Case Study - Kapote Outerwear

Kapote has you protected for a lifetime!

Kapote Outerwear is an independent Canadian business that has been operating since 1970, and offers lifetime guarantees on all their products. The owners of Kapote are proud that as a small- to medium-sized operation that they are manufacturers of coats (long-, mid-, and short-length with down or synthetic interiors) and accessories (hats, scarves, mittens, and bags) for both men and women that have been created by their Craft Workers who have sought inspiration from the arduous Canadian climate to create outerwear that protects against the unpredictable and harsh weather conditions of western Canada. Production takes place in a small workshop factory in the small hamlet of Lac La Biche, in northern Alberta, the company has annual sales of about $11 million, mostly in the Western provinces.

The owners are twin siblings Beverly Papineau and Theoren Papineau and both Bev and Theo as they are commonly known, are firm believers in making a high-quality product that will endure many years of use and deliver flawless quality and durability. Therefore, they only use superior materials, from thread to insulation, and their rigorous quality control is applied to every single garment. Of course, this has led to high production costs and high prices. Although they are equal owners of Kapote, Theo leaves the running of the business to Bev as he concentrates only on the making of the products as he simply enjoys crafting away in the workshop factory. On the other hand, the other Papineau twin, Bev believes in a high level of customer service and is willing to make the products to customers specifications whenever there is a special request. However, this often frustrates Theo and the other production staff because the equipment must be reset for relatively short production runs of customized products that takes considerable extra time and, of course, also drives up Kapotes production costs.

Kapotes workshop factory employs about 75 people, most of whom work in production as Craft Workers. There are a few supervisors known as Head Artisans to oversee production, but their responsibilities are not clearly spelled out, so the Head Artisans often contradict one another. Although Theo has been asked several times by Bev to be a Head Artisan, he is quite happy with simply being a Craft Worker. Also, there is no system for scheduling production; in fact, there are few systems of any kind. Whenever there is a problem, everyone knows that they must go to Bev if they expect a definite answer.

Kapote has partnerships with several retailers throughout the Western region; most of these partnerships were established by Bev herself. The organization has one bookkeeper to keep records and issue the pay cheques, and several office employees to handle routine administrative chores. Kapote has no staff dedicated to the following business functions: accounting, marketing, human resources, or production. Bev solely handles these areas, although she has no real training and little interest in any of them except for of course production. Her focus is often on ensuring product quality and on dealing with the countless problems that everyone brings to her every day. Bev can be often heard exclaiming to anyone that will listen, in her usual good-natured way, Am I the only the one who can make decisions around this place? as she deals with each of these problems.

When the twins were growing up, their familys foray into quality outerwear began with their father Rene Papineau looking to develop technology that could brave Canada's harsh climate and Rene quickly became a local legend in their hamlet. As a young man starting out, the senior Papineau meticulously crafted coats that quickly gained in popularity to become the gear of choice for Canada's long winters. With a solid reputation, Renes one-man workshop grew and eventually his twins took over his growing business. As children Bev and Theo watched their father Rene toil for hours in his workshop to scrape out a living for his family. Long ago both siblings decided they wanted to be the type of employer that shows their employees consideration and compassion for their hard work. Although Bev feels that the organization cannot afford any formal employee benefits, she would often keep sick workers on payroll for a considerable amount of time, especially if she knew that the worker has a family to support. As a leader Bev is well liked by most employees, who have shown little interest in unionization during the few approaches made by union organizers.

At Kapote there is no formal system for pay and pay decisions tend to be made on the spur of the moment, therefore almost everybody has a different pay rate. Bev has never gotten around to giving annual raises, so any employee who wants a raise knows to approach Bev because she gives raises to most people who approach her, but the amount depends on her mood at the time and on how well she knows the employee. For example, if Kapote has just lost a major customer, raises are lower, and if the organization has just booked a large order, they are higher. They are also higher if she knows the employee has a family to support, or if the employees spouse has been laid off, or if the employee has added a new member to the family.

Bev believes that a good employer should recognize the contributions made by employees during the year. As a result, at the end of each year - if profits allow - she gives merit bonuses to employees, which she says are based on their contributions to Kapote. As she does every year, in late November she picks a day to sit down with her employee list, in alphabetical order, and pencil in an amount next to each name.

Everybody gets something, but the amounts vary greatly. If she can associate a face with the name (which is difficult sometimes because of high employee turnover), she tends to give larger bonuses. And if she can remember something such as a cheerful attitude, the bonuses are higher still. But if she remembers anyone complaining about that employee (she usually cannot recall the exact reasons), the employee gets a smaller bonus. Not surprisingly, longer-term employees tend to receive much higher bonuses than new employees. She has noticed this tendency but assumes that if an employee has been with the firm longer, that person must be more productive, so this is fair. She personally distributes the bonus cheques on the last working day before Christmas.

Because she just turned 63, Bev is planning to retire in the next year or two while Theo will stay on working at Kapote in production still as a Craft Worker. Bev and Theo are turning the business over to his son, Luc Papineau, who is just finishing his MBA at Lethbridge University. Ironically, just a few days before Lucs graduation, the bookkeeper informed Bev that there was not enough money in the company bank account to meet payroll!

Part 4: Design the Performance Pay & Indirect Pay Plan and Plan Implementation

Part 4 of the group project is based on Compensation Roadmap Step 4 (chapters 11 and 12) and part of Step 5 (chapter 13).

Recommended Indirect Pay Plan (20 marks) -

1. What plans are available for Kapote that you think would be most effective and balance their constraints with required employee behaviours. Justify why you selected these indirect pay items and defend why they are the best choice for Kapote. How will they help support the required managerial strategy and the desired employee behaviours?

2. Identify and describe any implementation issues you think may arise and how they can be effectively dealt with

3. Remember there will be some required ones based on government legislation, no need to expand on these in this section; come up with some creative ones you think will work well for Kapote