5. Which Type of Strategy?

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Which Type of Strategy?

Many organizations seek to use pay to differentiate between employees based on their performance, especially in higher-level positions where the consequences of good, average, and poor performance have an impact on an organizations overall performance. A key decision in designing pay-for-performance plans concerns incentive intensity, the strength of the relationship between performance and pay. Most companies have a program for recognizing employees contributions to the organizations success.

Read the case and answer the questions related to pay programs.

Carla Wright had been working for a cleaning company for two years that specialized in office cleaning. The company was small and had only five employees. Carla was the top performer, yet she was paid the same as the other employees, so she decided to start her own company. After checking to ensure that there werent any other companies with the same name, she started Clean it Wright as a C Corporation (C-Corp). Clean it Wright specializes in commercial cleaning of office buildings. Carla has a two-year degree in accounting but had no education or experience in owing a company or managing employees.

For the first year, Carla had 22 office cleaning contracts and hired 12 employees. During the first year, she managed all of the employees and at the end of the year, she gave each employee a $500.00 bonus. Although they were happy to receive a bonus, Carla had not mentioned this when she hired them, nor had she done any type of performance review during the year. Carla started receiving complaints that others were working less, yet they received the same bonus. One employee shared that her previous employer used a pay-for-performance system.

Carla did some research on different plans and agreed to set up a plan that would give a bonus incentive to the team that achieved the highest performance for the year. At the end of the first quarter, Carla realized that this plan was also not working well. By the end of the first year, she had hired 30 new employees.

She realized that she needed more knowledge on how pay-for-performance plans work. Carla took some business classes and hired a consultant to give suggestions on how Clean it Wright could set up a pay-for-performance plan that would work well financially for the company and also for the employees. One thing Carla insisted on was that she maintain complete control of the company. As a result, Carla started a merit bonus system.

5c. Which plan do you think will best suit Carla...

Which plan do you think will best suit Carlas needs now that she has over 30 employees?

Multiple Choice

• employee ownership through stock options

• gainsharing

• employee stock ownership plans (ESOPs)

• profit sharing