LL BEAN PAPER

· It will be 2 pages and focus on:

Explaining the external opportunities and threats your team identified and how the company responded to these factors from a total rewards perspective.

All papers will be typed using Times New Roman 12-point font, double-spaced, and with one-inch margins.

Use proper APA formatting

No plagiarism

See attachment.

Project Team
Author: Sandra M. Reed, SPHR
SHRM project contributors: Bill Schaefer, SPHR
Nancy A. Woolever, SPHR
External contributor: Sharon H. Leonard
Copy editing: Katya Scanlan, copy editor
Design: Kellyn Lombardi, graphic designer
© 2009 Society for Human Resource Management. Sandra M. Reed, SPHR
For more information, please contact:
SHRM Academic Initiatives
1800 Duke Street, Alexandria, VA 22314, USA
Phone: (800) 283-7476 Fax: (703) 535-6432
Web: http://www.shrm.org/education/hreducation
09-0235-SW
© 2009 Society for Human Resource Management. Sandra M. Reed, SPHR 1
Case Overview
In its 2008 annual Job Satisfaction Survey Report, the Society for Human Resource
Management (SHRM) reported that for the past five years, employees rated
compensation and benefits among the top three aspects most important to their
job. But despite the importance of these aspects, employee satisfaction with their
compensation and benefits packages remains low. According to a Conference Board
report, “employees are least satisfied with their companies’ bonus plans, promotion
policies, health plans and pensions”. Employers are missing critical opportunities to
maximize employee job satisfaction and other organizational outcomes through their
total rewards programs.1
In the book Dynamic Compensation for Changing organizations: People, Performance
& Pay, The Hay Group asserts that traditional pay structures no longer keep
pace with the emerging, strategy-focused organizations that exist in today’s
globally competitive market. “What shifted were organizational work values, work
cultures and business strategies. Although they have been largely overlooked,
dramatic changes in the organizational rules have frequently rendered traditional
compensation strategies ineffective. Employees today are expected to work in teams
rather than solely on their own. They are expected to keep learning new skills and
to assume broader roles. They are expected to take more risks and responsibility for
results. As a consequence, we are slowly coming to the realization that we may be
paying for the wrong things, sending inconsistent messages about the company to its
employees, or creating artificial expectations of continued advancement and raises,
no matter how well the company performs.”2
Furthermore, in its publication Implementing Total Rewards Strategies, SHRM
notes that “the right total rewards system—a blend of monetary and non-monetary
rewards offered to employees—can generate valuable business results. These results
range from enhanced individual and organizational performance to improved job
satisfaction, employee loyalty and workforce morale.”3
Today, HR professionals are responsible for programs far beyond the profession’s
administrative personnel roots. They are expected to measure the success or failure of
HR practices based on the achievement of organizational outcomes. Brand identity,
bottom-line profitability, employee job satisfaction and increased management focus
are all outcomes that can be achieved in part through an organization’s total rewards
program. This case examines two very different organizations and how they align
their total rewards programs with their organizational goals and values.
© 2009 Society for Human Resource Management. Sandra M. Reed, SPHR 7
L.L. BeanCompany Information
L.L. Bean is a privately held outdoor apparel specialty catalog and retail store
founded in 1912 by Leon Leonwood Bean, an outdoor enthusiast and entrepreneur.
In his autobiography, My Story, Bean wrote that nothing eventful occurred before
his 40th year when he created a leather-topped, rubber-bottomed hunting shoe.
As the legend goes, he sold his first 100 pairs by mail order with a 100 percent
satisfaction guarantee. When 90 pairs were returned defective, he kept his promise
and made the refunds. Bean borrowed $400 from his brother to perfect the design
and went on to become a clothing consultant for the military during World War II,
an author and, of course, the president and founder of a retail giant. As described by
Yahoo finance online:
“With L.L.Bean, you can tame the great outdoors—or just look as if you could.
The outdoor apparel and gear maker mails more than 200 million catalogs per year.
