THE CASE OF UNPOPULAR PAY PLAN

Submitted By: -A Sindhuja 12PGP001 -Aditi Bajpai 12PGP005 -Apurva Bajaj 12PGP010 -Kumar Saurabh 12PGP022 -Sourav Mondal 12PGP042 -Pulak Jain 12PGP113

3/18/2013

Indian Institute of Management Raipur

CASE SUMMARY:CHARACTERS
TopChem: 93 years old, $2 billion company Gilbert Porterfield: VP for Compensation Sam Verde: CEO of TopChem Sid Noble: Head of R & D Ruth Gibson: Chemical Mixer on packaging team Gus Tellar: Corporate Head of Training
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CASE FACTS
AIM: To develop a pay system congruent with the philosophy of QFA REASONS: Under QFA employees are reorganized as product oriented teams so as to encourage employees and to develop cheaper, faster and better products PLAN: To divide the pay into two parts :
Fixed : Based on Internal Equity Variable: Based on performance of the group
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QFA PAY PLAN

BASE PAY : 75% of the former pay determined by internal equity FLEXIBLE PAY: 25% of former pay determined by
Teams ability to show 5% improvements in 4 areas:
Quality Unit Cost Market Speed To Market Safety and Environmental Compliance

Divisional Financial Performance

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ISSUES
Pay is on group performance, individual may perform better but the group may not Plant performance will affect the pay of R&D people Lack of Time to implement it in short time Customer Rating is not considered Quality for all which is the main strategy of the company is not properly reflected in the pay plan

Pay plan should not be the only tool for motivation

The numbers like 75% and 25 % are vague and doesnt have any logical reasoning
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ALL THESE ISSUES BOIL DOWN TO

Problem with the proposed system
So changes need to be suggested in the plan

Motivation is being linked to the pay

So apart from the pay plan, overall system changes must be suggested to increase motivation of employees

3/18/2013

Indian Institute of Management Raipur

Solution 1: Continue with the present pay plan but include perks (insurance, gifts or holiday plans) and other incentives based on the performance. Also the company can include Employee Stock Options.

PROS
Increase competitiveness and motivate employees to work harder. Help to retain top performing employees. Labor cost will be aligned with productivity. Employee Stock option will motivate employees to work for achieving the organizational goals. Will create a culture of improvement. The level of seniority will have less bearing on compensation.

CONS
There will be risk of favoritism. Performance measurement will be subjective so discrepancies may happen. Will reward the top performers rather than improving all employees. Implementing performance based pay will incur huge cost. Does not include quality for all.

Solution 2: Instead of only plant performance based pay, plan is based on customer feedback and plant performance both.
PROS is most important Customer stakeholder and so, more in line with Quality For All program. In the current proposed plant, employees are being encouraged to please their supervisors at the expense of customers. This problem is going to get rectified. Encourages continuous learning and participation in improvement will be directly rewarded. CONS In the current form, including another numerical goal of customer voice is going to further complicate matters, thereby killing real quality improvement

Solution 3 : Instead Of having a uniform pay plan throughout the company, the pay plan should be division specific after consulting a committee consisting of members from all departments at organisation level. Employee Stock Options should be given as incentive.

PROS
Each department will get to showcase its own importance Unequal comparisons would be eliminated Committee would involve HR heads, department heads and company heads Committee would take care of discrepancies in future as well. Inculcating the culture of quality for all in the pay scale. Employee Stock option will motivate employees to work for achieving the organizational goals.

CONS
Departmental silos would be created Pay, criticality and performance measurement would be subjective so discrepancies may happen. Will give undue advantage during appraisal to certain departments Inter department rivalry would be fostered instead of company specific goals

Solution 4: Have a uniform pay plan with fixed pay along with half yearly bonuses based on performance. PROS
Employees are happy with current plan and will continue to do so Every employee will work hard to achieve maximum bonus Only bonuses will be related to performance hence no conflict over equity theory. Easier to implement.

CONS
Will add extra cost for the company Not a major motivating factor Calculation of performance is still subjective Do not represent quality for all yet.

3/18/2013

Indian Institute of Management Raipur

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TO INCREASE MOTIVATION OF EMPLOYEE

Ask ideas from all the employees and people whose ideas are accepted should be rewarded in the form of certificates and

incentives.
Implement Suggestion Box for continuous improvement Take good care of employees health and safety

Team outings and celebrations

Team of the month award along with some perks

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Indian Institute of Management Raipur

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CONCLUSION
Best Solution would be : Instead Of having a uniform pay plan throughout the company, the pay plan should be division specific after consulting a committee consisting of members from all departments at organisation level. Employee Stock Options should be given as incentive.

Apart from this the company should work on motivational policies as suggested to increase the employee productivity

3/18/2013

Indian Institute of Management Raipur

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Indian Institute of Management Raipur

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