Please download the following documents containing the two case studies and the Phase 1 & 2 requirements. You need to write a report, for the case study and in that report you need to accomplish the requirements mentioned in the Phase 1 & 2 document

Compensation Strategy Template.051521.xlsx

ABC Employee Datasheet.031522.xlsx

Shipper Receiver.pdf

Sewing Room Supervisor.pdf

Sewing Machine Operator.pdf

Quality Control.Packers Job Description.pdf

Payroll Manager.pdf

Operations Manager.pdf

National Account Manager.pdf

Machine Maintenance Technician.pdf

Job Description Template.pdf

Info Technology Support Analyst.pdf

Financial Assistant.pdf

Director of Sales and Marketing.pdf

Director of Operations.pdf

Director of HR.pdf

Customer Service Supervisor.pdf

Administrative Assistant.pdf

Job Evaluation Plan.docx

Introduction to -

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.

ABCs design team is able to respond quickly to requests to design and deliver a new toy in support of a fund-raising campaign, which has resulted in a loyal and dependable customer network for that part of ABCs business.

Current Challenges

High Production Costs

Production costs for ABC are about double the industry average, owing in part to shorter production runs and higher labour costs than competitors, who are largely located in Asia. While ABCs high end product can justify a higher price point, the quality of competitors products has been continuously rising. Pricing of ABCs products will hold back its direct to consumer sales. There is pressure to reduce production costs, and the Operations Manager, Jim Jenkins, has had a target of a 10% reduction for the current fiscal year. To date, actual costs are actually running 1.5% ahead of last year.

Production Bottlenecks

Bottlenecks during production can lead to delays getting a product out the door to the customer and directly lead to higher costs (excess labour costs including overtime). At ABC, bottlenecks develop primarily through machine breakdowns and staff scheduling issues. There are only two employees qualified to do preventive maintenance, and in the rush to get a new toy produced, required preventive maintenance on machines is often delayed. Some toys require more sewing than others--unexpected illness or vacation relief plus the finite number of sewing machine operators available can lead to bottlenecks also. Delays due to production bottlenecks are estimated to add 4% overall to production costs.

Direct to Consumer Sales Lagging

ABCs continued growth depends upon developing its Direct to Consumer (DTC) sales, but competition for market share is very intense in this sector. In addition to the production cost issue above, ABCs DTC sales have been flat for the last three years. DTC sales need to be reconceptualized. The key is probably to develop more of a social media presence--at the moment ABC has only a FaceBook page linked to its direct to consumer campaigns. DTC sales have the highest margins and it is essential to develop the DTC business. The DTC business will likely require expanding the numbers/types of animal toys produced. Increasing the number/types of animals produced adds costs to Operations though, and there is resistance from Operations to adding to the toy lineup due to the time it takes to change over from one toy to the next.

Evolution of the Toy Market

While the ABCs mission-driven toys have had a good response in the market, the evolution of toys and expected interactivity with a web platform is something that ABC has not addressed to date. Generating ideas on how to address this issue remains a key concern.

Organizational Structure

ABC Inc. has grown to 120 employees today and is very profitable, with net earnings of $15 million last year.

Reporting to the President and CEO are the following Directors: Finance, Marketing and Sales, Operations, and Human Resources as well as an Executive Assistant.

Reporting to the Director, Finance are the following:

Manager of A/R

Manager of A/P

Manager of Payroll

Two financial assistants that work between payables, receivables, and payroll.

1 Administrative Assistant

Reporting to the Director, Marketing and Sales are the following:

Customer Service Supervisor (Salima Yusuf)

15 CSRs

7 National Accounts Managers [two for Not For Profit Promotions; two for Education Promotions; two Retail Sales; and one DTC sales]

3 Promotion Specialists

2 Administrative Assistants

Reporting to the Director, Human Resources are the following:

Safety Officer

Human Resources Coordinator

Administrative Assistant

Reporting to the Director, Operations are the following:

Manager of Production Design and Setup with direct reports:

CAD/CAM operators

Embroidery Supervisor

2 Embroidery Machine Operators

2 Machine Maintenance Technicians

Materials Acquisition Specialist

Reporting to the Manager of Operations are the following:

Scheduling Assistant

2 Sewing Room Supervisors

20 Sewing Machine Operators

8 Fabric Cutters

2 Stuffing/Finishing Room Supervisors

12 Stuffing Machine Operators

12 Finishers

4 Q/C technicians)/Packing

Reporting to the Manager of IT are the following:

4 Information Technology Support Analysts

1 Jr Information Technology Support Analyst

Warehouse Supervisor

2 Shipper/Receivers

Table 1: Summary of ABC Finances for the prior year

Total Revenue	30,202,662
Sales non-profit partners		12,467,900
Sales Retail including major Accounts (Zoo, Mastermind)		9,010,680
Sales, Education		4,820,600
Sales Direct to consumers		3,903,482

Total Expenses	30,202,662
Wages and Benefits		5,960,317
Materials		4,230,890
Building rents and maintenance		440,000
Incentives and Promotions		150,725
Capital Acquisitions and Depreciation		560,730
Donations to Nonprofit Partners		3,000,000
Provision for Retained Earnings and Taxes		15,860,000

Outline of the ABC Production Process

When Marketing has a customer for a new toy design, the specifics are turned over to Operations.