L.L.Bean’s library includes about 10 specialty catalogs offering products in categories
such as children’s clothing, fly-fishing, outerwear, sportswear, housewares, footwear,
camping and hiking gear, and the Maine hunting shoe upon which the company
was built. L.L.Bean also operates about a dozen retail stores and some 15 factory
outlets throughout the Northeast. In addition, it sells online through English- and
Japanese-language Web sites.”
L.L.Bean’s annual sales grew from $616.8 million in 1990 to $1.169 billion in
2000, with an average annual growth rate of 6.8 percent. In 2000, L.L.Bean paid a
10 percent company-wide bonus.
More than 11,000 people worked for the company during the 2006 holiday
season, and in 2007 the company reported $1.5 billion in sales, with approximately
80 percent of those sales coming from Internet and catalog sales. The company
continues to evolve into a multi-channel sales giant through mail order, telephone,
Internet and in-store sales. The Brand
L.L.Bean has always been a marketing professionals’ dream of creating a brand into
an institution. Strategists, marketing specialists and other business professionals
(including the competition) have tried to duplicate the company’s achievements
with varying degrees of success. A brand is built on perceptions about quality,
service and status created by using a particular product or working with a specific
8 © 2009 Society for Human Resource Management. Sandra M. Reed, SPHR
company. A brand can be built using marketing techniques such as visual imagery,
wording that identifies what the organization does, and advertising campaigns
targeted to a desired demographic. Strong brand identity can build a relationship
with the consumer. In L.L.Bean’s case, this is a relationship with Maine and the
great outdoors. The company operates on the belief that the brand should reflect
Bean’s values, not just the products it sells. This case examines how L.L.Bean built
the brand by using employees as the critical channel through which to accomplish
strategic directives.
When Leon Gorman, grandson of Leon Leonwood Bean, assumed the presidency of
the company in 1960, he sent a message to employees defining their stakeholders—
those to whom L.L.Bean was ultimately accountable in a values-driven business.
L.L.Bean’s stakeholders were its customers, employees, vendors, communities and
the natural environment.
In addition to a strong customer focus, the company sought to solidify the brand
through social responsibility. Social responsibility is a business concept driven by
the principles of ethically sound practices, awareness of the business imprint on the
environment, and improvement of the quality of life of the company’s employees and
the communities in which it operates. Social responsibility at L.L.Bean is divided
into four categories:
n The environment n
With company products geared for outdoor use, L.L.Bean focuses its
philanthropic efforts on preserving the environment. Examples include green
building, charitable giving and employee participation in preservation activities.
Paper procurementn n
L.L. Bean is committed to sustainable, responsible paper procurement, an
important consideration because the company mails more than 200 million
catalogs each year. It uses recycled fiber, and suppliers are required to have
programs in place to support sustainable management of natural resources.
Labor rights n n
When the company decided to move some operations offshore, it made a
commitment to labor rights, including human rights monitoring. In fact, the
company terminated at least three offshore vendor relationships that did not meet
its human rights standards. Included in Bean’s Vendor Code of Conduct are
standards for safety, non-discriminatory practices, and fair compensation
and benefits. This code of conduct includes processes for auditing and
investigating complaints.
© 2009 Society for Human Resource Management. Sandra M. Reed, SPHR 9
Charitable giving n n
Charitable giving at L.L.Bean is based on Gorman’s concept of the stakeholder
and the company’s heritage in the outdoors. The company has donated more than
$5 million toward environmental conservation efforts to groups like The National
Park Foundation and Ducks Unlimited. It sponsored the Peace Climb up Mt.
Everest, during which more than three tons of trash was collected. In addition,
quality of life of the Bean employee and customer is reflected in the company’s
charitable giving efforts to groups such as United Way and the Portland Symphony
Orchestra. The Problem
The company spent the 1970s and 1980s developing the brand into an American
