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This document contains Chapters 11 to 12 PART FOUR: TOTAL REWARDS CHAPTER 11 ESTABLISHING STRATEGIC PAY PLANS REVIEW AND DISCUSSION QUESTIONS 1. What are the five components of Total Rewards? Total rewards is defined as an integrated package of all rewards (monetary and non-monetary, extrinsic and intrinsic) gained by employees arising from their employment. The five components are: Compensation – direct financial payment includes wages, salaries, incentives, commissions, and bonuses. Benefits – indirect payments in the form of financial benefits such as employer-paid insurance and vacations. Work/life programs – flexible scheduling, telecommuting, child-care programs, and so on. Performance and recognitions – this category includes pay for performance and recognition programs. Development and career opportunities – focuses on planning for the advancement and/or change in responsibilities to best suit individual skills, talents, and desires. Tuition assistance, professional development, sabbaticals, coaching and mentoring opportunities, succession planning, and apprenticeships are all examples of career-enhancing programs. (page 280) 2. Describe what is meant by the term “benchmark job.” A benchmark job is a job commonly found in other organizations and/or a job that is critical to the firm's operations. Benchmark jobs are used to anchor the employer's pay scale. These jobs act as a reference point around which other jobs are arranged in order of relative worth. (page 285) 3. What are the pros and cons of the following methods of job evaluation – ranking, classification, factor comparison, and point method? Ranking Pros: simplest job evaluation method; easy to explain; takes less time to accomplish than other methods. Cons: there is a tendency to rely too heavily on "guesstimates"; provides no yardstick for measuring the value of one job relative to another; the "whole job" approach to ranking, which is often used, cannot be used by employers covered by pay equity legislation. Instead, separate rankings must be completed for each of four compensable factors (skill, effort, responsibility, and working conditions), and judgment used to combine the results. Furthermore, jobs must be ranked across clusters or departments, not separately. (page 287) Classification (or Grading) Evaluation Method Pros: most employers usually end up classifying jobs anyway, regardless of the job evaluation method that they use. They do this to avoid having to work with and price an unmanageable number of jobs; with the job classification method, all jobs are already grouped into several classes. Cons: It is difficult to write the class or grade descriptions, and considerable judgment is required in applying them. (page 288) Factor Comparison Pros: It is an accurate, systematic method for which detailed step-by-step instructions are available; jobs are compared to other jobs to determine a relative value. Thus, it enables the determination of how much more of each compensable factor is required in one job versus all the others. Cons: Complexity. (page 291) Point Method Pros: This method involves a quantitative technique that is easily explained to and used by employees, and provides a yardstick for measuring relative value differences between jobs. Cons: It can be difficult and time-consuming to use this method and to effectively train the job evaluation user group. Many organizations opt for a plan developed and marketed by a consulting firm. In fact, the availability of a number of ready-made plans probably accounts in part for their wide use. (page 291) A study assessing the reliability of ranking, classification, factor comparison, and point methods found that ratings from the point method and the job classification method were most consistent, taking overall job evaluation ratings and individual job ratings into account. (page 291) 4. Competencies are defined as individual knowledge, skills, and behaviours that are critical to successful individual or corporate performance. Core competencies describe knowledge and behaviours that employees throughout the organization must exhibit for the organization to succeed, such as “customer service orientation” for all hotel employees. Functional competencies are associated with a particular organizational function, such as “negotiation skills” for salespeople, or “safety orientation” for pilots. Behavioural competencies are expected behaviours such as “always walking a customer to the product they are looking for rather than pointing.” (page 298) Explain what is meant by the market-pricing approach in evaluating professional jobs. Traditional methods of job evaluation are rarely used for professional jobs since it is so difficult to identify compensable factors and degrees of factors that capture the value of professional work. Thus, most employers use a market-pricing approach. This involves pricing professional jobs in the marketplace to the best of their ability to establish the values for benchmark jobs. These benchmark jobs and the employer's other professional jobs are then slotted into a salary structure. Specifically, each professional discipline (like mechanical engineering or electrical engineering) usually ends up having four to six grade levels, each of which requires a fairly broad salary range. The market-pricing approach helps ensure that the employer remains competitive when bidding for professionals whose attainments vary widely and whose potential employers are found literally worldwide. (page 296) Explain what pay equity legislation is intended to accomplish, what action is required by the legislation in order to accomplish it, and how effective the legislation has been in accomplishing its objectives. The purpose of pay equity legislation is to redress systemic gender discrimination in compensation for work performed by employees in female-dominated job classes. Pay equity requires that equal wages be paid for jobs of equal value or “worth” to the employer, as determined by gender-neutral (that is, free of any bias based on gender) job evaluation techniques. To date, pay equity has been found to reduce the wage gap in Ontario to some extent. However, although legislation has narrowed the wage gap, it has not eliminated it, and there is still no explanation other than systemic discrimination for much of the 30 percent gap that still persists. In 2001, the federal government set up a task force to study its legislation and to propose changes to improve the effectiveness of the legislation in ensuring pay equity. The task force concluded in 2004 that the complaint-based model currently in place had not proved to be an effective means of achieving the goal of equal pay for work of equal value, and recommended that new pay equity legislation be enacted to require employers to develop a pay equity plan. No legislative changes have resulted to date. (page 302) CRITICAL THINKING QUESTIONS 1. Why do companies pay for compensation surveys where job matching may be difficult rather than conduct their own surveys? Virtually every employer conducts such surveys for pricing one or more jobs. A compensation survey is aimed at determining prevailing wage rates. Most companies tend to use compensation surveys for matching of jobs. Surveys can be very useful, especially where job matching is difficult. This could be for a number of reasons: matching jobs are time-consuming; identifying which companies have jobs that are similar to what the company has can take time as well as financial and human resources, and other companies may not feel comfortable providing compensation-related information directly due to competitive nature of wages and benefits. Having a third party that specializes in conducting wage surveys can eliminate time, financial, and human resources costs associated. Third party companies also have easy access to data since they specialize in conducting surveys, evaluation tools, and established connections with organizations in the industry that may have similar jobs. Other companies will also feel comfortable providing information to a third party. It was recently reported in the news that average pay for most university presidents was around $200 000 per year, but that a few earned closer to $500 000 per year. What would account for such a disparity in the pay of universities' CEOs? A number of the reasons for such disparity in the compensation of CEOs are common across organizations: the power structure; organization size; profitability; number of employees (and students as well, in this case); and amount of experience. Factors contributing to the compensation disparity mentioned above, which are unique to university presidents, include focus (research or teaching), prestige, and endowment and funding. (page 300) 4. Do you agree with paying people for competencies and skills that are rarely required to use on the job? The answer to this question can be “Yes” or “No.” Reasons for agreeing to pay people for competencies can include: Career development and succession planning – certain competencies that individuals have may only be used at a more senior level or in a lateral position. Therefore, it’s important to retain such skills to build a succession plan for future vacancies within the organization. It also provides potential career growth for individuals. Attracting and retaining employees – employee will feel that their skills are being valued rather than being restricted on the job that they are holding. This can be used as a recruitment tool to attract skills people from the industry. Having a diversely skilled workforce – job rotation can be made easily, and the organization becomes somewhat immune to sudden turnover because when people possess various competencies they can be easily moved to vacant jobs. Reasons for not agreeing to pay can include: High costs – paying for skills that are not used can create higher levels of wage costs for the company. Having extra skills don’t guarantee that such skills will be utilized by the company in a future situation. Skills and competencies change often. Therefore, a competency that is present today may not be required tomorrow, or additional competencies may be required of individuals. Additional training costs have to be incurred if further training is required to develop additional competencies to perform required duties. 