Kelsi Jones, Delecia Lucas, Donna Matthews, and Cassandra W. Sanders PHL/323 - Ethics in Management
May 26, 2012
Ethics in the Workplace
Companies faced with choosing profit over customer care often times find themselves in an ethical dilemma. Sears, Roebuck, and Co. experienced this type of dilemma in it auto service centers. After a decline in revenue, Sears began to focus its strategy on increasing profits. To incentivize sales, “mechanics were paid a base salary plus a fixed dollar amount for meeting hourly production quotas” and “commissions and product-specific sales quotas were introduced” for auto service advisors (Trevino, 2006, p. 207). This practice poses a serious ethics violation. Ultimately, 42 states filed charges against Sears and consumers filed class-action lawsuits. Although Sears’ intent was to gain profits for the company and its investors, which is typically the goal for most businesses, the method Sears employed to do so encouraged unethical behavior at the expense of the customer. The following case study analysis will include a summary of the facts involved in this case as well as possible alternatives that Sears could have considered. Sears, Roebuck and Co.
The main problem in this case was that Sears allowed its financial position to go against ethical reasoning. Sears essentially set up a reward system that paid employees for meeting quotas. In the auto repair industry, businesses make money by completing auto repairs on customer’s vehicles. If an employee is given incentive to perform more repairs, he may be highly influenced and motivated to persuade customers to agree to repairs that are not necessarily needed. The way this was likely justified was that the work was preventive maintenance. By recommending unnecessary repairs, mechanics may justify that they are saving the customer in the end from costly repairs. According to the Trevino (2006) “since the mechanic often inspects or performs the diagnosis, he has the ideal opportunity to oversell or recommend more repair work than is needed” (p. 209). Therefore, the only person who really knows if the recommended repair is necessary is the mechanic. Additionally, mechanics were paid money on top of their salary to complete repairs in a timely fashion. The quicker the mechanic performed the repair, the more financial reward paid to him. The mechanics were motivated to act unethically based on financial reward. After a series of customer complaints “the California Department of Consumer Affairs accused Sears, Roebuck, and Co. of violating the state’s Auto Repair Act and sought to revoke the licenses of all Sears auto centers in California” (Trevino, 2006, p. 208). As a result, Sears agreed to change its compensation plan from commission-based and implement performance measures. According to a Sears mechanic who wrote a letter to the United States senator informing him of the unethical practices still committed by Sears mechanics as a result of management’s expectations, this agreement was not fully upheld. Sears settled the case with a multimillion-dollar settlement and 3-year probation. Root Problems
In the case of Sears and the auto center scandal, many root problems created unethical situations for the company. The main root problem was Sears implementing a commission based pay in a service orientated business and creating a sole focus on increasing profits. Sears used high quotas on products like tires and front end alignments or brake repairs to create an environment where employees pay depended on selling these items even if unnecessary. Sears focused heavily on employees attaining these quotas in place of providing customer service. The company also changed the pay of sales representatives and inspectors to include commission and a lower hourly. This change combined with the mechanics commission pay created a work force completely focused on making commissions and...