Sears - A Study in Dysfunctional Behavior in the Workplace

Managerial reporting and performance evaluations are often closely grouped with the outcome of one greatly affecting decision making and planning of the other. However, any first year physics student can paraphrase the Heisenberg Uncertainty Principle in which the act of observation changes that which is being observed. This classic statement is just as applicable in the business community where an employee expected to achieve certain goals or production standards will often change their behavior—many times for the worse—in order to meet these managerial expectations. In the early 1990s, Sears found itself in the headlines for the wrong reasons. Lawsuits and complaints rolled in from customers accusing the corporate giant's repair shops of overcharging and making unnecessary repairs. This problem of employee dysfunctional behavior arose fairly quickly and could be traced to corporate decisions regarding compensation and employee expectations.

The primary driver behind the shift in employee attitudes and behavior was a managerial effort to change the way employees would be compensated and evaluated. The performance appraisal tools were revised and It was decided that a straight hourly wage would be replaced with a base pay plus commission wage.

Employees instantly realized that a certain level of sales would have to be made in order to generate the same level of income as before. Unfortunately, dissatisfied or dishonest employees also saw this change as a way to boost their pay and performance considerably. With a chance to earn more money and a higher standing in management's eyes based on the revised employee performance appraisals, many of Sears' mechanics resorted to underhanded and potentially illegal activities.

 The problem started small and snowballed. Consumer complaints trickled into company headquarters and to the California Department of Consumer Affairs. An undercover investigation was launched over the course of a year and a half with startling results: in nearly 90% of the visits, mechanics suggested unneeded service and repairs. When confronted, the Sears mechanics were quick to point the blame at the new managerial policies. They cited quotas and how they felt pressured to meet parts and repair goals or face repercussions including cuts to work hours or demotions to other departments. Given these alternatives, many mechanics developed their own scare tactics to meet or exceed expectations required by the newly revised employee performance standards.

In the wake of these lawsuits, Sears chairman Edward Brennan announced an immediate shift back to a non-commission based pay, removal of sales goals, and development of employee performance standards based on customer satisfaction. More importantly, he acknowledged the poor judgment and execution of the incentive-based program.

A simple system to monitor and evaluate employees performance led to unexpected behavior and unexpected costs rather than generating more revenue as planned. Unrealistic goals and questionable managerial tactics to enforce these goals quickly let to dysfunction. It is very important for management to look beyond the reports and the employee evaluations and focus on the potential pitfalls that might come from certain decisions. Dysfunctional behavior can come at any time from any employee if the working environment changes in a way that is deemed hostile. Careful consideration and backup plans have to always be considered. Training an employee to fix a car is easy, but convincing a wronged employee to fix a company's damaged reputation is much harder.