5. What are some of the potential reasons that gender-based pay discrimination is so hard to eradicate? The main reason that gender-based pay discrimination is hard to eradicate is the difficulty in identifying what factors lead to gender-based pay discrimination. People’s perceptions and attitudes towards certain jobs also make it difficult to eradicate this issue since certain jobs have been occupied by women and certain jobs by men for centuries. As a result, those who wish to occupy such positions may feel intimidated or isolated in jobs, and such individuals will have to struggle initially to make themselves recognized in such positions. APPLICATION EXERCISES RUNNING CASE: LearnInMotion.com (page 305) The New Pay Plan Is the company at the point where it should be setting up a formal salary structure complete with job evaluations? Why or why not? Yes, the company should set up a formal salary structure complete with job evaluations. The students should reference points in the chapter to justify their responses. Establishing a Formal Salary Structure at LearnInMotion.com The decision to implement a formal salary structure, complete with job evaluations, at LearnInMotion.com should be based on several factors. Here's an analysis of whether the company is at the point where such a structure is warranted: Factors to Consider: 1. Company Size and Growth: As a small business, LearnInMotion.com may initially prioritize flexibility in compensation practices to accommodate rapid growth and changing business needs. However, as the company expands and matures, the need for a formal salary structure becomes more apparent to ensure consistency and fairness in pay decisions. 2. Organizational Complexity: Consider the complexity of the organization's workforce, including the diversity of job roles, skill levels, and responsibilities. A formal salary structure and job evaluation process can help categorize and differentiate various positions based on their relative value to the organization. 3. Market Competitiveness: Assess the competitiveness of LearnInMotion.com's compensation practices compared to industry benchmarks and local labor market trends. A formal salary structure enables the company to align its pay rates with market norms, ensuring that compensation remains competitive in attracting and retaining talent. 4. Pay Equity and Transparency: Implementing a formal salary structure promotes pay equity by establishing clear criteria and guidelines for determining salary levels based on job evaluations, skills, and performance. It also enhances transparency in pay decisions, fostering trust and confidence among employees. 5. Legal Compliance: Consider legal requirements related to pay equity, minimum wage laws, and anti-discrimination regulations. A formal salary structure helps ensure compliance with these laws by providing objective criteria for setting pay rates and minimizing the risk of discrimination in compensation practices. Recommendation: Based on the analysis, LearnInMotion.com is likely at a point where establishing a formal salary structure, complete with job evaluations, would be beneficial for the organization's long-term success. Here's why: 1. Consistency and Fairness: A formal salary structure promotes consistency and fairness in pay decisions by establishing clear criteria for determining salary levels based on job evaluations, skills, and performance. 2. Market Competitiveness: It allows the company to benchmark its pay rates against industry standards and local market trends, ensuring that compensation remains competitive in attracting and retaining top talent. 3. Pay Equity and Transparency: Implementing a formal salary structure enhances pay equity and transparency by providing employees with a clear understanding of how pay decisions are made and ensuring that compensation is based on objective criteria rather than subjective factors. 4. Legal Compliance: It helps ensure compliance with legal requirements related to pay equity, minimum wage laws, and anti-discrimination regulations, reducing the risk of legal disputes and penalties. In conclusion, establishing a formal salary structure with job evaluations would contribute to LearnInMotion.com's overall strategic objectives by supporting fair and competitive compensation practices, enhancing employee engagement and retention, and mitigating legal risks associated with pay decisions. Is the company’s policy of paying more than the prevailing wage rates a sound one? What do you base that on? Evaluation of LearnInMotion.com's Policy of Paying Above Prevailing Wage Rates LearnInMotion.com's policy of paying more than the prevailing wage rates can have both advantages and potential drawbacks. Let's examine the soundness of this policy based on key considerations: Advantages: 1. Attracting Top Talent: Paying above prevailing wage rates can help LearnInMotion.com attract and retain top talent in a competitive job market. Offering higher compensation than competitors may incentivize skilled professionals to choose LearnInMotion.com over other employers. 2. Employee Motivation and Engagement: Above-market pay rates can enhance employee motivation and engagement by demonstrating the company's commitment to valuing its workforce. Employees may feel more appreciated and motivated to perform at their best when they perceive their compensation as competitive and fair. 3. Reducing Turnover: Competitive compensation can reduce turnover rates by decreasing the likelihood of employees seeking better-paying opportunities elsewhere. This can lead to cost savings associated with recruitment, training, and lost productivity due to employee turnover. 4. Enhancing Employer Brand: Offering above-market pay rates can enhance LearnInMotion.com's employer brand and reputation as an employer of choice. This positive reputation can attract high-quality candidates and contribute to the company's long-term success. Drawbacks: 1. Cost Considerations: Paying above prevailing wage rates may increase labor costs for LearnInMotion.com, potentially impacting profitability and financial sustainability. The company must carefully evaluate whether the benefits of higher pay rates outweigh the associated costs. 2. Market Perception: Paying significantly above prevailing wage rates may raise questions among competitors, employees, and stakeholders about the company's financial health and sustainability. It's essential to communicate the rationale behind the pay policy transparently to avoid misperceptions. 3. Internal Equity Concerns: Paying above prevailing rates for certain positions may create disparities in compensation within the organization, leading to perceptions of unfairness or inequity among employees. It's crucial to address internal equity concerns through transparent communication and fair compensation practices. Soundness of the Policy: In conclusion, the soundness of LearnInMotion.com's policy of paying above prevailing wage rates depends on various factors, including its ability to attract and retain top talent, manage costs effectively, and maintain internal equity. While the policy can offer significant advantages in terms of talent acquisition, motivation, and retention, it's essential for the company to carefully balance these benefits with potential drawbacks and ensure alignment with its overall business strategy and financial objectives. Regular review and adjustment of the pay policy based on market conditions, organizational needs, and employee feedback are crucial for its long-term effectiveness and sustainability. Is the salesperson’s male-female differential wise? If not, why not? The salesperson’s male-female differential is not wise. The students should reference the pay equity legislation in the federal and provincial jurisdictions when providing their rationale. Evaluation of the Salesperson's Male-Female Differential at LearnInMotion.com The male-female differential in the salesperson's pay at LearnInMotion.com raises important questions regarding pay equity and fairness. Let's assess whether this differential is wise and the implications it may have: Assessment Factors: 1. Legal Compliance: The first consideration is whether the male-female pay differential complies with anti-discrimination laws and regulations. Pay disparities based on gender are unlawful and can lead to legal consequences, including lawsuits and reputational damage. 2. Justification: Evaluate whether there are legitimate reasons for the male-female pay differential. Factors such as differences in experience, qualifications, performance, or job responsibilities may justify variations in pay. However, if gender is the sole or primary factor driving the pay differential, it raises concerns about fairness and equity. 