Nordstrom: Dissention in the Ranks?

The following case analysis evaluates the Expectancy Theory and the three main elements of the Effort / Performance / Outcome (“EPO”) model as it relates to motivation at Nordstrom. In assessing Effort, individuals ask themselves whether exerting the effort will allow them to attain the requisite performance level. Having an achievable performance level is critical in strengthening the links between Effort and Performance. The second element of the model relates to Performance, and evaluates whether meeting the performance standard will result in an outcome, or reward. For individuals to feel motivated, they must feel confident that meeting the performance standards will result in the promised reward. The final element of the model relates to the Outcome, and is the component whereby individuals consider whether or not the reward is valuable to them. Offering the right reward is essential in order for the EPO model to successfully function to extrinsically motivate employees.

The Expectancy Theory and EPO model can be used to analyze Nordstrom’s culture and incentive system. The first step of the theory is to clearly define the performance standards. At Nordstrom, management attempted to clearly articulate performance standards with the metric of sales per hour (“SPH”). Each employee was given a target SPH ratio, which was computed by taking sales (less merchandise returned) divided by hours worked. If an employee’s actual SPH was higher than their target SPH, then they received a 6.75-10% commission on net sales; however, if SPH was below their target, they only received their base wage. Failure to meet the target SPH often resulted in decreased hours – or in some cases, termination. While technically, Nordstrom’s performance standard was clearly defined through SPH, there was an unwritten rule that even if an employee was meeting their target SPH, they should still work “off the clock” in order to reduce their reported hours and therefore, boost their SPH. As depicted in the case, a sales clerk may have chosen to sacrifice pay in the short term for better shifts and more hours in the future. In other words, while the performance standards appeared to be clearly defined on the surface level through the SPH targets, the actual performance standard was even higher than the published target.

The second step of Expectancy Theory is to ensure that the performance standards are achievable. This step demonstrates the link between Effort and Performance and answers the question, “If I put forth the effort, will I attain the performance level asked of me?” In the case of Nordstrom, it was common practice for employees to expend high levels of effort through activities including: driving to another Nordstrom to retrieve an out-of-stock item, driving to a customer’s house to deliver purchases, and writing thank you notes to customers. Some sales clerks went as far as changing customers’ flat tires, paying their parking tickets, or taking customers to lunch. In addition, employees were also expected to spend time performing routine merchandise stocking, store display activities, and attending numerous staff meetings. Unfortunately for Nordstrom employees, putting forth this level of effort did not enable them to meet their target SPH levels. In fact, the considerable amount of time spent performing these activities – if formally recorded in an employee’s time sheet, lowered their SPH. This was a key flaw in Nordstrom’s model and demonstrates a weak link between Effort and Performance, as putting forth the expected level of effort was actually detrimental to meeting Nordstrom’s SPH performance standard. The only way for an employee to attain the desired performance level through “achieving” their targeted SPH ratio was to underreport their actual hours worked.