually now able, because of our software, to easily access up-to-date information about how they are doing."
According to Schmidt, Jamba's actual implementation of the Incentive Systems solution did not go as planned. "We had a very unique implementation in that we were their only customer, basically," he says. "We did it strictly with Incentive. Our implementation process, I believe, was something we thought would take about four months, and it ended up taking about eight."
Schmidt cites two reasons for the longer-than-expected implementation time. "One, we were the first company going live with Incentive. Then two, this was a new plan for us, as well, so we had a lot of thinking on Jamba's end as far as what did we really mean with certain aspects of the plan. In other words, we had a plan that looked really good from 20,000 feet but as we got down to the details, there were some pieces that I don't think we had thought through.
"Our plan as we presented it to our general managers could be summarized on one piece of paper," says Schmidt. "There wasn't a whole lot of detail that went behind that one piece of paper. And our plan as it is now written in Incentive Systems is a good 15 to 16 pages. So to get from that very high level summary to how we really calculate this so that it's going to work for everyone was a process that we as a company had to go through. That was not really Incentive Systems-related at all.
"We essentially would tell them here's what our plan means, then they would repeat it back to us and say, 'This is what we're understanding and this is how we're going to calculate it.' That's very much a back and forth process--here's what we tried; let's do a little bit of testing; oops, that didn't quite work; actually what we meant was this; okay, let's go back and tweak that programming and so on. You get that foundation in place and then you start testing, knowing that in testing you're going to find some things that need to be changed."
During the testing process, which lasted roughly six months, Jamba introduced the J.U.I.C.E. Plan and the new Incentive solution simultaneously, relying on Excel as a backup as the company worked out the kinks in the new programs. According to Schmidt, this cautious approach led to the realization that there would be many exceptions and special circumstances in the J.U.I.C.E. Plan that the Incentive solution would have to accommodate. "We essentially had to create a way to capture exceptions in Incentive Systems to allow those to post appropriately. We needed to add a table we could plug in with names, social security numbers and the dollar amounts that we wanted to override to," says Schmidt.
Jamba had another testing measure to use after the parallel tests. "We also had a test group of five general managers who were hitting their year marks prior to the bulk of everyone else who entered the plan," says Schmidt. "We carefully monitored their retention numbers for their first year, and it was very easy to see that with these five GMs. We knew that we had that test group that we could continue to test with. If there were some issues, we'd continue to update the program with Incentive Systems."
According to Andrews, the results from the one-two punch of a new incentive plan and the proper technology to support it have been impressive. From the standpoint of each of the last 10 years, Jamba's terminal percentages at the general manger level have been decreasing. In an industry that regularly sees a 50 percent turnover rate at the managerial level, Jamba now reports a turnover rate in the 30 to 35 percent range.
Such a drastic reduction in turnover directly impacts Jamba's bottom line, as managers equate the success of the company with their own success. "Typically in retail or the quick-serve industry, managers are held accountable for their labor costs and their sales growth, but we've now added in the extra dimension that they're also accountable for their profits," says Andrews, "and that goes right into their wallets."
To illustrate this point further, Andrews recalls a recent conversation he had with a Jamba manager. "He said to me last week when we were together, 'How do I walk away from $20,000 when somebody else is offering me a job in another QSR company--I can't walk away from $20,000. I'm in my late 20s, I haven't bought a home yet and my spouse and I are looking at that to make a down payment on a home. I'm sticking around.'"