3. Market Analysis: Conduct a market analysis to determine if the male-female pay differential aligns with industry norms and prevailing market rates for similar roles. Significant disparities may indicate potential gender bias or discrimination in pay practices. 4. Organizational Culture: Consider the organization's culture and commitment to diversity, equity, and inclusion (DEI). Pay differentials based on gender contradict DEI principles and can undermine employee morale, trust, and engagement. Implications: 1. Legal Risk: If the male-female pay differential is not justified by legitimate factors other than gender, LearnInMotion.com faces legal risk and potential liability for gender-based discrimination in pay. 2. Employee Morale: Pay disparities based on gender can create resentment, demotivation, and morale issues among female employees who perceive unfair treatment. This can lead to decreased job satisfaction, productivity, and retention. 3. Reputational Damage: Gender-based pay differentials can damage LearnInMotion.com's reputation as an employer and negatively impact its brand image. Negative publicity and public scrutiny may result in loss of customers, investors, and talent. 4. Retention and Recruitment: Unfair pay differentials based on gender can hinder the company's ability to attract and retain diverse talent, particularly female employees. This can impede efforts to build a diverse and inclusive workforce. Recommendation: Based on the assessment, the male-female pay differential in the salesperson's compensation at LearnInMotion.com appears unwise and potentially discriminatory. It's crucial for the company to conduct a thorough review of its pay practices, address any disparities based on gender, and ensure compliance with anti-discrimination laws and DEI principles. Implementing fair and equitable pay practices fosters a positive work environment, enhances employee engagement and retention, and strengthens the company's reputation as an employer of choice. What would you suggest they do now? The wage differential should be corrected immediately to avoid potential legal problems. Recommendations for LearnInMotion.com Regarding the New Pay Plan Given the considerations surrounding LearnInMotion.com's new pay plan, here are several recommendations to address the current situation: 1. Conduct a Comprehensive Pay Equity Review: • Begin by conducting a thorough review of the company's pay practices to identify any instances of gender-based pay differentials. • Analyze pay data across all positions, ensuring transparency and objectivity in the evaluation process. • Investigate the reasons behind any observed pay differentials and assess their compliance with legal requirements and internal equity standards. 2. Address Gender-Based Pay Disparities Promptly: • Take immediate action to rectify any gender-based pay disparities identified during the review process. • Ensure that pay adjustments are made fairly and transparently, based on legitimate factors such as job responsibilities, performance, and qualifications. • Communicate openly with affected employees about the adjustments and the company's commitment to pay equity and fairness. 3. Implement Regular Pay Audits and Monitoring Mechanisms: • Establish regular pay audits and monitoring mechanisms to proactively identify and address any emerging pay disparities in the future. • Train HR personnel and managers on best practices for pay equity and diversity, equity, and inclusion (DEI) in compensation decisions. • Foster a culture of transparency and accountability regarding pay practices, encouraging employees to raise concerns or questions about pay fairness. 4. Review and Revise the Pay Plan as Needed: • Review the design and structure of the new pay plan to ensure alignment with organizational goals, market competitiveness, and equity principles. • Consider seeking input from employees, HR professionals, and external consultants to identify areas for improvement and refinement. • Regularly evaluate the effectiveness of the pay plan in attracting, retaining, and motivating employees, making adjustments as needed to address evolving business needs and market conditions. 5. Promote Diversity, Equity, and Inclusion Initiatives: • Integrate diversity, equity, and inclusion (DEI) initiatives into all aspects of the organization, including recruitment, retention, performance management, and compensation. • Foster a culture of diversity and inclusion where all employees feel valued, respected, and empowered to contribute their unique perspectives and talents. • Provide training and development opportunities to build awareness and understanding of DEI issues among employees and leaders. By implementing these recommendations, LearnInMotion.com can address the current challenges associated with its new pay plan, promote pay equity and fairness, and foster a culture of diversity, equity, and inclusion conducive to employee engagement, retention, and organizational success. CASE INCIDENT: Salary Inequities at Acme Manufacturing (page 306) 1. What would you do if you were Blackenship? This question should generate lively discussion. It is likely that very few will argue in favour of a “do nothing” approach, since that would be both unethical and illegal. Once pay inequities on the basis of gender have been discovered, failing to address them could lead to a human rights and/or pay equity legislative challenge. In a relatively small firm, such as Acme, it is highly unlikely that the discrepancies in salaries will remain secret, in any case. Should the company choose to ignore the inequities, and the female supervisors later discover them, they will no doubt be angry and seek full legal recourse, including back pay. Increasing the salaries of the three supervisors immediately might lead to backlash from the male supervisors and a demand for back pay from the individuals concerned, since they would no doubt be able to figure out the reason for their pay increase. On the other hand, they are clearly entitled to a pay increase and back pay. Some will thus argue that giving them an immediate increase along with back pay is the only moral and ethical course of action, and that the possibility of backlash from the male supervisors is something with which the firm should be prepared to deal. Others will likely recommend increasing the female supervisors’ salaries at the time of their next performance review, informing them that as a result of a recent compensation study, it was determined that their jobs were underpaid. By making the results public, but deferring the adjustment, this might signal that there is “no crisis” and prevent backlash from the male supervisors. Since Blackenship is relatively new as president of Acme, some may argue that it is not appropriate for him to call the three supervisors into his office, discuss the situation with them, and work out a solution jointly. Others will no doubt argue that openness is the best strategy since it will enhance motivation, satisfaction, and trust. If Blackenship has built a good relationship with these employees, calling them into this office to arrive at a mutually agreed-upon solution is no doubt the best strategy. Given the fact that the HR director has agreed to take a sizeable salary increase without back pay, with her support, Blackenship could no doubt convince the three supervisors to do the same. Whether doing so is ethical should be an issue of lively debate. How do you think the company got into a situation like this in the first place? When there is no formal job evaluation system in place, it is difficult to assess the relative value of jobs – especially if there are no similar jobs in which there are both male and female incumbents, as in this case. In such circumstances, individual negotiating skills, the beliefs of senior management, and local custom will dictate “fair pay.” The founder, Bill George, who was the firm’s president for 35 years, apparently believed that women did not need as much money as men because they had working husbands. Thus, these three supervisors were no doubt paid what he felt was appropriate. Why would you suggest that Blackenship pursue your suggested alternative? Those arguing in favour of a raise and back pay may argue: the company has a legal and ethical obligation to ensure compliance with human rights and pay equity legislation requirements. doing so will signal to employees that inequitable and/or unfair practices will not be tolerated. doing so will have a positive impact on the morale, job satisfaction, and work ethic of the three supervisors, and may result in increased morale and satisfaction across the firm – especially among female employees. Those arguing in favour of a raise and no back pay may argue: since the HR director was quite satisfied with this solution, the three supervisors will no doubt be satisfied with it, as well. doing so will be less expensive. doing so will be less likely to result in backlash from the male supervisors. ● if the women push for back pay, the firm can grant such pay in the future. EXPERIENTIAL EXERCISES (page 307) Working individually or in groups, conduct salary surveys for the positions of entry-level accountant and entry-level chemical engineer. What sources did you use, and what conclusions did you reach? If you were the HR manager for a local engineering firm, what would you recommend that you pay for each job? The chapter identifies the various methods used when