Q1) What is the cause of the problems described in the case? How serious are these problems? The main problems of Nordstrom are its compensation and incentives policies that are distorted. This company uses a Sales-per-Hour ratio as the leading in performance evaluation and work compensation. This performance indicator is not properly balanced by other important factors, such as customer satisfaction, it just focus the sales and the number of hours worked. The integral part of the problem is also the differentiation of “non-sell” and “selling” hours. The lack of transparent performance measures also spelled trouble for the employees of the company.
They are always working a lot, not being paid for the extra hours of work and the measure used by the SPH are not the best ones. Nordstrom’s employees work off the clock and those hours are not paid. To have the excellent customer satisfaction that the company has, employees have to pay a lot of attention to their customers. They spent a lot of hours with them with a personalized contact and all of these hours are not paid. The employees are who build the image, the strong customer loyalty and their desires are not being valorized.
The failure of management to professionalize the relationship between management and employees is another problem. Employees are expected to work beyond the prescribed working hours without pay in order to comply with company requirements. Nordstrom is concentrating only on numbers, they are developing a company culture where it seems that quantity mattered more than quality. This compensation and incentive system brought some consequences to Nordstrom.
The lack of a clear distinction between “selling time” and “non-sell” leads to a big pressure to the employees since the SPH ratio doesn’t reflect the effort and work made by the salespeople. This leads to employee complaints and lack of motivation to work in the company. Also, the existence of such fear competition could lead to undesired behavior such as stealing credits for sales from another sales staff. This motivation policy was one of the Nordstrom proud systems but became more a liability than an advantage. Employees started to complain and soon this system became the target of law suits that damaged Nordstrom reputation and brought negative media attention to the company.
Nordstrom was known has one of the best places to work and with this unhappiness expressed by salespeople that reputation started to drop off and the turn-over rate increased. The focus of the law suits was the pressure maid and lack of compensation for the extra hours worked. Employees were encouraged to work extra hours but were not compensated for them. Nordstrom was targeted with several law suits and always denied the allegations made by the unions.
Later, the Washington State Department of Labor & Industries stated that Nordstrom systematically violated state wage and hour laws, giving reason to the unions that took legal actions against Nordstrom and it had no other choice but to review their record-keeping procedures and compensate the worker’s loss. Later, due to the decrease of the company’s financial value as the stock price went down, another law suit was filled again against Nordstrom.
This time it came from some stockholders that claimed to have suffered financial losses due to Nordstrom Management’s failure to take care of their labor problems and the claims maid. This law suit armed even more Nordstrom reputation.