Congratulations to Chris Laws, the winner of the 2011-2012 Journyx Scholarship!
Laws submitted the winning essay to the 2011-2012 Journyx Scholarship, where he discusses how better resource management processes can improve a company's bottom line. Laws is currently pursuing his M.B.A. degree at the University of Chicago Booth School of Business. As the winner of the Journyx scholarship, Laws receives $500 toward tuition and fees.
Below is Laws' full essay. Additionally, if you'd like to enter the fall 2012 Journyx Scholarship, see complete information and rules here.
Before returning to school, I never appreciated resource management processes. I formerly worked in consulting where the main resource to manage was human talent. The way in which this was tracked was with timesheets. These timesheets used to be the bane of my and my colleagues’ existences. After taking a managerial accounting class, however, I now see the tremendous impact that proper accounting can have. This essay describes my journey from ignorance to enlightenment, describing one case in particular that illustrates proper timesheet accounting.
I used to hate timesheets. My old position at a major consulting firm required filling them out dutifully every two weeks. The timesheets required that we keep track of every hour spent in those ten workdays. Every client, every project proposal, every pro-bono effort had to be tracked and timed. Everyone with whom I worked viewed timesheets as an annoyance. We knew they were aggregated and our office’s performance compared to other similar units on the basis of the timesheets. Despite eventually serving as a leader of another office, I never appreciated the value of project accounting until business school.
One case we studied in my managerial accounting class opened my eyes to the power of timesheets and how they could directly impact a company’s bottom line. The case described a lawsuit against the retailer Nordstrom. Some of Nordstrom’s employees argued that Nordstrom’s accounting principles forced them to work uncompensated hours or face termination. Nordstrom argued it was simply rewarding high performers and that it did in fact compensate employees for all time working. In Nordstrom’s legendary culture of service, however, defining time spent working was difficult.
The root of the issue in the case is the way in which Nordstrom floor employees account for their working time. Nordstrom employees are measured on their sales per hour (SPH). The compensation system provides higher commission rates to those employees who have a higher SPH rate. This system incentivizes employees to not record time spent on non-sales generating activities. Doing so leads to a smaller denominator and therefore a higher SPH.
Legal and ethical issues aside, Nordstrom’s accounting missed a major opportunity for better (human) resource management. Nordstrom should tweak its compensation and accounting systems to improve their employee satisfaction and bottom line performance. My recommendations are to 1) make employees salaried and 2) track non-sales time. Making employees salaried would eliminate overtime and the feeling of not being compensated for non-sales work. This move fits better with the company culture of having sales staff feel like owners. Nordstrom could still maintain an incentive-based system by paying a fairly low starting salary that ratchets up based on performance.
More important from a resource management perspective, tracking non-sales time will provide better insights into employee activity. Having employee timesheets incorporate both selling and non-selling hours tracked will give a more complete picture of activity. Nordstrom will be able to use these data to arrive at some optimal mix. They can then establish a uniform standard rate around the company. After that, Nordstrom will be able to track where employees or stores are out of line with some ideal. This will allow management to tweak their policies and processes to minimize the burden or change directions entirely. Having a recognized expectation (e.g., 75% selling 25% non-selling split) will help to shift the culture so that employees feel comfortable reporting their non-selling time. Employees with higher morale and improved management practices should undoubtedly lead to higher profits – a win for everyone, not just the accountants!