At the end of fiscal year 2011, revenues at Egan’s Clothiers, Inc., had increased 12 percent over 2010 and had
increased at a compounded rate of 14 percent over the past five years. That is the good news. The bad news is
that costs have risen at an even more rapid rate, thereby shrinking the company’s gross margins. As a
consequence, Egan’s profitability (measured as return on sales and return on net assets) has actually fallen by 6
percent over the past three years.
The drop in profitability at Egan’s is particularly worrisome. In fact, according to Egan’s chief financial
officer, Richard Coyle, if something is not done immediately to control material and labor costs, as well as
administrative expenses, the company may need to restructure its operations. In the short run, Coyle, company
president Karen Egan, and vice president of HR Pam McCaskey have put an indefinite freeze on all hiring. Further,
they are contemplating layoffs of nearly one-quarter of Egan’s sales staff and are weighing the benefits of
cutting back on HR-related expenses such as training. Compared to others in the industry, the firm’s labor costs
are very high.
Gene Egan and Pat Pollock opened their first store in Baldwin, New York, in 1958. The company grew rapidly during
the 1980s and now operates a chain of thirty-four medium-sized stores located throughout Connecticut, New York,
Pennsylvania, and New Jersey. Since the beginning, Egan’s customers have been primarily middle-class and upper
middle-class families purchasing sportswear, dresswear, and fashion accessories. The company has established a
longstanding tradition of quality and customer service. In addition to its thirty-four stores, the company also
maintains two distribution centers and its administrative offices in Stamford, Connecticut. The total employment
currently stands at approximately 2,400 people: 15 executives, 40 staff specialists, 40 store managers, 215 sales
managers, 250 administrative personnel, 1,600 salespeople, and 240 distribution workers. Except for the employees
at the distribution centers, the company is not presently unionized. However, it is no secret that Egan’s
management has been trying very hard recently to keep current labor organizing activities to a minimum, viewing
it as a threat to the company’s success. Egan’s HR department has been called upon to conduct a program audit of
various personnel practices utilized at Egan’s. The purpose of this audit is to assess the impact of Egan’s HR
policies and practices on employee outcomes (for example, performance, employee satisfaction, absenteeism, and
turnover). The objective of the audit is to identify specific problem areas where policy adjustments may be
necessary. The final report to the executive staff will include the HR department’s evaluation of current
problems and the changes it recommends.
Human Resources Managment History:
Over the past five years, Egan’s has made several changes in order to implement the best HR practices possible.
Partially, this has been to circumvent unionization efforts, but primarily it is indicative of Egan’s
longstanding belief that success in retailing depends on the competencies and efforts of its employees.
The commitment to HR is demonstrated by the fact that in 2011 the company spent $1.3 million on an intranet-based
human resources information system (HRIS). The HRIS has successfully automated the company’s employment records
and connects each of the retail stores, distribution centers, and executive offices. Also, Egan’s has maintained
an ongoing training program for the past five years to help salespeople improve their retail selling skills (RSS)
and customer service. The annual cost of this program has been roughly $750,000. To further ensure high ability
levels in its workforce, the company sets selection standards substantially higher than its competitors. Whereas
other retail companies typically hire inexperienced high school students, Egan’s generally requires some
retailing or sales experience before considering an applicant for employment. Although this policy increases
Egan’s overall labor costs, management has been confident that the added expense is well justified over the long
run. However, recently even the strongest proponents of HR have been wondering if it might be a good idea to cut
back on training, given the company’s current financial picture.
By far the most problematic and volatile HR issues at Egan’s have revolved around promotions and salary
increases. Because the company promotes from within and distributes raises on a companywide basis, comparisons
generally have to be made across employees in different jobs and departments. To combat arguments of subjectivity
and bias pertaining to these decisions, Egan’s links these rewards to objective measures of performance.
Specifically, rather than utilizing subjective managerial evaluations of employee performance, ongoing accounts
of sales results are maintained for each employee through use of the HRIS. On the basis of this information, each
department manager assigns each employee to one of five categories:
Superior—top 10 percent
Very good—next 20 percent
Good—middle 40 percent
Fair—lower 20 percent
Poor—lowest 10 percent
Administrative decisions are then made across departments utilizing these standardized distributions.
Additionally, to provide constant feedback to each employee about his or her relative performance, data are
updated and posted daily. It is hoped that this feedback is motivating to employees. In this way, there are no
surprises when the time comes for semiannual performance appraisal interviews. It is interesting to note that
since these changes have been made in the performance appraisal system, there has not been one formal complaint
registered regarding salary or promotion decisions. However, sales managers themselves have mentioned
occasionally that they do not feel as comfortable now that they are required to assign employees to the “fair”
and “poor” categories.
Despite the concerted efforts of Egan’s management to create a first-rate system of human resources management,
there are several troubling issues facing the company. The HR practices are not having their desired effects. For
example, there have been recent complaints that employees have not been as patient or courteous with customers as
they should be. This was best summarized by Paul Kelly, a store manager in White Plains, New York, who noted, “My
people are beating up the clientele in order to make a sale—the very opposite of what the RSS program trains them
to do.” This lapse in customer service is frustrating to management since the RSS training has proven effective
in the past. Additionally, there seems to be a great deal of competition within departments that is hurting a
team effort. Although intergroup rivalries between departments have always been viewed as normal and healthy, the
lack of intragroup cohesiveness is seen as a problem.
Additionally, Egan’s has been plagued with increases in lost and damaged merchandise. Management attributes this
to the fact that storage rooms are disorganized and unkempt. This is in sharp contrast to the selling floors,
which have remained fairly well ordered and uncluttered. Nevertheless, inventory costs have been increasing at an
Everyone notices that something is wrong. But the behavior patterns are perplexing. Absenteeism has decreased by
23 percent, but employee turnover has actually increased from 13 percent to over 29 percent, thereby increasing
labor costs overall. Unfortunately, many of those who left the company (43 percent) were rated as very good to
As executives in the company look at these trends, they are understandably concerned. The success of the company
and its reputation for quality and service depend on solid investments in HR to ensure the best possible
workforce. However, the expenses are eroding the company’s profits, and worse, it now looks like these
investments are not paying off.
Assignment: As the HR Executive for Egan’s Clothier, write an 8 to 10 page paper to the senior team that includes
1. What overall changes could you recommend to the executive team at Egan’s about its HR practices?
2. What are the pros and cons of Egan’s performance appraisal system? Do you think it identifies the best
employees? Do you think it helps develop employees to perform the best they can?
3. Can increased sales be linked directly and/or indirectly to the appraisal system? How about some of the other
performance effects? How would you change the system?
4. How do you account for the fact that absenteeism has decreased at Egan’s while turnover has increased?
5. Include your chart and a written summary of the company’s High Performing Work System (see page p.725).
Support your paper with a minimum of five (5) resources, which may include your text. In addition to these
specified resources, other appropriate scholarly resources, including older articles, may be included.
Your paper should demonstrate thoughtful consideration of the ideas and concepts presented in the course and
provide new thoughts and insights relating directly to this topic. Your response should reflect scholarly writing
and current APA standards.
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