Companies Rethink Sales Incentives After Sears Case

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 is not 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 company's president and chief executive said the Sears case worries him.

"I have 14,000 people working for me," said Mitchell Leibovitz. "I can't be there to look over their shoulders. I'd be dishonest to not admit this makes me nervous."

Although 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. Although consumers have little trouble making informed decisions when buying tennis shoes or sofas, the choice is trickier with electronic equipment or repair.

K mart, 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 salesman, 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 one office manager.

GTE is not convinced that the companywide incentive program led to the reported abuses in the Mar Vista, Calif., 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 did not 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 percent 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 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.

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 companies conducted by the sales-compensation company of Hewitt Associates, 60 percent 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.