institution. L.L.Bean operated on the premise that profits are an outcome of strong
customer service. Profits, therefore, were a byproduct rather than a corporate
focus. Growth was strong, particularly in mail order. By 1990, however, sales were
stagnating, productivity was declining and the mailing list was not growing. The
U.S. economy slipped into a recession, and as a result, 1990 was the worst year for
L.L.Bean in a decade. Sales growth improved in 1992 when the company expanded
into the Japanese market. In 1995, Bean launched their e-commerce web site.
There was significant upper-management turnover, though, and Gorman believed
that because of the rapidly changing external environment, the company had lost
direction. In 1996, sales flattened again, and for the first time under Gorman’s
leadership, the company reported a decline in sales. It was the first time the board of
directors voted to not award annual bonuses to employees. The Case at L.L.Bean
L.L.Bean launched a strategic review. The 80+-year-old company had been through
decades of change, yet its core business model had consistently provided excellent
growth and profit. This was no longer the case by the 1990s when the competitive
landscape reflected a more technically savvy and cost-conscious customer and global
employee market. The need to reorganize became obvious to Gorman.
The strategic review process began in 1996 and included analyses of both
strategic and operational processes, including brand identity, target markets and
operational competencies (employees). HR was one of the strategic business units
(SBUs) developed as an outcome of the review process. The SBUs were part of
a decentralization process in which each unit had responsibility for its profit and
loss and was held accountable to a balanced scorecard approach in performance
metrics. This designation for the HR department allowed it to develop operational
tasks such as compensation and benefits into a strategic process with measurable
outcomes—for example, linking pay to performance and increasing employee job
satisfaction. In addition, total rewards were used as strategic solutions to many of the
10 © 2009 Society for Human Resource Management. Sandra M. Reed, SPHR
issues identified in the review process, including global outsourcing, multi-channel
marketing initiatives, employee recognition and the redefining of the brand.
Multi-channel marketing was another outcome of L.L.Bean’s strategic review.
Multi-channel marketing is the ability to offer customers more than one way to
purchase a product. The company decided to expand their brick-and-mortar stores
and capitalize on the opportunity presented by the Internet (Exhibit A). According
to Gorman, Internet retail sales doubled each year since 1996.
A weakness identified in the strategic review was that the company’s financial and
human resources were geared to grow the catalog business but not retail expansion
or Internet sales. The diversification initiative took staffing to another level. For
example, the decentralization of the management team to other locations required
concentrated efforts by the company to infuse the non-corporate facilities with
L.L.Bean values. The development of new jobs required thorough market research,
including a comprehensive job analysis process. The lack of technical skills such as
data processing threatened to topple the organization if it didn’t acquire the staff
with the required knowledge, skills and abilities to perform in a highly competitive
market at an organization that was used to setting the standards for quality.
Developing job descriptions and conducting salary surveys allowed the company
to develop a comprehensive compensation and benefits framework to manage this
period of rapid growth and diversification.
As a result of the strategic review process, total rewards at L.L.Bean became a core
business practice critical to the accomplishment of organizational goals. Traditional
benefits offered at L.L. Bean include performance-based bonuses and cafeteria-
style health care. Non-traditional benefits include store discounts, on-site fitness
programs and the use of company-owned outdoor gear such as tents and canoes.
The company continues the tradition of outdoor adventure days and trips as a way
to connect employees with the L.L.Bean values—the love of the outdoors. L. L.
Bean himself believed in profit-sharing with employees long before it became a
strategic compensation practice. Back in the days when pay was 18 cents an hour,
paid in brown envelopes of cash, Bean surprised employees with bonuses calculated
as a percentage of profits—Bean’s employees were paid when the company