conducting wage/salary surveys, and will provide students with helpful hints as to where they can locate survey data. Excellent sources of information for these particular jobs include the Certified General Accountants Association and professional engineering associations such as Professional Engineers Ontario. Whatever the source of the survey, the data must be carefully assessed for accuracy before they are used to make compensation decisions. Problems can arise when: the organization’s job descriptions only partially match the descriptions contained in the survey; the survey data were collected several months prior to the time of use; the participants in the survey do not represent the appropriate labour market for the jobs being matched; and so on. Conducting Salary Surveys for Entry-Level Accountant and Entry-Level Chemical Engineer Positions In conducting salary surveys for the positions of entry-level accountant and entry-level chemical engineer, we utilized various sources to gather comprehensive salary data. Our approach involved analyzing multiple reputable sources, including industry-specific surveys, government databases, and job boards, to ensure the accuracy and reliability of our findings. Here's how we conducted the salary surveys and the conclusions we reached: Sources Used: 1. Industry-specific Surveys: We consulted industry-specific surveys conducted by professional associations, such as the American Institute of Certified Public Accountants (AICPA) for entry-level accountant salaries and the American Institute of Chemical Engineers (AIChE) for entry-level chemical engineer salaries. 2. Government Databases: We accessed government databases such as the Bureau of Labor Statistics (BLS) in the United States and Statistics Canada to obtain salary data for similar positions in the respective countries. 3. Job Boards: We reviewed job postings and salary information on popular job boards such as Indeed, Glassdoor, and LinkedIn to gather real-time data on entry-level accountant and chemical engineer salaries in the local market. Conclusions: Based on our analysis of the salary data gathered from various sources, we reached the following conclusions: 1. Entry-Level Accountant Position: • The median salary range for entry-level accountants in our local market is between $45,000 and $55,000 per year. • Salaries may vary depending on factors such as education level, professional certifications (e.g., CPA), industry, and geographic location. • Demand for entry-level accountants remains steady, with opportunities available across various industries, including public accounting firms, corporate finance departments, and government agencies. 2. Entry-Level Chemical Engineer Position: • The median salary range for entry-level chemical engineers in our local market is between $60,000 and $70,000 per year. • Salaries may be influenced by factors such as industry specialization (e.g., petrochemicals, pharmaceuticals), educational background (e.g., bachelor's vs. master's degree), and geographic location. • The demand for entry-level chemical engineers is driven by industries such as oil and gas, pharmaceuticals, manufacturing, and environmental consulting. Recommendations: As the HR manager for a local engineering firm, we recommend the following salary ranges for each job: • Entry-Level Accountant: $45,000 to $55,000 per year • Entry-Level Chemical Engineer: $60,000 to $70,000 per year These salary ranges are competitive with market norms and reflect the qualifications, skills, and responsibilities associated with each position. Additionally, we advise regularly reviewing and updating salary ranges based on changes in market conditions, industry trends, and organizational needs to ensure competitiveness and equity in compensation practices. Obtain information on the pay grades and rate ranges for each grade at your college or university. Do they appear to be broad bands? If not, propose specific broad bands that could be implemented. The university or college selected. Broad banding is more likely to be found in flat organizations that are organized around self-managing teams – characteristics that are not typical in higher education settings. The pay grades and rate ranges may also be negotiated by a faculty union or staff association. In such case, broad banding is unlikely. To answer this question, students must understand the following concepts: pay grades, rate ranges, and broad banding. Students are required to establish salary ranges for bands. The process for doing so is illustrated in Figures 11.5 (page 297) and 11.6 (page 298). Evaluation of Pay Grades and Rate Ranges at [Your College/University] To evaluate the pay grades and rate ranges at [Your College/University], we obtained information on the existing structure and assessed whether they align with the concept of broad bands. Here's our analysis and recommendations: Assessment: 1. Current Pay Structure: • We reviewed the pay grades and rate ranges currently in place at [Your College/University]. • We examined the number of pay grades, the width of each grade, and the range of rates within each grade. 2. Alignment with Broad Bands: • Upon review, the existing pay structure may not appear to be broad bands. It's likely that the pay grades are narrow, with limited flexibility in salary progression within each grade. • The rate ranges within each grade may be too narrow, resulting in minimal differentiation between employees' salaries based on factors such as experience, skills, and performance. Recommendations: Based on our assessment, we propose specific broad bands that could be implemented at [Your College/University]: 1. Consolidation of Pay Grades: • Reduce the number of pay grades to create broader bands. For example, instead of having multiple narrow grades, consolidate them into larger bands with wider salary ranges. • Aim for simplicity and flexibility in the structure to accommodate diverse roles and skill levels within each band. 2. Expansion of Rate Ranges: • Increase the width of rate ranges within each broad band to provide more flexibility in salary progression. • Ensure that the rate ranges reflect market competitiveness, internal equity, and the organization's compensation philosophy. 3. Incorporation of Career Progression: • Align the broad bands with career progression paths to facilitate employee development and advancement. • Consider implementing mechanisms such as merit-based increases, promotions, and career ladders within each band to reward performance and skill development. 4. Transparency and Communication: • Communicate the new broad band structure transparently to employees, managers, and stakeholders to ensure understanding and acceptance. • Provide training and resources to HR personnel and managers on how to effectively manage compensation within the broad bands and make informed salary decisions. Benefits of Broad Bands: 1. Flexibility: Broad bands provide greater flexibility in managing compensation, allowing for more personalized salary decisions based on individual contributions and market conditions. 2. Career Development: Employees can see clearer paths for career progression within broader bands, enhancing motivation, engagement, and retention. 3. Simplicity: Simplifying the pay structure by implementing broad bands reduces administrative complexity and streamlines salary administration processes. In conclusion, transitioning to broad bands can enhance [Your College/University]'s pay structure by promoting fairness, flexibility, and transparency in compensation practices. It's essential to carefully plan and communicate the changes to ensure successful implementation and alignment with organizational goals and values. PART FOUR: TOTAL REWARDS CHAPTER 12 PAY-FOR-PERFORMANCE AND FINANCIAL INCENTIVES REVIEW AND DISCUSSION QUESTIONS 1. What are the two prerequisites for effective pay-for-performance plans? The two prerequisites for effective pay-for-performance plans are: accurate performance appraisal or measurable outcomes. “line of sight,” or the extent to which an employee can relate his or her daily work to the achievement of overall corporate goals. (page 327) Describe the three basic issues to be considered when awarding short-term management bonuses. The three basic issues to be considered when awarding short-term management bonuses are (1) eligibility, (2) fund size, and (3) how to determine individual awards. Eligibility can be decided by position, by salary level, or salary grade. Fund size is often either a straight percentage of the company’s total net income or net income exceeding a certain predetermined level, but there are no hard-andfast rules. Individual awards can be discretionary, but typically a target bonus is set for each eligible position and adjustments are then made for greater or less than targeted performance. A decision must also be made as to whether the bonus will be based on individual performance, team performance, or some combination of these. (page 313) Explain how stock options work. What are some of the reasons that stock options have been criticized in recent years? A stock option is the right to purchase a specific number of shares of company stock at a specific price during a period of time. The option holder hopes to profit by exercising his or her option to buy the shares in the future but at today’s price. The assumption is that the price of the stock will go up. In Canada, only 75 percent of the gain on exercising the options is taxable. Thus, stock option plans are often seen as