ABC Inc.: Compensation System Change to Save Endangered Animals Introduction As Melanie Griffith gazed through the window of her office, she could see some employees walking to the parking lot to get to their cars; others were on their way to public transportation. The work day had just ended, but she was staying back in the office planning for the firms strategic retreat. As the Director of Human Resources of ABC Inc., reporting directly to the Chief Executive Officer, she was tasked with analyzing and recommending changes to the firms compensation strategy, among other things. The current pay for the employees was at the top of her mind. Was it fair and equitable? Was it competitive with other firms like ABC Inc.? What changes should be made, if any? How would these changes be implemented? How would these changes affect the employees and the firm? What would be the impact on compensation costs? She has reached out to you for advice. She has heard some good things about your human resource and compensation education, experience, and consulting services from her peers. Company Background and Strategy ABC Inc. is a private sector, non-unionized firm located in Ottawa, Ontario. It started its operations in 2005. The firm produces animal plushies (stuffed toys) for children. ABC has carved out a niche for itself as a Canadian producer of high-quality toys that are very life-like and offer high educational value since the toys are packaged with a descriptor of the animal in its native habitat along with information about its endangered status. A key marketing differentiator is the proportion of sales that go to non-profit organizations trying to save these animals from disappearing forever. ABC believes its toys are part of the mission to help endangered species survive, and the toys build a relationship between ABC, the purchaser, and the child who plays with it, all focused on ABCs mission. ABCs first large client was the Metro Zoo in Toronto, Ontario and it is still an important account. ABC partners with wildlife organizations such as Ducks Unlimited and the World Wildlife Fund (Canada) in their fundraising campaigns where their stuffed animals are offered as incentives at various contribution levels. ABC also has educational units and packages developed for schools, and works with schools on fundraising campaigns also. Retail sales are primarily through high end toy stores with one chain (MasterMind) leading in sales at retail. An increasingly important marketing channel for ABCs growth is direct to consumer sales through its website. Currently, there is no culture of innovative thinking regarding the manufacturing and marketing of the toys. Employees are expected to conform to their job descriptions. Work is carefully planned and defined by management. The jobs are arranged hierarchically, with top management passing down instructions to middle and lower management. Employees do what they are asked to do. Supervisors ensure the tasks are completed on time and at the specified quality. The firm competes with general manufacturers for talent on the production lines and with all sectors for non-sector specific jobs, such as those in human resources and marketing. The CEO believes that the organizations success so far can be attributed to his clear vision and management control processes. But the difficulty in reducing costs in production, and the need to develop new ways to market and sell direct to customers has left him wondering if a new approach is required. Melanie thinks there could be changes in the management strategy and compensation systems of the organization. It is something you must analyze. The CEO is open to any management approach that would work for ABC Inc. Compensation Systems As ABC Inc. grew, pay was largely determined at the time of hiring through individual negotiation skills and prevailing market rates. There are currently no pay grades or ranges. This has resulted in a somewhat chaotic pay system that is becoming difficult to manage and which may be inequitable as well. Take, for example, Salima Yusuf and Ben Stockman. Salima has been working with ABC Inc. for ten years. She was hired as a Customer Service Representative (CSR). At her interview, among other things, she was asked about her education, previous experience, and pay at her last job. She had a diploma in marketing from a college, three years experience working at a store/retailer, and was paid minimum wage. She was offered $12/hour to start (at that time, the minimum wage was $10.25/hr) with a potential for pay increases each year based on her work performance. The job at ABC Inc. was closer to her home, and she preferred it over her job at the retailer, so she did not push back and accepted the offer. Salima is now a Customer Service Supervisor, earning $20/hr after receiving approximately a 1-2 percent merit pay increase since 2010 and a promotion in 2015. As a Customer Service Supervisor, Salima oversees the work of 15 CSRs. The work is critical to the success of ABC Inc. The CSRs actively work to get new customers and to address the concerns of current customers and retain them as customers. Ben Stockmans case followed a different trajectory. He was three years ago as a Junior Information Technology Support Analyst. His job includes helping employees, including the CSRs, by troubleshooting problems with their computers, including software issues. At the time of hiring, he had a college diploma in information technology and worked a short stint over the summer of 2017 as an IT Help Desk Support Rep. At the interview, he was very forceful in negotiating his pay. The hiring manager, knowing their IT Help employee at that time was leaving for another job in Toronto, quickly agreed to Bens demand for $19/hr. Ben has seen annual increases of about 2% and is now paid $20/hr. The cases of Ben and Salima are common at ABC Inc. However, the differences in pay are not restricted to differences in gender or other demographic characteristics. For instance, Tom and Osafa, two males, do similar jobs as supervisors, were hired around the same time, and had similar qualifications and previous work experience, but they earn significantly different salaries/wages. The employee database shows rates of pay for all ABC employees. ABC does not currently provide a benefit program that is in addition to the mandatory benefits: employment insurance, workers compensation, CPP, and vacation. However, when a supervisor knows about a health situation for an employee, it is common for health expenses to be paid for by the company to help an employee