Companies Rethink Sales Incentives in Wake of Sears Case
Martha Crawford suspected that the Sears, Roebuck & Co. salesman checking the squeaky brakes on her 1985 Honda Accord cared more about his commission than her car. The estimate came to a staggering $422 for new front brakes; a Honda dealer later charged her $137 to fix the rear brakes and stop the squeaks.
“It made me really angry,” Crawford, an Orange resident, said of the April incident. “It seemed so greedy.”
Stung by charges that its sales incentives led to widespread rip-offs in California, Sears has since eliminated the incentives for its auto center employees. The big retailer isn’t the only company rethinking its compensation plans. At GTE, where 20 employees were suspended recently for allegedly selling hundreds of Spanish-speaking customers unwanted telephone services, sales incentives are also under review.
The incidents are focusing new attention on what can happen when sales incentives go awry, pushing employees to oversell. Pep Boys put its mechanics on commission a few months ago after first making them sign a code of ethics to guard against abuse. Yet the firm’s president and chief executive said the Sears case worries him.
“I have 14,000 people working for me,” said Mitchell G. Leibovitz. “I can’t be there to look over their shoulders. I’d be dishonest to not admit this makes me nervous.”
While commissions, quotas and prizes are not new, companies are using them more and more to boost sales during an economic slump that makes every sale a hard sell. Though sales rewards are useful motivational tools, experts say incentives that ignore customer satisfaction can lead to trouble.
“If you don’t care whether the customer is happy, there is always the danger of going too far,” said Bruce Bolger, editor of the trade publication Incentive magazine.
That risk of overselling is greatest when sophisticated products or technical services are involved, experts say. While consumers have little trouble making informed decisions when buying tennis shoes or sofas, the choice is trickier with electronic equipment or repair. Kmart, for example, eliminated commissions for its automotive workers several years ago because of concerns about overselling.
Mark Foster, policy analyst with San Francisco-based Consumer Action, says shoppers who rely on salespeople for advice are easy targets. “If an auto mechanic says your six-flame swingdoodle is broken and needs repair, most people will tell him to fix it,” he said. “No one has time to do the research involved to find out whether it’s needed.”
Foster said he found the allegations in the GTE case particularly upsetting. “Customers are obviously going to be more trusting of someone who speaks in their native tongue,” he said.
The union representing the suspended GTE employees blames the abuses on management pressure and an incentive program that rewarded nothing but sales. Among those suspended is a top GTE salesmen, who last year won a three-day trip to Dallas, a $500 bonus and the company’s prestigious “President’s Quality Award.” His sales technique was so admired in the company that he trained other workers, including the manager of GTE’s Portland office.
Discussing the charges in a letter to his union representative, the salesman said: “I find these charges very insulting to me. . . . . The company was very proud of the job I do; GTE told me so. Now GTE is telling me I did something wrong and is punishing me.”
“The employees involved are really baffled,” said Cina Kludjian of the Communications Workers of America. “They say they were just doing what management wanted them to do.”
GTE is not convinced that the companywide incentive program led to the reported abuses in the Mar Vista office, the only one of 14 sales offices that serves Spanish-speaking people. Nonetheless, the program is under review as the company investigates why 300 to 400 customers were sold call waiting, speed dialing and other services they didn’t want.
“Any time you have something like this happen, you have to evaluate what you are doing,” said Virgil Gardaya, the GTE executive who supervises the sales offices.
As the Sears case shows, a retailer can suffer when consumers grow mistrustful. Its auto center sales in California plunged 20% in June after the state Department of Consumer Affairs said it was seeking revocation of the company’s license to perform car repairs.
The action followed an 18-month investigation in which the state contends that Sears charged undercover agents an average of $223 for unnecessary repairs. Sears continues to deny the state’s allegations, but it admits that its incentives “created an environment in which mistakes did occur.”
According to figures provided by Sears, the repair scandal has cost the company about $700,000 in lost revenue a day nationwide. What’s more, the investigation has turned Sears’ hard-won reputation for service into a national joke, providing fresh material for talk show hosts Jay Leno and David Letterman.
(“Sears says it’s not their fault, they warn the customers right in the ads. . . . Ever see their ads? You get what you want and a whole lot more,” Leno told his television audience one night last month.)