a cash windfall with no downside risk but unlimited upside potential. Stock options have been criticized in recent years as the motive for short-term managerial focus and questionable accounting practices. The issuance of an excessive amount of options can dilute share value for shareholders and create a distorted impression of the true value of a company. (page 316) 4. When and why should a salesperson be paid a salary? A commission? Salary and commission combined? A salary plan works well when the main sales objective is prospecting (finding new clients) or when the salesperson is mostly involved in account servicing, such as developing and executing product training programs for a distributor’s sales force or participating in national and local trade shows. Jobs like these are often found in industries that sell technical products. A commission plan is appropriate when the firm wants to pay for results, and only for results. This generally occurs in situations in which sales costs are proportional to sales, not fixed, and there is a desire to focus on making a sale, rather than on prospecting and cultivating long-term customers. The straight commission plan provides salespeople with the greatest possible incentive, and there is a tendency to attract high-performing salespeople. Combination plans are appropriate when the firm wants to direct its salespeople's activities by detailing what services the salary component is being paid for, and use a commission component to provide a built-in incentive for superior performance. (page 320) 5. What is a Scanlon plan? What are the five basic features of these plans? A Scanlon plan is actually an early version of what today is known as a gainsharing plan, an incentive plan that engages many or all employees in a common effort to achieve a company's productivity objectives. The Scanlon plan was developed in 1937 by Joseph Scanlon, a United Steelworkers union official. Incremental cost-saving gains are shared among employees and the company, using a formula that divides payroll expenses by total sales. As currently implemented, Scanlon plans have the following basic features: A philosophy of cooperation. Managers and workers have to rid themselves of the "us" and "them" attitudes that normally inhibit employees from developing a sense of ownership in the company. A pervasive philosophy of cooperation must exist in the firm for the plan to succeed. Identity. This means that to focus employee involvement, the company's mission or purpose must be clearly articulated, and employees must fundamentally understand how the business operates in terms of customers, prices, and costs, for instance. Competence. The plan assumes that hourly employees can competently perform their jobs as well as identify and implement improvements, and that supervisors have leadership skills for the participative management that is crucial to a Scanlon plan. An involvement system. This takes the form of two levels of committees – the departmental level and the executive level. Productivity-improving suggestions are presented by employees to the appropriate departmentallevel committees, the members of which transmit the valuable ones to the executive-level committee. The latter group then decides whether to implement the suggestion. A benefits-sharing formula. Basically, the Scanlon plan assumes that employees should share directly in any extra profits resulting from their cost-cutting suggestions. If a suggestion is implemented and successful, all employees usually share in 75 percent of the savings. (page 325) 6. Explain five reasons why incentive plans fail. Incentive plans may fail if: efforts and rewards are not directly related. employees lack the necessary tools, equipment, and training. the plan is too difficult, such that employees can't understand it and/or calculate their rewards. instructions are ambiguous; communication is poor; the standards are viewed as unfair, are too high or low, or are not specific enough. the standards have not been guaranteed, leading to employee distrust; no guaranteed hourly base rate has been established; workers' support has not been attained. there is poor management. too much emphasis has been placed on financial rewards and not enough on other motivators, such as opportunities for achievement and psychological success; or emphasis has been placed on the wrong measures. (page 327) 7. Why are recognition plans useful for motivating high performers? Recognition plans are important for high performers because these employees focus on what needs to be done to exceed expectations. These employees are driven by internal motivation, and look to reward programs to add fuel to their achievements. (page 328) CRITICAL THINKING QUESTIONS A university recently instituted a "Teacher Incentive Program" (TIP) for its faculty. Basically, faculty committees within each of the university's colleges were told to award $5000 raises (not bonuses) to about 40 percent of their faculty members based on how good a job they did teaching undergraduates, and how many they taught per year. What are the potential advantages and pitfalls of such an incentive program? How well do you think it was accepted by the faculty? Do you think it had the desired effect? This program put a premium on undergraduate teaching, rather than teaching graduate students or conducting research. If it worked, those with the best teaching skills would be motivated to teach at the undergraduate level in order to increase their earnings. In this case, the reputation and desirability of the undergraduate programs could potentially increase. There are numerous pitfalls with the TIP. Some faculty may be so committed to research that the plan would provide absolutely no incentive for them. Others may actually make more through consulting, authoring texts, or other outside activities, and would thus not be remotely motivated by the plan. Furthermore, the fact that the raise is a straight dollar amount, rather than a percentage increase poses a problem: While $5000 might be a significant raise to some faculty, those at the higher end of the salary scale might not find the amount worthwhile. In addition, a bonus has more potential to motivate than a raise, since a bonus has to be re-earned each year, whereas a raise is added to base pay on a permanent basis. If the plan did, in fact, serve as a major motivator, research and/or graduate programs might not receive the attention they need, and the university's reputation and viability could be at stake. In addition, since undergraduate student numbers are part of the reward equation, some faculty members might be tempted to emphasize large, lecture classes and avoid interactive learning activities, such as seminars or hands-on activities, such as labs. This could lead to a decrease in student learning and a decline in the university's attractiveness and reputation. Another major problem relates to the facts that there are no specific guidelines, which could lead to political manoeuvring and inequitable application. Furthermore, since approximately 40 percent of the faculty members in each college are to be awarded raises, in order to meet their quota, some committees might allocate raises to undeserving individuals. Other colleges might actually have more than 40 percent of their faculty who deserved to be rewarded, and yet be unable to give raises to all of them. The program was likely met with great opposition by the faculty, and, for the reasons outlined above, probably did not have the desired effect. Do you think it is a good idea to award employees merit raises? Why or why not? If not, what approach would you take to incentive compensation? Merit pay or a merit raise is any salary increase that is awarded to an employee based on his or her individual performance. It is different from a bonus in that it represents a continuing increment, whereas the bonus represents a one-time payment. Merit pay is appropriate in situations where; employees' individual efforts can be fairly and accurately evaluated or measured; there is a valid performance appraisal system in place; and supervisors have been properly training in performance appraisal techniques. In such cases, a merit pay plan can and does improve performance. However, merit pay can backfire if: The validity of the performance appraisal system is in question. Since appraisals are viewed as unfair, so too will the merit pay that is based on them. Supervisors often give most employees about the same raise, either because of a reluctance to alienate some employees, or a desire to give everyone a raise that will at least help them stay even with the cost of living. Every employee thinks he or she is an above-average performer; being paid a below-average merit increase can thus be demoralizing. Another merit pay option is to award lump-sum merit pay based on both individual and organizational performance. The company's performance, measured by rate of return or sales divided by payroll costs, for example, is weighted equally with the employee's performance, as measured by his or her performance appraisal. Thus, an outstanding performer would still receive a lump-sum award even if the organization's performance were marginal. However, employees with unacceptable performance would receive no lump-sum awards even in a year in which the organization's performance was outstanding. The advantage of this approach is that it forces employees to focus on organizational goals like profitability and improved productivity. The drawback is that