Expectancy Theory

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both group recognition and additional clothing discounts – resulted in adverse behaviors such as “sharking”, which means taking credit for others’ sales. Furthermore, the unrealistic SPH targets implicitly encouraged employees to underreport their hours – a cultural practice which ultimately resulted in severe unintended consequences, including litigation that required Nordstrom to pay millions of dollars in back-pay.

Another unintended consequence of Nordstrom’s incentive system was high employee turnover which resulted from low morale. The case notes that employees felt like their jobs were “constantly in jeopardy” and people were “dropping like flies” and “always in tears.” Nordstrom’s intention for the SPH system to increase productivity and motivate its self-empowered employees, the unrealistic targets resulted in an ultra-competitive work environment with constant demands and grueling hours. As a result, many employees experienced low morale – and were either fired for not meeting their SPH targets, or quit because they “just couldn’t take it anymore.”

To improve the situation at Nordstrom’s, its management should look to develop intrinsic motivation among sales clerks. One way this can be achieved is through feedback from customers. Nordstrom’s management should offer opportunities for customers to evaluate sales clerks, to log that feedback, and evaluate clerk performance accordingly. Metrics gathered from this feedback – such as ratio of satisfied customers to overall customers – and customer comments would be shared by the manager to the employee. Feedback could be gathered through surveys to customers after a visit and managers asking customers directly about their experiences. Ideally, customers would be incentivized to provide feedback (with discounts on their next purchase, for example), and feedback would be gathered from an equal number of purchasing and non-purchasing customers from a particular clerk. After feedback is gathered, it would be shared with the employee monthly by their manager.

There are a number of pros to moving to this approach. It would mitigate the low morale and intense competition prevalent among Nordstrom’s clerks. With a measurable goal based on customer service, employees would be able to link their performance to the overall goal of the organization: to have the best customer service in the industry. Seeing themselves as a part of a larger picture, employee morale would improve as they would be motivated intrinsically by a task identity that mirrors Nordstrom’s overall objective. Additionally, although natural competition may exist between employees as they try to achieve the highest customer service possible, they would not be incentivized to “shark” customer sales from one another, as sales are not included in these performance indicators. Finally, in addition to increasing intrinsic motivation, this recommendation would also strengthen the bond between an employee’s Effort and Performance, as it would create a mechanism that shows clerks how their effort affects their performance directly in the realm of customer service, dictated by the customer’s themselves.

Unfortunately, there are a number factors that impact the efficacy of this approach. A large part of a manager’s job would become the collecting and managing of feedback, which could be costly to the organization as it might take away hours that managers could be generating sales. In addition, this model is limited by the effect of customers who may not always be willing to answer the surveys accurately or at all. Finally, although feedback would be collected objectively from customers, it would have to go through the manager before getting to the sales clerk, which may leave room for elements of the feedback to get misrepresented.

Another recommendation to effectively increase the level of intrinsic motivation at Nordstrom is to redefine performance standards by incentivizing its credo of being a team player in addition to the delivery of superior customer service. This would come to life through a team based evaluation and compensation reward system that would recognize and reward collective team goals such as team sales and team ratio happy customers to overall customers at a Nordstrom’s location while eliminating the SPH-based commission system. The team-based compensation system would award semiannual performance-based bonuses to teams as a whole and specific employees who surpass collective store goals. These bonuses would be contingent on the stores continuing to receive superior customer service reviews in the above-mentioned proposed customer service feedback recommendation.

The team-based compensation reward model would effectively increase intrinsic motivation while combatting many of the unintended consequences of the previous reward model. Under the new system, efforts that had previously lowered SPH – such as home deliveries – would gain the intrinsic values of task significance and task identity. Employees would recognize how these efforts affect the productivity and quality of their team, as well as the entire organization. Providing collective incentives that require teamwork would foster a strong sense of community across Nordstrom. This would eliminate the intense competition that resulted as an unintended consequence of the previous system, as employees would be rewarded for working toward a common goal instead of gaming the system.

The team-based compensation model does require certain conditions to function as planned. The employees must not be exclusively extrinsically motivated because the model requires that they buy into the changes in performance standards and function effectively as a team. The newly incentivized “heroics” would be more closely linked to the team-based performance standards, as they no longer have a negative effect on an employee’s compensation. Clearly defined collective outcomes are also now more attainable because effective teamwork would enable more employees to achieve performance standards.

However, the team-based compensation model does have constraints. Purely extrinsically motivated employees would likely leave the company, as these employees’ abilities to secure significantly higher salaries than their peers would be eliminated in this system. Also, the new model represents a major overhaul to the existing sales culture. Significant time and capital would be required to train salespeople and managers about the new system. During the transitional period, Nordstrom may lose some of its valued productivity.