What problems does Nordstrom’s evaluation/compensation system have? Think about this question while considering the objectives of the Company’s evaluation/ compensation system, what measures it took and what happened as a result.
Nordstrom’s Evaluation System and its Problems
Based on my analysis, the Company’s compensation systems poses serious problems which are inadequate measurement of performance through sales per hour (SPH) ratio as the only Key Performance Indicator (KPI), opposing incentive system and Company’s key success factors and unbalanced system for rewards and punishment. These problems are brought about by the incentive system complemented by a couple of Company’s other distinctive policies.
The incentive compensation works through evaluating salespeople on their sales-per-hour ratio. Each employee is given a target SPH ratio which depends on his base hourly wage and store department he belongs. If the employee met the SPH, he is paid for an amount ranging to 6.75% to 10% commission on net sales. Aside from this commission, achieving or surpassing the target SPH will lead to better hours when the shopping is heavier and a better chance of promotion. On the other hand, failure to meet the SPH often results in decreased hours or in some cases, termination. Having this measure for evaluation and promotion, it causes a serious problem to employees because only a single KPI is being used to measure their performance. Other activities that are considered productive such as different “Non-selling” duties are not given weight on the evaluation. Also, other value-added activities, employees’ improvement, extra milestones are not taken into consideration. It can be concluded that the system is flawed in measuring the employee’s performance.
It is worthy to mention that the incentive system does not support the Company’s Key Success Factors (KSF). It should be noted that the Company’s strongest competitive advantage is its superior customer...
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