First, the Manager of Production Design and her team will determine exactly how to build the toy including sourcing fabric/thread to be used and designing the dies to cut the fabric and the programming for the embroidery machines. Once a design is approved for production:

Fabric is cut using the manufactured dies

Cut fabric is sewn by the Sewing Machine Operators (SMOs)

Sewn fabric pieces go to Embroidery, then back to the SMOs for assembly

Assembled shells then go to Stuffing and Finishing

The finished toys are checked by Q/C and x-rayed for any metal, and packaged with the information about the animal.

Packaged animals go to the warehouse ready for shipment to customers.

Each toy manufactured by ABC has a schedule associated with it that includes design, dies, fabric specifications and embroidery program.

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.

Table 2: ABCs Merit Pay Grid

	Exceeds Expectations	Meets Expectations	Development Required	Unsatisfactory
Fourth (Top) Quartile	3%	2%	1%	0%
Third Quartile	4%	3%	2%	0%
Second Quartile	5%	4%	3%	0%
First (Bottom) Quartile	5%	4%	3%	0%

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:

Table 3: Distribution of Production Turnover by Performance Rating

	Exceeds Expectations	Meets Expectations	Development Required	Unsatisfactory
Last Performance Rating	30	19	0	4

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.

Mandate

You and your consulting team have been contracted by Melanie to provide recommendations based on your sound analysis of ABCs compensation systems and existing managerial strategy. Follow your instructors directions on how to proceed.

Compensation Simulation Instructions

General guidance on report requirements and quality

The reports you are writing in the simulation are formal business reports. Use an appropriate tone (e.g., third person, objective case¹ (Links to an external site.)) and style (headings and subheadings charts and tables where appropriate) and include the following:

title pageinclude the Phase number (I, II, or III), Group identification, and the names of group members contributing to the report.

executive summaryfor all three phases, summarize the content of your report by writing one or two sentences that highlight the conclusions from each section of your report limit of 200 words (really). As this is the only part of your report someone may read, it is important to include the key points and be concise.

table of contents pagepage numbers for all major sections (if you create your report as an e-document and link your headings, make sure there is a link back to the table of contents).

introductiona short paragraph that indicates the structure of the report (what it contains without stating conclusions).

main report contentpay close attention to the instructions here and to the assessment rubric for each Phase.

conclusionfocus here on the implications to the client of the recommendations in your report for the future.

referencesit is unlikely that you will require any additional references beyond the text for conceptual material but you will need to do some research on salaries when pricing your wage structures. You may also want to do some external research as you analyze the business strategy of your organization. Make sure you use APA style for your references (both the in-text citations and the bibliography).

appendiceswherever possible please put content related to your discussion (charts, graphs, tables) in the main body of your report BUT you may have content (such as new job descriptions) that may need to go into an appendix.

when you present numbers in your report, round to the nearest dollar value % values should be rounded to 2 decimal places.

¹ (Links to an external site.) This means (among other things) avoiding I or we statements

Phase I Formulating the Compensation Strategy

Your client firm has some underlying organizational issues that are causing problems. You need to identify these problems, analyze why they are occurring, and make structural recommendations that will address them. Note that your recommendations must be focused on the compensation framework and must include (among the rest of your recommendations) a pay for knowledge (PKS) plan for one group of employees, and the application of a job evaluation plan for the rest. Note that the requirement for a PKS plan is independent of your decision about the appropriate managerial strategy for your client!¹

To be confident at resolving these issues you need to have read and understood the principles outlined in Chapter 1 through to 8. When writing your report please use the following Section headings:

Section 1 Organizational Issues

Review the simulation and identify all the underlying strategic and structural factors that are causing the problems that your client is experiencing, focusing on the total compensation concepts from the course.

At a minimum you must:

Assess the current compensation strategy vs the eight goals of a successful compensation program.

Determine (from contextual variables) the most appropriate managerial strategy that should be employed in the organization.

Determine (from structural variables) the current managerial strategy currently operating in the organization, with a discussion on how the gap (if there is one) explains some part of the issues that the organization is having. The gap is the difference between the current versus appropriate managerial strategy.

Apply expectancy theory to identify any issues with pay for performance are incentives working at cross purposes between key positions? Are some incentives paying out too well in certain positions, while others arent paying out at all?

Apply job content theory to the job family or group of jobs to help explain employee motivation issues including why the existing incentives either work or dont work. Ideally, job content theory will be applied to those positions that will be included in the PKS grid.

Document and analyze the sources and types of reward dissatisfaction present.