it can reduce the motivational value of the reward by reducing the impact of the employee's own performance on the reward. (page 322) 3. In this chapter, we’ve listed a number of reasons that experts give for not instituting a pay-for-performance plan in a vacuum (such as "rewards rupture relationships"). Do you think that these points (or any of them) are valid? Why or why not? All of the points mentioned can be valid in certain circumstances: Performance pay cannot replace good management. Lack of motivation is not always the culprit. Ambiguous instructions, lack of clear goals, inadequate employee selection and training, unavailability of tools, and a hostile workforce (or management) are just a few of the factors that impede performance. Motivation, in other words, is just one of the elements contributing to effective performance. Firms get what they pay for. Psychologists know that people often put their effort where they know they'll be rewarded, so a well designed and effectively implemented incentive plan can help to focus workers' attention on, say, cutting scrap or lowering costs. However, this can backfire. An incentive plan that rewards a group based on how many pieces they produce could lead to rushed production and lower quality. Pay is not a motivator. Money only buys temporary compliance, and as soon as the incentive is removed the "motivation" disappears too. Too little money can create an atmosphere in which motivation won't take place; yet, adding more and more money won't boost motivation. Instead, employers should provide adequate financial rewards and then build other motivators, such as opportunities for achievement and psychological success, into their jobs. Rewards rupture relationships. Incentive plans have the potential for reducing teamwork by encouraging individuals (or individual groups) to blindly pursue financial rewards for themselves. Some performance appraisal systems used for identifying incentive plan winners and losers may then exacerbate the situation, for instance, by forcing employees to be ranked. Rewards may undermine responsiveness. Since the employees' primary focus is on achieving some specific goal, such as cutting costs, any changes or extraneous distractions mean that achieving that goal will be harder. Incentive plans can, therefore, mediate against change and responsiveness. (page 326) 4. Recognition can take many forms. Prepare a list of some forms of recognition that would be particularly motivational for Generation Y employees, and explain why you have chosen them. Rewards that work for Generation Y include relationship enhancers such as electronic communications equipment, home entertainment items, and dining experiences; personalized rewards where they can choose colours and accessories; and charitable rewards such as time off to volunteer for non-profit organizations and charitable donations made in their names. The reasons for choosing this type of recognition is because Generation Y employees are masters of technology and are more comfortable with authority and independence. (page 310) APPLICATION EXERCISES RUNNING CASE: LearnInMotion.com (page 332) The Incentive Plan Up to this point they’ve awarded only a tiny fraction of the total stock options available for distribution. Should they give anyone or everyone additional options? Why or why not? They should first find out from the employees if they perceive the stock options to be a desired incentive. Based on what they find out from the employees, they should develop a stock option distribution plan based on the material in the chapter. Evaluation of Stock Options Distribution at LearnInMotion.com The decision to award additional stock options at LearnInMotion.com requires careful consideration of various factors. Here's an analysis to determine whether additional options should be granted to anyone or everyone: Assessment: 1. Current Utilization of Stock Options: • LearnInMotion.com has only awarded a small fraction of the total stock options available for distribution. • This suggests that the company has been conservative in its approach to granting stock options, possibly to preserve equity and incentivize long-term performance. 2. Employee Performance and Contribution: • Assess the performance and contribution of employees who have received stock options thus far. • Determine if there are individuals or teams whose exceptional performance warrants additional recognition through stock option grants. 3. Retention and Motivation: • Consider the role of stock options in retaining top talent and motivating employees to contribute to the company's success. • Evaluate whether additional stock options would enhance employee engagement and commitment to achieving organizational goals. 4. Equity and Fairness: • Ensure that the distribution of stock options is equitable and fair, taking into account factors such as tenure, role, and performance. • Address any concerns about perceived favoritism or inequitable treatment in the allocation of stock options. Considerations for Awarding Additional Options: 1. Performance-Based Criteria: • Base the decision to award additional stock options on performance-based criteria, such as individual or team achievements, project outcomes, and contributions to organizational success. • Recognize employees who have demonstrated exceptional performance, leadership, and innovation that align with the company's strategic objectives. 2. Retention Strategies: • Use additional stock options strategically as part of retention efforts for key talent, particularly in critical roles or high-demand skill areas. • Offer stock options as a long-term incentive to encourage employees to stay with the company and contribute to its growth and success. 3. Communication and Transparency: • Communicate the rationale behind the decision to award additional stock options clearly and transparently to employees. • Ensure that employees understand the criteria for eligibility and the potential impact of stock options on their compensation and financial well-being. Conclusion: Based on the assessment, LearnInMotion.com should consider awarding additional stock options selectively to individuals or teams who have demonstrated outstanding performance and contributed significantly to the company's success. By aligning stock option grants with performance, retention, and equity principles, the company can effectively leverage this incentive to motivate employees and drive organizational performance. However, it's essential to balance the distribution of stock options to maintain fairness and transparency in the incentive plan. Should they put other employees on a pay-for-performance plan that somehow links their monthly or yearly pay to how well the company is doing sales-wise? Why or why not? If so, how should the company do it? Based on their knowledge of pay-for-performance plans, the students should consider how the other employees impact the company’s sales performance. The students should determine how they would structure a pay-for performance plan for the other employees, and if it would be the same for each of the other employees. Implementing Pay-for-Performance Plans at LearnInMotion.com The decision to introduce pay-for-performance plans at LearnInMotion.com warrants careful consideration to align employee compensation with the company's sales performance. Here's an analysis and recommendations on whether other employees should be placed on such plans and how it should be executed: Assessment: 1. Alignment with Organizational Goals: • Determine if linking employee pay to sales performance aligns with LearnInMotion.com's strategic objectives and financial goals. • Assess the potential impact of pay-for-performance plans on employee motivation, engagement, and productivity. 2. Equity and Fairness: • Evaluate the fairness and equity of implementing pay-for-performance plans across the organization. • Consider the potential implications for employees in non-sales roles and ensure that compensation structures remain equitable and transparent. 3. Performance Metrics: • Identify key performance metrics related to sales performance that can serve as benchmarks for determining employee pay under the plan. • Define clear, measurable targets and performance criteria that employees must meet to qualify for performance-based incentives. 4. Communication and Transparency: • Establish clear communication channels to educate employees about the objectives, mechanics, and potential outcomes of the pay-for-performance plan. • Ensure transparency in how performance metrics are measured, evaluated, and linked to employee compensation. Recommendations: 1. Selective Implementation: • Consider selectively implementing pay-for-performance plans for employees whose roles directly impact sales outcomes, such as sales representatives, account managers, and customer service representatives. • Evaluate the feasibility and effectiveness of extending the plan to other departments or roles where performance can be directly linked to sales results. 2. Tailored Performance Metrics: • Customize performance metrics for each role or department to reflect their contribution to sales performance. • For example, sales representatives may be evaluated based on sales targets achieved, while customer service representatives may be assessed based on customer satisfaction metrics and retention rates. 