Nordstrom Versus Walmart: Differences in Compensation and Benefits and the Effect on Organisational Performance

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A Tale of Two Pay Packets
Pat works in the men’s clothing section of a well-known department store. He has been in that position for more than 20 years, and his hourly wage is $11.25 per hour. Across town, Lucy is working in another highly successful retail chain and earns slightly less, around $10.75 per hour. She will make $19,000 a year, calculated over an average working week. Pat will make over $90,000. Pat works at Nordstrom, Lucy is from Walmart, and both are employed at successful companies that offer vastly different compensation and benefits. What is the impact of these differing compensation policies on employee behaviours, and what link (if any) is there to each company’s organisational performance? Nordstrom: Incentivising Service

Nordstrom began as a Seattle shoe retailer in 1901, and soon branched out into apparel. By the 1980’s it was a multi-billion dollar retailing behemoth, with large full-line department stores offering the nation’s leading range of speciality apparel, shoes and accessories (Weston, 1999). Nordstrom has come to be recognised as an up-market retailer that puts a premium on delivering “heroic” customer service, internally dubbed “The Nordstrom Way”. This focus on the customer has been one of the primary drivers of Nordstrom’s extraordinary 20 years of double-digit growth, which has also resulted in the highest sales per square foot in the industry (Weston, 1999). Nordstrom’s management has developed a highly trained sales force, and linked employee compensation and benefits to the consistent delivery of its lofty service standards. Employee pay is based primarily on sales commissions, and sales per hour (SPH) is the main performance metric that is measured. Nordstrom employees are encouraged to set their own SPH targets, earning from 6.5% to 10% commission on net sales if they achieve or exceed this goal (failure to do so results in only a base hourly rate being paid). Top salespeople have the potential to earn six figure salaries (Frey, 2004), although less than half a percent reach this top echelon. The average Nordstrom employee takes home $32,000 a year, still well above the industry standard. The company also offers an employee profit-sharing retirement plan, with contributions made into the fund from the company’s yearly net profit ( Other benefits include medical, dental, life insurance and disease prevention programs, amongst the most generous in the retail sector. The Nordstrom Way

Most new employees of Nordstrom will be told the following true story. One day, an older gentleman walked into a Nordstrom store and asked to see the store manager. He angrily explained that the tyres he had bought from the store the year before were now defective, and demanded his money back. Without hesitation, the manager cheerfully refunded the customer’s money. Nordstrom does not sell tyres (Spector and McCarthy, 2000). Nordstrom uses its “heroic tales” to emphasize that superior customer service is the cultural core of the organisation, and one of the key components in maintaining this cultural focus is Nordstrom’s compensation policy. Nordstrom will systematically track feedback from customers, and link each employee’s compensation and advancement to these comments (Collins and Porass, 1994). Sales associates with strong customer feedback and a high SPH are offered the most attractive hours, superior staff discounts, bonuses, and company-wide recognition (Collins and Porass, 1994). After each pay period, SPH rankings are posted for all staff to see. As there is no absolute measure of sales performance, this ranking system tends to drive up SPH in stores, as employees work harder to outperform each other. Profit share is tied directly to the performance of the company, which is meant to encourage staff productivity and promote company loyalty (, 2011). To compliment this high performance work culture, Nordstrom gives its front line employees a large degree of...
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