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Nordstrom: Dissension in the Ranks?

The case questions the compensation policies and practices of Nordstrom, which are linked with its cultre of high-touch customer-service. Nordstrom was publicly lambasted by labor unions and the news media for its practices, which led to employees allegedly underreporting actual work hours in the interest of keeping both their commissions high and the best floor schedules, as well as currying favor with management. The biggest issue facing Norstrom was how to enable a compensation structure that effectively keeps the store employees happy, keep the costs low, and keep the sales and customer service at an all time high.

The first key issue was that there was no clear distinction between selling and non selling hours. All the hours the employee worked for were considered as selling hours and so the SPH of the employees was accounted to be lower than what it should have been. This fear of having lower SPH forced employees to make the non selling hours off the record and this resulted in loss to employees in both monetary as well as recognition of extra efforts work. In order to mitigate this issue, there should be a clear distinction of the hours which would be categorized under selling hours and the non selling hours. Moreover, Nordstrom should keep track of these hours of each of its employees. However the per hour rate of payment for selling and non selling hours could differ. As the time spent by employee under non selling hours is not adding any immediate profits to the company. This would equip the employees to declare both their hours clearly and also keep their costs down.

The other key issue is the use of SPH as the only metric to judge the salespeople. This caused employees to work off hours in order to get a better SPH and hence they worked off the clock, they got paid less and also caused employees with high SPH to get scheduled on good hours. In my opinion, other metrics such as punctuality, behaviour with customer etc. Should also be a part of the employee’s evaluation and bonus structure. Also, Nordstrom’s caliber of salesclerks seemed to withstand the pressures of rapid growth, but apparently it didn’t have a strong hiring screening program or training. Most importantly, it didn’t seem to really care about treating employees well and backing it up with fair rewards.

A management memo defined tasks such as writing thank yous or attending a meeting “selling.” But writing a customer a thank you is no guarantee that customer will make next purchase from YOU! That should not be classified as a selling activity, but rather as a post-sale activity. The company should pay for that, not the employee, since the company overall is most likely to benefit from the next purchase. Bruce Nordstrom compared this non-selling time to an advertising salesperson, or an insurance salesperson. But there’s a big difference in the business models: The next sale will probably go DIRECTLY to that person in those businesses. There were cases of misguiding the employees as well. Employees were lied about the distinction between selling and non-selling hours. For example, they were repeatedly told on Saturday morning meetings that the punching clock was broken or the time cards were not accessible. They were accused of not being team players if they protested against this practice. Employees should have been clearly told that they would have to put in extra working hours sometimes.

The system in Nordstrom was decentralized, hence it gives a lot of power to supervisor and store managers. When an employee is not able to meet the unachievable sale target set for him then as a punishment the managers forced the person to come on his day off, without any extra compensation or salary for that day. Due to this most of the time majority of the sale force works off the clock. Although not every employee was unhappy – in fact, a fair number seemed to have stood by the company, and they later ousted the union – but at the root there is something inherently wrong with the company’s compensation structure.

However, the union’s claims were not entirely true, and this is why Nordstrom in essence prevailed: Employees DO get compensated for selling work. It’s just that the underlying system discourages reporting the hours. In the end, the Department of Labor and Industries order that Nordstrom compensate employees was rather silly, because it did not address the systemic and cultural issues at the company. Although the employees had a written time sheet, the question was, Will they use it?

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