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THE CASE OFUNPOPULAR PAY

PLAN

Submitted By:

-A Sindhuja 12PGP001

-Aditi Bajpai 12PGP005

-Apurva Bajaj 12PGP010

-Kumar Saurabh 12PGP022-Sourav Mondal 12PGP042

-Pulak Jain 12PGP113

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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: Todevelop a pay system congruent withthe philosophy of QFA

REASONS: Under QFA employees are

reorganized as product oriented teams so as toencourage 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 paydetermined 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 numberslike 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

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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.

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Solution 2: Instead of only plant performance based

pay, plan is based on customer feedback and plant

performance both.

PROS

Customer is most important

stakeholder and so, more in line with

Quality For All program.

In the current proposed plant,

employees are being encouraged toplease 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

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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

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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 conflictover 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.

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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 assuggested to increase the employee productivity

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