1. What is the cause of the problems described in the case? How serious are these problems?
The cause of Problem in Nordstrom is misaligned Compensation system. The Compensation is
not vertically aligned with the Strategy of the company. Nordstrom depended on its sales employee
for customer care and selling the products. However, the compensation structure was not adequately
aligned to reward those behaviours which forced employees to work off-hours without getting
Compensated for it.
The problems were very serious as is evident from the case; the company came under a barrage of
national class action suits which made a huge dent into the brand of the company. They had to make
a $15 million fund which wasn’t enough. More importantly, it broke the numero Uno position and aura
that Nordstrom was enjoying vis-à-vis their competitors.
2. Are Nordstrom employees pressured inappropriately by the sales-per-hour system? By management?
Yes, Nordstrom employees are pressured quite inappropriately by the SHP ( Sales Hour Performance)
system. In this system, employees were assigned a given SHP and if they go above the SHP , then
they would be eligible for commission otherwise they will just get the base price. Now, the employees
worked “off hours” for doing everything from writing Thank You letters to sales meetings etc. but if
they add the “off hours” then the SHP will go below the stipulated figure and they will not eligible for
commission and without the overtime hours their salary reduced substantially.
So, it was counter mechanism, if you punch in all the work hours , the employee would suddenly find
himself in the bottom rung of SHP which lead to reduced pay, termination as well. And if one doesn’t
add the extra hours then also the pay is reduced but one can maintain SHP. So employees tried not
to put their “off hours” but worked...