Nordstrom Sets Up $15-Million Fund to Cover Back Pay

Nordstrom executives, taking their first major steps to ease a festering labor dispute, said Monday that they set up a $15-million fund and established procedures to settle employees’ claims for back pay.

The Seattle-based department store chain also reported, as expected, its first decline in fourth-quarter and 12-month profits since going public in 1971. For the quarter ended Jan. 31, the retailer’s profit fell 34% to $31.4 million on sales that rose 12% to $857.5 million. For the fiscal year, Nordstrom’s earnings were off 7% to $114.9 million on sales that climbed 15% to $2.67 billion.

In a prepared statement concerning the company’s labor tensions, Co-Chairman Jim Nordstrom said: “It breaks our hearts to learn that some of our employees feel they have not been fully compensated. . . . If our employees have not been properly compensated, we are going to pay them. And we are correcting the situation so it does not happen again.”

That message, however, did little to soothe officials of the United Food and Commercial Workers Union, which represents nearly 2,000 Nordstrom workers in the Seattle area. The union has complained that Nordstrom pressures sales staffers to work extra hours without pay, performing such jobs as writing thank-you notes, delivering merchandise to customers and attending meetings.

“Why didn’t it break his heart six months ago when we brought these practices to his attention?” said Joe Peterson, president of the union’s Local 1001. “He’s months late and many dollars short.”

Under Nordstrom’s settlement plan, company employees who seek back wages could apply for lump-sum settlements or could submit more detailed complaints for larger amounts. The lump-sum settlements would range from $300 for employees with three to six months of service up to $1,000 for employees with more than 18 months on the job.

The plan applies to Nordstrom workers outside Washington state immediately. Before taking effect in Washington, it must be reviewed by union officials and the Washington state Department of Labor and Industries, which this month declared that Nordstrom violated the state’s minimum wage act.

Peterson called the proposed lump-sum payments and the entire $15-million reserve for settlements “wholly inadequate,” saying complaints from Nordstrom workers in California have sought an average of about $10,000.

Securities analysts who follow Nordstrom, however, were upbeat about the announcement and said it could help clear up a growing image problem for the prestigious retail chain. “Until now, they (Nordstrom) really hadn’t addressed the issue in a financial way. Now that they have, it may take some edge off the union’s argument,” said Dorothy Lakner of Deutsche Bank Capital.

In fact, Nordstrom’s depressed stock rose $1.25 Monday to close at $29.25 in over-the-counter trading. Lakner said investors may have thought that Nordstrom, whose stock traded as high as $38 in December, would set aside more than $15 million for back pay.

In addition, she said, investors were prepared for relatively weak financial results after the company’s Feb. 15 announcement that it expected lower earnings resulting from, among other things, sharp price cutting and sluggish Christmas sales.

Nordstrom also said it anticipates a class-action lawsuit by investors. “The complaint would likely allege that the company knew or should have known that unpaid work and overtime claims by employees would adversely impact the price of the company’s stock and that Nordstrom should have made a disclosure to that effect,” Nordstrom said.