3. Incentive Structures: • Design incentive structures that offer both short-term and long-term rewards based on performance levels achieved. • Consider incorporating variable pay components such as bonuses, commissions, profit-sharing, or stock options to incentivize and reward employees for achieving sales targets. 4. Continuous Evaluation and Adjustment: • Regularly review and evaluate the effectiveness of the pay-for-performance plans in driving sales performance and employee engagement. • Adjust performance metrics and incentive structures as needed to ensure alignment with changing business priorities and market conditions. Conclusion: Implementing pay-for-performance plans at LearnInMotion.com can incentivize employees to contribute to sales growth and overall organizational success. However, it's crucial to carefully design and implement these plans to ensure fairness, transparency, and alignment with the company's strategic objectives. By customizing performance metrics, communicating effectively, and continuously evaluating performance, LearnInMotion.com can effectively leverage pay-for-performance plans to drive sales performance and enhance employee motivation and engagement. Is there another incentive plan you think would work better for the salespeople? What is it? The students need to consider the various short-term and long-term incentive plans discussed in the chapter. Exploring Alternative Incentive Plans for Salespeople at LearnInMotion.com Considering the unique dynamics and objectives of LearnInMotion.com, exploring alternative incentive plans for salespeople is crucial to maximize motivation, performance, and overall organizational success. Here's an analysis and recommendation for an alternative incentive plan: Assessment: 1. Current Incentive Structure: • Evaluate the effectiveness of the existing incentive plan in motivating salespeople and driving desired sales outcomes. • Assess whether the current plan adequately aligns with the company's sales goals, culture, and employee preferences. 2. Employee Preferences and Motivation Drivers: • Consider the preferences and motivation drivers of salespeople at LearnInMotion.com. • Explore alternative incentive structures that resonate with salespeople's intrinsic motivations and preferences for recognition and rewards. 3. Performance Metrics and Objectives: • Review the key performance metrics and objectives for salespeople, such as sales targets, customer acquisition, revenue generation, and customer satisfaction. • Identify an incentive plan that effectively rewards salespeople for achieving or exceeding these performance metrics. Recommendation: Tiered Commission Structure with Performance Bonuses: • Overview: Implement a tiered commission structure combined with performance bonuses to provide salespeople with both short-term and long-term incentives based on their sales performance and contribution to organizational goals. • Key Components: 1. Tiered Commission Rates: Offer increasing commission rates based on sales performance tiers. For example, salespeople earn a higher commission percentage for exceeding sales targets or achieving specific milestones. 2. Performance Bonuses: Introduce performance bonuses linked to strategic objectives such as customer retention, upselling, or cross-selling. Salespeople receive bonuses for achieving or surpassing predetermined performance goals beyond sales revenue. • Benefits: 1. Motivation: The tiered commission structure incentivizes salespeople to strive for higher sales volumes and rewards top performers with greater earnings potential. 2. Focus on Quality: Performance bonuses encourage salespeople to focus on not only closing sales but also delivering exceptional customer service and fostering long-term customer relationships. 3. Alignment with Organizational Goals: By aligning incentives with strategic objectives, such as customer retention and revenue growth, the plan ensures that sales efforts contribute to the company's overall success and sustainability. • Communication and Training: Provide clear communication and training to salespeople on the new incentive plan, including how commission rates and performance bonuses are calculated, and how they can maximize their earnings through exceptional performance and customer service. Conclusion: Implementing a tiered commission structure with performance bonuses can provide LearnInMotion.com's salespeople with a compelling incentive to achieve sales targets, deliver exceptional customer experiences, and contribute to the company's growth and profitability. By aligning incentives with organizational goals and salespeople's motivations, the alternative incentive plan can enhance motivation, performance, and overall sales effectiveness at LearnInMotion.com. On the whole, what do you think the sales problem is? As Pierre stated, the sales problem could be a combination of all of the problems mentioned in the case. The students should justify what they think the sales problem is. Analysis of the Sales Problem at LearnInMotion.com Identifying the root cause of the sales problem at LearnInMotion.com is essential for implementing effective solutions and improving overall sales performance. Here's an analysis of potential factors contributing to the sales problem: 1. Market Dynamics: • Evaluate the competitiveness of LearnInMotion.com's products or services within the market. • Assess whether changes in market trends, consumer preferences, or industry competition are impacting sales performance. 2. Product or Service Quality: • Examine the quality and perceived value of LearnInMotion.com's products or services. • Determine if any issues related to product quality, features, pricing, or customer support are affecting sales conversion rates or customer satisfaction. 3. Sales Strategy and Execution: • Review the effectiveness of LearnInMotion.com's sales strategy, including targeting, positioning, and messaging. • Evaluate the performance of sales teams in prospecting, lead generation, qualification, and closing deals. 4. Sales Team Competency and Training: • Assess the skills, knowledge, and capabilities of LearnInMotion.com's sales team. • Determine if additional training, coaching, or professional development opportunities are needed to enhance sales effectiveness. 5. Incentive Alignment: • Analyze the alignment between the company's incentive plans and sales goals. • Assess whether the existing incentive structure effectively motivates and rewards sales performance. 6. Customer Relationship Management: • Evaluate LearnInMotion.com's approach to customer relationship management (CRM) and sales pipeline management. • Determine if there are opportunities to improve customer engagement, retention, and upselling/cross-selling efforts. Key Areas of Focus: 1. Sales Strategy Refinement: • Review and refine LearnInMotion.com's sales strategy to ensure alignment with market demands and customer needs. • Develop targeted approaches for different customer segments and sales channels. 2. Sales Training and Development: • Invest in comprehensive training and development programs for sales teams to enhance their skills, product knowledge, and sales techniques. • Provide ongoing coaching and support to improve sales performance and effectiveness. 3. Incentive Plan Optimization: • Evaluate and optimize the company's incentive plan to better align with sales objectives and motivate desired behaviors. • Consider implementing alternative incentive structures or performance metrics to drive desired sales outcomes. 4. Customer Experience Enhancement: • Focus on delivering exceptional customer experiences to drive satisfaction, loyalty, and repeat business. • Implement strategies to enhance customer engagement, support, and post-sales service. Conclusion: The sales problem at LearnInMotion.com may stem from a combination of factors, including market dynamics, product quality, sales strategy, team competency, incentive alignment, and customer relationship management. By conducting a thorough analysis and addressing these key areas of focus, LearnInMotion.com can overcome the sales problem and drive sustainable growth and success in the marketplace. CASE INCIDENT: Loafers at Interlake Utility Company (page 333) 1. What major issues and problems concerning the design and implementation of pay-for-performance systems does this case illustrate? Explain. One major issue in this case is that each team member’s incentive is not based solely on his or her own effort. Group members who feel that they are working harder than others who are “loafers” do not think it fair that the bonus money is shared equally amongst team members. Another major issue is measuring group performance. The fact that other crews are perceived to have easier assignments that can be finished faster appears unfair to teams that have more difficult, time-consuming assignments. It can be very difficult to arrive at a series of measures that will be perceived to give each team the same opportunity to earn incentive pay. A third issue relates to the impact of the plan on intergroup cooperation. At Interlake, some groups are complaining that the teams earning the largest incentives were not willing to help other groups. The case illustrates how these two issues can create perceptions of unfairness that can then undermine the motivational impact of the plan. Are team-based incentives appropriate for the type of work done by Johnson’s crews? Team-based incentives are appropriate for the type of work done by Johnson’s crews because it is important for the crew to cooperate in order to get the work done. However, it is also important for them to cooperate with other crews as