Thursday, October 16, 2008

Nordstrom: The Evil Empire of Retail?

A most interesting point which occurred to me when examining the case of Nordstrom’s Department Store, and the legal troubles they had with their employees in the early 1990’s, was the similarity between the behaviors displayed by “Nordies” and the employees at Southwest Airlines. At both companies employees went above and beyond to serve their customers; they worked “off the clock”, they spent personal wages on parties for fellow employees, and they made personal luggage and purchase deliveries to homes. However employees at Southwest are almost spiritually devoted to their company and at Nordstrom a large percentage of workers sued the company. The real question is why such different reactions to similar expected behaviors? Why do we praise/accept one system and denigrate another when both encourage the same types of behaviors? The answer is that Nordstrom created a system to capitalize on its employees’ hard work, evolved a culture that implemented the system to perfection, while the executives spouted shallow rhetoric about “self-empowerment” and entrepreneurship, all resulting in a work environment that became increasingly toxic as the company reached a peak of sales success toward the end of 1980’s.
First one must agree that extraordinary activities done to service Nordstrom customers, or take care of the store, were not voluntary. The culture created by middle management, where “team players” frequently worked off the clock and were rewarded for it in many ways, enabled the compensation system to continue to work despite its unfairness and possible illegality. Upper management maintained throughout that if people were working off the clock then it was voluntary and isolated, when in fact it was pressured and pervasive. Positive punishment and negative reinforcement techniques were utilized, possibly unwittingly, by department and middle management to perpetuate the poor system. What is meant by positive punishment is the rewarding of undesirable behavior. In the case of Nordstrom, employees that left hours off of their timecards (albeit to boost their sales per hour and therefore their commissions, but according to upper management and the law for waged employees this was undesired) were rewarded by their managers extrinsically with the best floor hours and intrinsically with praise for being a team player and recognition in front of their colleagues etc. Conversely, employees that displayed the desired, and legal, behavior of reporting all the hours they worked on their timecards were negatively reinforced by their managers’ withholding of certain privileged hours. This would prove especially frustrating, and confusing, for employees as they were acting properly, displaying the proper behaviors, and were never reaping rewards. These employees were never receiving commission payouts either as validly reporting one’s hours led of course to a larger denominator, and therefore lower sales per hour number. Finally, it was these frustrations that led employees to take their case to the law.
One can see how the punishment and reinforcement techniques used at the department and store levels could drive the practices of not reporting work hours, this practice though was a result of the culture created through the usage of sales per hour (SPH) as a measuring stick for the entire operation. First you have a salesperson paid commissions on sales per hour providing the surface motivation for not reporting hours (coupled with the powerful techniques employed above). Then you have department managers that are measured on the SPH numbers of their salespeople, therefore motivating them into the reinforcement and punishment behaviors above. Allegedly certain managers even put “out of order” signs on time-clocks when their salespeople came in to do inventory on the weekend, so hours could not be reported. Sales floors became so competitive with a “win-not-lose” mentality that ethics were often compromised. Meaning that when one concentrates on winning at all costs it is nothing to steal a fellow employees’ sales numbers. Then above them you have store managers who are measured on the SPH numbers achieved by the different departments of their store, and who utilized those numbers to determine promotions. Therefore if one wanted to make hefty commissions, work the more lucrative floor hours, or get promoted at Nordstrom one had simply to play ball and not report all the hours they worked.
It is clear by the statements made by upper management that they realized how this system worked because when they first attempted to rectify and settle wage grievances they reinstituted the same practices in their system. Though sales activities were clarified further for employees, it remained that to achieve a healthy SPH one was still required to not report work hours. The unfortunate thing for one to observe is the lack of true engagement with the front line employees with upper management. Upper management relied on the systems they put in place, and turned a blind eye when it was apparent it resulted in unfair wage practices, chalking it up to voluntary activities which were as explained above truly involuntary. Nordstrom used its employees while deluding themselves into thinking that they were fostering entrepreneurial behaviors when in reality they were not imparting any ownership to their front line. This is where the true difference between Nordstrom and Southwest Airlines is illustrated. Importantly first the culture at Southwest was radically different, and was built on the foundation of teamwork and success of the whole. This culture was reinforced by the compensation systems the company put in place such as offering stock options for example which gives Southwest employees true ownership in the company and the stimulus for going above and beyond. Southwest is also very specific and purposeful in its hiring processes, and clear in its expectations of its front line employees. Nordstrom however, did not offer stock options to employees, and was intentionally deceptive about its sales per hour systems. Interviewed employees stated that “it becomes clear to most Nordstrom salespeople soon after they are hired that the store’s commission-selling program effectively penalizes any salesperson who insists on getting paid for every hour worked.” Employees should work hard at their jobs that is given, however when one is being paid hourly, not collecting a salary, it is the law that those employees be paid for the time they worked. Even if one is attempting to provide extraordinary customer service by for example driving a purchase over to a customer’s home in a bid to receive an Nordstrom “Customer Service All-Star” award it is clear that all that mattered was your SPH number. Providing excellent service was just management rhetoric. One eight year Nordstrom employee stated “In the end, really serving the customer, being an All-Star, meant nothing, if you had low sales per hour, you were forced out…”
This situation is common in many retail environments that track sales this way. One particular bank whose upper management team states repeatedly that their goal is always customer service, that they want their salespeople to operate on a need-based sales attitude, and that serving their long-time customers is primary to all their branches, employ similar systems that superficially reward customer service meanwhile the time needed by their front line employees to actually provide excellent service takes away from the time that employee needs to sell products in order to make commissions and retain their position. As at Nordstrom this bank’s employees are often frustrated by their inability to make sales numbers because all their time was spent assisting customers with issues where no sale was available. The same bank handed out numerous certificates, and offered praise, for high customer review numbers, but when paychecks came out and raises were extended, those excellent reviews were meaningless in the face of raw sales numbers.
It is not the focus on sales numbers that is particularly frustrating in these two cases (Nordstrom and the bank) it is the hypocritical attitude displayed by management throughout the organization. At Nordstrom upper management decried that they would ever require someone to work off the clock, but they instituted a system that resulted in that exact behavior and used the employees in the system to boost their sales numbers and reduce their costs, basically creating their competitive advantage through unfair labor practices. The system itself led to a culture that exacerbated and perpetuated these practices. In conclusion, Nordstrom deserved to be sued for back wages and in the future they should be more straightforward with their employees about what is expected and simply offer them the true ownership they claim to anyway in the form of stock options and salaries.


Bruce Erickson said...

Great post. I am doing a paper on Nordstrom. Do you have a source for this info?

Tracy said...

As a previous employee from a Chicagoland Nordstrom - I can say that this article is accurate and true and it continues to happend to this day. I can also say that HR and the Store Manager was aware of sales associates working off the clock and be okay with it. Why? Because it drove sales and in the reports, made the store look highly productive. It's the nature of the best, but just like the title of this articla - "Nordstrom IS the evil empire of retail".

Free country said...

You know, here is the thing - if Nordstrom is so "evil", you can always is still a free country...

peeteeco said...

I work there and i might get fired if i dont improve my sph. would they tell me something if i sale without being on the clock?