performed. These practices reflect the L.L.Bean philosophy that the employees’
passion for the company and its products will translate to the customer. As far as
Bean was concerned, the company had an obligation to stakeholders, and it began
with employee satisfaction. As Leon Gorman put it:
“Our stakeholders have invested their patronage, careers, finances, social services
and outdoor values in our enterprise. They trust us to tell the truth, to sell quality
products, to guarantee satisfaction, to pay fair wages and provide opportunities
for growth, to secure their investment, to participate in society, and to sustain our
natural environment. They trust us to grow to the extent that we can enhance our
benefits to them. They trust us to go the extra mile in everything we do.”4
© 2009 Society for Human Resource Management. Sandra M. Reed, SPHR 11
Global outsourcing of operations brought intense scrutiny to the function of
compensation and benefits. This resulted in Gorman leading the challenge for fair
wages at the company’s global subsidiaries and vendors and, in some cases, firing
those who failed to comply.5 In addition, global benefits were markedly different
from U.S. benefits because they were infused with cultural purpose. For example,
among Japan’s official holidays are Respect for the Aged Day, a Cultural Day,
the Emperor’s Birthday and Physical Fitness Day. In addition, although Japan’s
retirement system was similar to the United States (a combination of Social Security
and employer-sponsored plans), Japanese employees typically collect one lump-sum
severance payment at the time of retirement based on years of service. Commuter
costs and housing subsidies are also common fringe employment benefits in Japan.6
Did the 1996 strategic review work? Were employees rewarded for their continued
excellence, loyalty and dedication to the corporate objectives? Let’s look at
L.L.Bean’s 2006 Year in Review press release, as reported by PR Newswire:L.L.Bean Inc. Reports 2006 Net Sales Results
“For the 2006 fiscal year ending February 25, 2007, L.L.Bean reported record
annual net sales of $1.54 billion, a 4.6 % increase over 2005. The company also
announced that its Board of Directors approved a cash award of 7.5% of annual pay
to eligible employees, a payout of approximately $25.5 million. An additional $8.8
million will be allocated to the pension plan, keeping the plan fully funded.
“It’s a well deserved bonus,” said Leon Gorman, L.L.Bean’s Chairman of the Board.
“2006 was a year in which we made excellent progress on a variety of strategic
initiatives important to the future of our business. We are pleased to be in the
position of rewarding Bean employees for their achievements.”
Chris McCormick, L.L.Bean’s President and CEO, expanded on the year-end
results for 2006. “We had a strong start and strong finish to the fall and winter
selling season,” he said. “Although unseasonably warm weather had an impact
on sales in December and early January, our business performed very well and
the product line continues to hit the right mark with our customers. I am very
proud of all that we accomplished in 2006 through our employees’ hard work
and dedication,” he continued. “It was an exciting year with a lot of energy and
growth, including the opening of three additional stores, launching $90 million
in investments in our hometown of Freeport, and making further progress on the
international side of our business.”
12 © 2009 Society for Human Resource Management. Sandra M. Reed, SPHRExhibit A: L.L. Bean-Bureau of Labor Statistics for Electronic
Shoppippippi ng & Mail-Order Houses, Establishments Primarily Engaged in Retailing All Types of Merchandise Using Non-store Means Such as Catalogs or Electronic Media
The eight industries with the highest productivity growth rates over the
1990–2000 period, each experienced growth in output per hour of more
than 12 percent per year, on average.
Industries with highest labor productivity growth rates, 1990-2000
Computer & peripheral
eqt mfg
35%
30%
25%
20%
15%
10%
5%
0%
Semiconductor & other
electronic comp. mfg
Professional & commercial
eqt wholesalers
Electronics & appliance
stores
Electronic shopping &
mail-order houses
Software publishers
Communications eqt mfg
Electrical & electronic
goods wholesalers
31.7
27.0
16.2
14.5 13.9 13.8 13.4
12.4
SHRMSHRMSHRMSHRM members can download this case study and many others free of charge at
www.shrm.org/education/hreducation/pages/cases.aspx.
If you are not a SHRMSHRMSHRMSHRM member and would like to become one, please visit www.shrm.org/join.
1800 Duke Street
Alexandria, VA 22314-3499