Sears launched a costly national media campaign to repair its image; the company reports that television commercials featuring a somber-looking Chairman Edward Brennan have had an effect. The company says its attitude survey shows consumers are starting to feel more positive, although they do not trust the retailer as much as before the scandal.
Yolanda Mayers plans to return to her local Sears to see whether things have really changed. Since May, she has taken her 1982 Chevrolet Citation to Sears twice--and it is still not fixed.
The first time she paid about $300 for new shocks, struts and other parts. Dissatisfied with the car’s performance--”It shakes a little,” she said--she brought it back, only to be told she needed $300 coil springs.
“If that is the case, why didn’t they tell me that the first time?” Mayers asked. The Los Angeles resident says she hopes a changed Sears will now resolve the problem.
Other consumers are not so forgiving. Said Crawford, the Honda owner: “I will never go to Sears again.”
As Sears works out the problems at its auto centers, there is some evidence that other large employers are starting to realize the need to reward employees for more than just sales. In a recent survey of Fortune 500 firms conducted by the sales-compensation firm of Hewitt Associates, 60% said they planned changes in their compensation systems to reward such objectives as speed, efficiency or good service.
As companies focus more on quality, they tend to “look at all the things they want to deliver, not just ‘let’s sell more of this or that next month,’ ” said Jack Marsteller, a partner with Hewitt Associates in Los Angeles.
Kmart, for example, is testing a program at 50 auto centers in the Detroit area that ties quarterly bonuses to customer service. Auto center salespeople with the best customer survey results will receive $100 each.
In the Midwest, the Highland Superstores electronics chain eliminated commissions for salespeople last month and trumpeted the move in newspaper and television ads. Highland put salespeople on salary after concluding that “customers are turned off by the pressured atmosphere . . . created by a sales force on commission.”
And Sears on June 14 started a new incentive program to reward employees outside its automotive centers for good customer service or product knowledge. Employees receive “Sears dollars” that can be exchanged for televisions, vacuums and other merchandise. The store dollars are not handed out for sales.
It is too early to say whether these programs are making salespeople care more about consumers. At the Sears store in Alhambra, where the “Sears dollar” program was announced at an unusual 6 a.m. storewide pep rally, some employees are skeptical. A veteran saleswoman said she believes that the prizes and fake money are childish.
“It reminds me of Chuck E. Cheese,” she said, referring to the arcade-and-restaurant chain popular with children. “It is like we are back in grade school.”
A Sears spokesman said the program is intended to be fun as well as motivational.
Meanwhile, some companies offering commissions and other sales incentives said their programs are working, in part because there are safeguards to prevent abuse. Take Pep Boys. Since commissions have been introduced, mechanics are working more efficiently, the company said.
Complaints about botched repair jobs have fallen considerably, the company said, because mechanics do not earn commissions when they do repairs over.
At the same time, the company has taken steps to guard against overselling. Besides having employees sign its ethical code, it has a special 800 telephone number for employees to report sales abuse.
What’s more, Leibovitz sends out videotapes to Pep Boys outlets monthly in which he stresses the importance of customer service. And to emphasize the importance of competence, Pep Boys initiated a contest for mechanics. Challenged to perform a series of repairs, mechanics compete for the top prize: dinner with Leibovitz and a trip to Disney World.
That isn’t always enough to prevent occasional abuses, though. “I cannot sit here 3,000 miles away and tell you every employee is in lock-step with me,” Leibovitz said in a telephone interview from his office in Philadelphia. “It is a frightening thing to run a large business these days.”
Tips for Smart Shopping
Here are a few tips to help you say no to a salesperson who tries to get you to spend more than you want:
Do your homework. If you plan to buy electronic gear, telephone equipment or some other sophisticated gadget, research it thoroughly first. Talk with friends, study brochures and check publications such as Consumer Reports. Know exactly what you want before you enter the store.
Comparison shop. This is especially true for car repairs, when you are comparing not just price but diagnosis. If the price seems too high or the extent of repairs unreasonable, check with other repair shops.
Get the cards on the table. If a salesperson is especially pushy, find out why. Ask whether the salesperson is on commission, required to meet a sales quota or striving for a prize. The question alone should be enough to end the hard sell. If not, walk out.
