Nordstrom’s evaluation / compensation system and it's objectives

Nordstrom was well known for it's exceptional customer service, the clerk's 'heroics', helped to build the store's image and extremely strong customer loyalty. In the 1960's, Nordstrom introduced an innovative commission system which was driven by SPH (sales per hour) and other distinctive policies.

The objectives of this system were

to support it's high-service strategy
to motivate its sales employees and to measure their performance

The SPH system was used to measure the performance of the employees, and motivate them to provide an even better service to customers and in this way increase customer loyalty. However, the extra services employees would perform for customers, like helping them pick outfits or delivering packages to their homes, would negatively impact their SPH ratio. This SPH ratio was used to evaluate the performance of the employee, whereby a lower SPH ratio could result in less favorable working hours and a lower commission. Therefor, to boost their SPH employees were encouraged and peer-pressured into not recording all working hours.

For many of the young professionals Nordstrom attracted, this might not have been a major problem as they were willing to put in extra time to take advantage of the high wages and the promise of being promoted internally. But for older or less driven employees, the pressure towards working unpaid hours would either force them to leave the company or would develop into resentment towards the company.

The SPH system : carrot and stick approach

Each sales employee would be given a target SPH ratio, and based upon their performance they would be able to earn commissions on top of their hourly wage. If the actual SPH would exceed the targeted SPH, calculated by sales – returned merchandise / number of hours worked, the employee would receive between 6.75% and 10% commission on net sales. Also, a good SPH would ensure that they would...

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