out. Such payments have amounted to approximately 3% of wage compensation in the last year. There is no company pension plan. The CEO is open to change on employee benefits and would like the firm to be more equitable and systematic in its approach. He is, however, very open and willing to consider other managerial strategies and approaches related to compensation and benefits that would work best for ABC Inc. Incentive pay structure Supervisors evaluate employees performance once a year towards the end of the calendar year. ABC Inc. has a merit pay plan, which is the only pay for performance plan at ABC. It is based on performance appraisals by employees immediate supervisors. It uses a graphic rating scale, with critical standards of performance, such as dependability and initiative, being judged on a scale of 1-5. The scores on the performance appraisals are converted to four levels (exceeds expectations, meets expectations, development required, and unsatisfactory), and a merit pay grid is used to determine increases to base pay (see Table 1 below). There are no additional increases to base pay; all pay increases are based on merit. While Melanie and the CEO are satisfied with the current employee performance appraisal method, employees do not seem to be motivated by the merit pay system. Melanie is particularly concerned by the fact that the overall job satisfaction among the employees, based on a recent survey conducted last year, was found to be only average. Almost everyone ends up getting between 2-3% pay increases. Melanie is willing to explore whether more appropriate methods to evaluate employees for an organization like ABC Inc. could be introduced. In addition to redesigning the base pay structure and ensuring fair and competitive base pay, the CEO would like to transform the organizational culture into one that is more performance-driven and which will address turnover as well. Turnover Recently, the firm has experienced some turnover among employees, especially from core employee groups, such as production and marketing. To be specific, the turnover rate over the past two years among the production and marketing employees has been more than 25%, which is significantly higher than the rate in the sector. They are not sure if this is because of pay dissatisfaction, but the CEO is concerned. Of the 53 employees who work in the Production jobs of Sewing Machine Operator, Fabric Cutter, Stuffing Machine Operators, and Q/C, 15 are replacements for turnover. Melanie just ran a comparison of the employees who left to their last performance rating a found the following: Overall in this group, 33% of employees were rated at Exceeds Expectations. In the Sewing Machine Room, Meets Expectations usually means a sustained production rate of 60-70 pieces per hour (PPH). Those rated at Exceeds Expectations usually sustain a production rate of 70-100 PPH (and some employees are close to 120 PPH). Melanie found the situation with the Customer Sales Representatives was similar. Management at ABC and Bonuses ABCs mission has attracted a strong management team and there has been little turnover in this group. Annual performance for all Manager positions and above is assessed in an annual meeting where significant results from the last year are reviewed. Goals and production targets are set annually for this group by position, but there are no real consequences for meeting (or not meeting) the targets. Management wage increases have followed the merit grid above as a guide with the average increase close to 3%. In order to deliver on its mission, donations to wildlife protection non-profit organizations are targeted at 10% of gross revenue. In the past three years there has been little growth at ABC, but if ABC can successfully build its DTC sales, gross revenue could easily increase by 30% in the next year, with sustained growth after that. Melanie is wondering if an incentive program funded by this growth would be appropriate for ABC. ABC currently has an informal bonus program for management that is loosely based on two factors: contribution to revenue and cost control. Since revenue is the driver of the contribution to the non-profit organizations, it tends to get the most attention. Bonuses typically are paid from a pool of 5% of salary for the management group as a whole, but the bonuses are distributed based on the CEOs assessment of the individuals contribution. These assessments have disproportionately favoured the Sales and Marketing team (Director and National Accounts Managers) over Operations, with a token amount given to HR and Finance. The Production managers resent the bonus administration process since marketing activities usually result in increased costs to production, and less likelihood of managers in Production receiving a bonus. This resentment sometimes manifests itself in poor communication between Marketing and Production when new toys are introduced.

Question :

Strategic and Structural Recommendations From your analysis in the previous section, describe your proposed solutions with regard to strategy and structure. Be specific in what you would do. For example, is a different managerial strategy required? How would you implement it? Do some jobs need redesigning? If so, which ones and what are you going to change? If you do redesign or create new jobs, you need to develop new job descriptions. If you think teams are needed, who are on those teams and what are their responsibilities? What changes (if any) will you make to the existing incentive plans? Will you be adding any incentive plans? Your recommendations should clearly tie back to your analysis here. Your recommendations must include determining an appropriate managerial strategy; applying a Job Evaluation approach to determining base pay (and there needs to be a supporting rationale for this); and recommending the PKS plan including the group of employees to which it will apply. In this section, any recommendations to address the compensation issues will take the following form: Recommendation: [numbered 1 through N for all recommendations]: [a statement describing your recommendation] Rationale: [a sentence that links your recommendation to previous analysis and why you think it will work to solve the issue] Detail: [more about what your recommendation actually is. In some cases, this will be a reference to a later section of the paper such as your PKS or JE plan, but if you are proposing a new incentive plan it will be briefly outlined here]. What problem or issue is your recommendation going to resolve? How will it make things better?