Sears Auto Center Scandal
When the Sears Auto Center changed its compensation policies for auto center employees in 1991, it didn't expect to become embroiled in lawsuit and scandal over predatory practices. Their new policies devalued quality mechanical repairs and honesty and instead favored employees who were willing to compromise their honesty to make a sale or complete more work. Successful employees made lots of sales and lots of repairs, regardless of whether the cars that drove through the auto center doors really needed them. In short, employees were required to compromise their ethical standards or lose pay. In implementing their new compensation policies, the Sears Auto Center changed its focus from customer satisfaction and quality work, to profits by any means necessary. Quality work or sound advice was no longer valued, and customers could trust what they were told to be accurate.
The root of the issue lay in the Sears company's financial troubles. At the time the compensation policies were changed in the Auto Center, the family of companies spun off by Sears, including the Sears Auto Center, were in poor financial shape. In 1990, Sears retail outlets suffered from a 60% decline in profits, which help reduce total corporate profits by 40% that year (Travino & Nelson, 2010, p 207). The timing of compensation changes in the Auto Center suggests that Auto Center management put the new policies into place in order to quickly and drastically increase profits, possibly even to keep their portion of the business afloat. In their desperate need to bring in more money, however, they created compensation policies that would encourage auto center service advisors and mechanics to work together to push customers to buy parts and pay for repairs they might not really need.
Concerned about corporate profits, the Sears Auto Center sought to raise profits by implementing commission-driven pay for employees. The policies rewarded employees for selling more parts, booking more customers, and performing more repairs. Service advisors had to meet quotas for selling particular types of service. Mechanics had to meet hourly quotas, and were paid extra for exceeding them. The new commission-based pay structure created a pressure-driven atmosphere that encouraged service advisors to sell parts and repairs the customer didn't really need in order to increase their wages, and where auto mechanics were encouraged to make quick fixes instead of quality repairs. Employees were forced to choose between doing the right and ethical thing for the customer, and making money at their job.
The ethical systems in play for executive management, middle management, and employees all affected how the Sears Auto Center policies changed the auto center from a respected auto center into a center of fraud. Executive management was likely strongly focused on the single goal of turning a corporate profit. This goal would have been important to executives, and the executives would have been rewarded by success in their jobs and possibly by annual bonuses to their salary. For middle managers, obedience to authority likely came into play. If middle managers were rewarded when their employees met the work goals the commission pay structure was designed to encourage, they, too, acted within a system of reinforcement by reward. Finally, a number of ethical systems acted upon employees. Employees were rewarded for achieving the goals set by management. They were expected to obey the authority of their managers, and as the new commission structure became accepted, group norms would have put new pressure on individual employees to comply with whatever practices led to achieving the end goals of selling more parts and services and doing more repairs. Even after the executive management changed the commission structure for service advisors in June, 1992, auto mechanics were still having unethical behavior reinforced by the rewards of the commission structure. In addition, for mechanics, psychological distance from the customer was achieved by having customers interact with service managers rather than with mechanics directly.
Organization leadership initiated the ethical problems at the Auto Center by creating the commission-based pay structure in the first place. Middle management brought pressure to bear and service advisors and mechanics by forcing them to adhere to the new commission rules, threatening their pay or even their jobs if they did not comply (Travino & Nelson, 2010, p 207), When the company was sued by the State of California and 41 other states, executive management attempted to skirt the issue by changing the pay structure only for service advisors, while continuing the commission-based pay for mechanics that encouraged them to do shoddy work in order to perform more repairs. Since mechanics advised service advisors, their "solution" to the problem didn't really solve anything. The apologies issued to customers by executive management fall flat when one discovers that the policy changes were merely a smoke screen that allowed the basic problem to continue. A whistleblowing mechanic warned that in spite of the apology, executive management continued to enforce commission-driven pay scales that put the same pressure for making sales on employees in other parts of the Sears company, such as appliance salesmen (Travino & Nelson, 2010, p 209). It eventually eliminated commissions for all auto center employees, but only after lawsuits were underway (Gellene, D., 1992, para. 8).
The Sears Auto Center failed to take the responsibility to change its policies and resolve the ethical conflicts placed on employees. Had management of the Auto Center set about to resolve the ethical issues, the first step in its plan would have been to create a new pay structure that did not pressure sales advisors or mechanics to make unwarranted sales. In June of 1992, executive management was forced to change the commission structure for service advisors in response to investigation of its practices by the State of California. (Travino & Nelson, 2010, p 208). Part of the changes included paying service advisors a commission based on customer satisfaction. If the Auto Center managers were determined to continue paying employees on commission without causing ethical conflicts, they could have extended this change to include auto mechanics and auto center managers. They might have eliminated quota-based commissions entirely; or changed the basis on which commissions were calculated to encourage service managers to compete against other auto repair centers but not to cheat the customer.
The next part of a plan for change might have implemented stricter ethical standards for all employees that reinforced ethical behavior by offering rewards for displaying good ethical behavior and included disincentives for selling unnecessary repairs. Management could have communicated the new system by giving training courses to all employees to teach them about expected ethical behaviors, and to ensure they understood the new pay structure.
The Auto Center could have tracked the short-term progress of their changes by measuring customer satisfaction. Short-term customer satisfaction could be assessed by having a third party survey customers about service performed at the Sears Auto Center a few weeks after the completion of repairs. The Auto Center could also track long-term progress through both customer satisfaction and the change in the number of complaints filed against it through organizations like the Better Business Bureau. Finally, ethical standards might have been encouraged in the long-term by offering rewards to individual employees who achieved high ratings from customers.
Finally, the Sears Auto Center could also have placed employees into roles as customer service advocates and ensured that the customer service advocates did not have to deal with any conflicts of interest when performing their role. The creation of a customer service advocate role would allow customer service to be defended in a prescribed role. The creation and empowerment of this role would also have sent a strong message to employees at all levels that ethical behavior was an important value within the company, which would have helped in reestablishing a group norm involving…[continue]
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Consequentialist and Deontological Ethical Issues. Consequentialism states that the morality of an action is determined by the specific results of that action. Deontology, on the other hand, states that the morality of an action is determined by duty or adherence to given rules. (Theodore Roosevelt) Consequentialism is based on the consequences of actions. According to consequentialism, actions are right or wrong depending on whether their consequences further the goal. The goal