Playing on the Positive Side of Human Nature

Retailers aware of employee theft in their business

• By Joe Davis, CPP
• Mar 01, 2006

MOST retailers are acutely aware of the impact employee theft has on their business. According to the University of Florida 2004 National Retail Security Survey, 47 percent of all shrink is attributed to employee theft. On a per-person basis, dishonest employees steal approximately 4.8 times the amount stolen by shoplifters (16th Annual Retail Theft Survey released by Jack Hayes International, 2004).

Looking at these statistics from a manager's perspective, it is easy to expect negative behavior from employees. However, in reality, very few employees come to work planning to steal or perform poorly. On a broad scale, a third of employees may never steal and 10 percent will definitely steal, but the almost 60 percent in between determines whether to steal based on the circumstances and the level of opportunity that presents itself.

Employees operating in unstructured, loosely managed environments also are more likely to steal from the company. Such environments are characterized by non-specific job descriptions, unmotivated employees, and inconsistent processes and procedures.

In contrast, a structured business environment that clearly defines roles and processes, ensures follow-up and holds parties accountable for results can often mitigate the risk of employee theft. Implementing performance management tools is another avenue employers can take that establishes an expected standard. These tools also address key issues that can lead to employee theft.

Let's explore recommended practices for establishing performance management tools, consider the support role of technology and develop an understanding of how these tools work to minimize employee theft, enhance performance and increase business profitability.

The Value of Performance Management Tools
By definition, performance management tools are the established processes, procedures and metrics created to ensure all employees support the organization's goals. They often are discussed, but rarely are well-developed and effectively used.

Effective performance management tools have several characteristics in common: specific direction (providing a definite expectation or course of action that should be followed), consistent (they should be applied across all areas of the business and should be referred to on a regular basis) and measurable (it is management's responsibility to put review policies in place to ensure analysis of results on a regular basis). While implementing performance management tools requires some additional time and money, it is well worth the investment, as they can dramatically reduce incidences of employee theft.

For retailers looking to implement a performance management program, there are several fundamental tools that can be put in place to help structure the environment.

Clear Job Descriptions
Providing clear job descriptions is the first step in adequately directing workers. Employees with specific job responsibilities are more likely to understand what is expected of them, as well as their role in the company as a whole. Descriptions that include specific activities and objectives give associates a sense of purpose and value to the organization. Clear job descriptions also provide a basis for reviewing and monitoring employees' progress and performance.

Unstructured positions or ones that change without notice force employees to improvise. Improvisation can lead to loss, both overtly and inadvertently. For example, the poorly trained cashier may not be familiar with government regulated or other restricted products that require special care or identification verification. Retailers that fail to meet compliance standards face harsh consequences. They could incur exorbitant fines or even risk losing their business. One of a cashier's many responsibilities is to recognize these restricted products and to verify proper ID at the point of sale. Managers can only expect cashiers to manage this important aspect of check-out if the procedures are communicated as a responsibility and proper training is provided.

With clear job responsibilities, employees feel empowered and have a strong sense of purpose at their job. They are less likely to become frustrated or misguided, which reduces the possibility that they will turn to theft.

Training
Retail businesses regularly hire new employees and put them in positions of financial control -- operating the POS system and handling all the cash -- with no training or specific knowledge of responsibilities. This is an enormous risk to take, given that those employees are the front line of the business and touch company revenue on a daily basis. Proper training maximizes the value of employees and ensures that they understand how to properly handle the company's assets.

Ideally, employees will receive two weeks of structured training focused on specific job responsibilities. That is followed by two weeks of mentored on-the-job training. In many retail environments, the reality resembles something like: "Here's your nametag. Here's the register. Do you know how to count back change?"

The under-trained employee can present more of a risk to the company than the mal-intentioned employee. For one thing, an employee who is involved in criminal activity will normally conduct those activities a limited number of times, simply in an attempt to avoid being caught. On the other hand, a poorly trained employee is not aware that he or she is causing loss with each and every transaction. For example, a new cashier who doesn't know pricing policies may regularly manipulate the price at the POS in a misguided attempt to offer good customer service. While the intention is good, the outcome over time is dramatic for the business.

Proper training includes a program that walks through each associate's job responsibilities and why they are important. It includes demonstrations of proper and improper handling of common situations the associate might encounter. It clearly describes the reporting structure, policies and procedures of the company, and communicates steps taken to prevent employee theft, accidents and other problems. On-the-job training gives managers an opportunity to observe a new associate's behavior and to test him or her on responses to real scenarios that occur on a daily basis. Well-trained employees inherently feel empowered in what they are doing because they know how to react.

Policies and Procedues
Policies and procedures are critical for keeping employees honest and for minimizing the opportunities for loss to occur. Policies are applicable to all areas of the business, but those that deal with inventory receiving, customer service and hiring are particularly critical to minimizing employee theft.

Because theft commonly occurs when inventory is received, it is important to have tight controls in place. Retailers should designate specific receiving hours and employees to help process the inventory as it comes in. Paperwork should be completed by a designated individual and should be completed in a specific way. Retailers also may require suppliers to clearly label each box so that it is easy to identify and warehouse inventory.

Customer service is another area where retailers tend to bleed money. Oftentimes, employees may change prices or give discounts in an attempt to offer great customer service. While the retailer should clearly define boundaries for customer service, employees also should feel empowered to take care of the customer. Many times, customer service associates lack the authority needed to ensure customers are satisfied. This feeling of helplessness in caring for the customer makes employees apathetic toward the entire process of interacting with the customer.

Good hiring practices can be extremely effective for reducing employee theft. Screening practices -- including reference checks, situational interviews and drug screening -- when consistently applied, can send up red flags to help screen that 10 percent of potential employees who will definitely steal. It is critical that the hiring process be seen as a key function of all managers in a business. Managers must take the time to interact with job candidates and honestly evaluate each person. References will usually provide insight into candidates' work attitudes and previous performance issues.

Evaluation
Evaluations are critical because they determine how effective all of the above tools have been in directing employees. To be most effective, evaluations should be conducted on a regular basis, well-documented and tied to raises and promotions. Rewarding exceptional performance is important to making employees feel as though they have a stake in the business and that their performance does matter to the company as a whole.

On the other hand, evaluations of poor performance should never be a surprise to the employee. Performance issues must be addressed as they occur. Employees who are a poor fit, or who simply do not have the capabilities or inclination to properly perform the job after proper training, should be removed or reassigned in the organization to minimize risk of loss.

Evaluation of employees in the business environment is a constant process. It is not a single fixed date at which managers attempt to compile information from the evaluation period to meet a company's expectations. Evaluation is interaction with employees in their job environment to provide constructive input to improve overall performance.

The Cost
Many retailers cite cost, other priorities or simply not knowing where to start as reasons for failing to implement performance management programs. The reality is that employees are just as important an investment as products that are sold. All the effort put into identifying, procuring and placing products in the store loses its value if the employees are -- either purposefully or accidentally -- costing the company money.

By investing in a few simple performance management tools, retailers can simultaneously prevent employee theft and improve associate performance. Individuals will generally strive to meet expectations that are consistently set for them. By setting higher expectations, performance management tools simply play on the positive side of human nature.