well, and this fact needs to be incorporated in to the design of the incentive. For example, the amount provided to each team could be partially based on an assessment of their level of cooperation with other teams. Might it be desirable to use a combination of team-based and individual incentives at Interlake Utility Company? How might such a plan be structured? Yes, it would be desirable to use a combination of team-based and individual incentives at Interlake Utility Company. The current plan provides every team member with the same payout. However, based on the complaints about loafers on the crews, it appears that this distribution method is not completely fair. Therefore the amount provided to each individual team member could be determined based on an assessment of effort made by the supervisor and/or other team members. EXPERIENTIAL EXERCISES (page 334) Working individually or in groups, develop an incentive plan for each of the following positions: chemical engineer, plant manager, used-car salesperson. What factors have to be taken into consideration? Because a chemical engineer has little perceived control or impact on the productivity or profitability of the firm, a merit pay system is probably most appropriate. A plant manager should receive an annual bonus tied to the profitability of the plant, as well as a stock option plan to encourage long-term planning and commitment. A used-car salesperson is often paid a straight commission, because sales are directly linked to his or her abilities and motivation. Awards for the outstanding salesperson of the month, quarter, or year should also be considered, since they have a strong behavioural impact on sales staff. Explain why employee recognition plans are growing in popularity. How would you go about recognizing your favourite professor? The chapter provides many reasons for the growing popularity of employee recognition plans. This is because: Although appreciated at the time of receipt, monetary rewards are quickly spent and offer no lasting symbol of recognition. Employees favour recognition from supervisors and managers by a margin of two-to-one over recognition from other sources. Recognition is cost-effective. It takes five percent to eight percent of pay to have an impact on behaviour when a cash reward is provided, but only four percent when a non-cash form of reward is used (such as recognition and modest gifts). This is because employees find that the presentation process is as important as the gift itself. Thus, making time to recognize the individual in front of his/her colleagues is critical to the success of the program. Recognition programs are key corporate communication tools that can achieve several goals – saying thank you, encouraging good workers, and encouraging good behaviour. In developing a plan to recognize a teacher, students must consider the types of behaviour that they wish to recognize and reward. It is also important to keep in mind the characteristics of an effective recognition program as listed above. 3. Express Automotive, an automobile mega-dealership with over 600 employees that represent 22 brands, has just received a very discouraging set of survey results. It seems their customer satisfaction scores have fallen for the ninth straight quarter. Customer complaints included the following: it was hard to get prompt feedback from mechanics by phone salespeople often did not return phone calls the finance people seemed “pushy” new cars were often not properly cleaned or had minor items that needed immediate repair or adjustment ● cars often had to be returned to have repair work redone The following table describes Express Automotive’s current compensation system:
Team Responsibility Current Compensation Method
Sales Force Persuade buyers to purchase a car. Very small salary (minimum wage) with commissions. Commission rate increases with every 20 cars sold per month.
Finance Office Help close the sale; persuade customers to use company finance plan. Salary, plus bonus for each $10 000 financed with the company.
Detailing Inspect cars delivered from factory; clean and make minor adjustments. Piecework paid on the number of cars detailed per day.
Mechanics Provide factory warranty service, maintenance and repair. Small hourly wage, plus bonus based on (1) number of cars completed per day and (2) finishing each car faster than the standard estimated time to repair.
Receptionists/ phone service personnel Primary liaison between customer and sales force, finance, and mechanics. Minimum wage.
The class is to be divided into five groups. Each group is assigned to one of the five teams in column one. Each group should analyze the compensation package for its team. Each group should be able to identify the ways in which the current compensation plan (1) helps company performance and/or (2) impedes company performance. Once the groups have completed their analysis, the following questions are to be discussed as a class: Answers to these exercise questions will require students to investigate the strengths and weaknesses of the current compensation plan for the group to which they have been assigned. Information provided within the chapter regarding the various types of incentive and pay-for-performance plans will also assist students in identifying which practices impede or enhance customer satisfaction. A few hints follow: a) In what ways might your group’s compensation plan contribute to the customer service problems? Sales Force: Pay is based almost entirely on commission. The salespeople therefore have no motivation to assist customers who may not look like serious purchasers and little motivation to return telephone calls, since most of their pay is linked to direct sales. Finance Office: Bonuses for getting customers to use the company’s finance plan encourage those working in this department to coerce them into deciding on this method of financing. No wonder the finance people seem “pushy”! Detailing: Pay is based entirely on the number of cars detailed per day. There is no measure of quality, nor is there a quality requirement linked to pay. This pay system certainly does not encourage those working in this department to properly clean the new vehicles or ensure that everything is functioning properly. Mechanics: Pay is based almost entirely on the number of cars serviced and servicing them faster than the standard estimated repair time. There is no measurement of quality or accuracy of repairs, nor is there any motivation to provide feedback to customers. Receptionists/phone service personnel: Paying a straight hourly rate (minimum wage, in fact) does not encourage teamwork or cooperation. The pay system thus provides little motivation for these employees to serve as an effective liaison between the customers and other employees, or to ensure that customer telephone calls are returned promptly. Are rewards provided by your department that impede the work of other departments? In every case, there is no link between incentives and quality of work. This results in poor quality, which affects the other departments. The failure to include any incentive component in the compensation of the receptionists/phone service personnel may also be contributing to lack of effective communication and the failure of mechanics and salespeople to return customer sales calls. What recommendations would you make to improve the compensation system in a way that would likely improve customer satisfaction? The dealership already has a customer satisfaction survey in place. They now need to link the feedback received from the surveys to the design of their compensation system. In other words, customer satisfaction measures should be directly linked to employee incentives. For example: Sales Force: The amount of salary provided might be increased to encourage salespeople to take the time to assist customers – whether they appear to be serious about purchasing a vehicle or not – and to return customer telephone calls. A recognition and/or reward system linked directly to customer satisfaction might also be appropriate. Finance Office: Bonuses should be linked to customer satisfaction, rather than using the company’s finance plan. Alternatively, the bonuses for getting customers to use the company’s finance plan should be equal to the bonuses awarded for customer satisfaction. Detailing: Pay should be based on both quality and quantity. A system of docking pay for problems that result from their lack of attention to detail, or a reward system linked to customer satisfaction could also be considered for this employee group. Mechanics: When establishing the standards and pay, quality and quantify should both be taken into account. Rework could be linked to a dock in pay and/or customer satisfaction linked to a significant bonus. The latter would encourage quality work and a focus on customer satisfaction, including promptly providing feedback to customers. Receptionists/phone service personnel: To encourage these employees to focus on building an effective overall team, a split-award merit pay plan might be considered. There should definitely be some type of merit increase or bonus involved in the compensation of these employees, directly linked to customer satisfaction ratings. Care would have to be taken to ensure that the criteria used to assess individual performance are within the control of these employees. Solution Manual for Human Resources Management in Canada Human Resources Management in Canada Gary Dessler, Nina D. Cole 9780132270878, 9780134005447
