The Case of the Unpopular Pay Plans

it basically is an HR case dealing with developing a compensation sturcture. HBR case.

The Case of the Unpopular Pay Plans

Tom Ehrenfeld

(HBR Jan- Feb 1992)

Yogesh Yadav

Roll no 451

GUDMS

The command and control style of leadership is becoming redundant and the team-based approach to work is increasingly becoming popular. It is the most essential component of success as diversity of ideas and input helps a lot in making better decisions aligning teams toward a common objective and creating the same incentive system across the entire company would help direct everyone’s talent toward creating value for customers and shareholders.

Teamwork plays an important role in the success of any organization. Teamwork characterizes values that encourage listening and responding constructively to others’ views, providing support, and recognizing the interests and achievements of others. These values ensure team performance, individual performance, and organizational performance. The new pay plan rolled out has all these features incorporated in it. Yet we see, not all employees are in the favor of the same.

Then what should Sam Verde do before he rolls out a new plan for TopChem???

Before rolling out the compensation / pay system for TopChem, Sam Verde should ask himself “ What does the compensation package want to convey to the employees?” Whether we realize it or not, it is says a lot. Childcare and health benefits say that you value family. Throwing a party at the end of your business's busy season lets the employees and their families know that you appreciate it when your people go the extra mile. That message is important. It is important, therefore, that he gives a lot of consideration to the compensation structure. After all, for employees, compensation is the equivalent not to how they are paid but, ultimately, to how they are valued.

He should make some minor modification to the system as follows:

80 % of the former pay (base pay now) should be determined by internal equity so as to avoid turnover and absenteeism due to the implementation of the new plan, and of the 20% of the former pay (flexible pay as per the new plan) has to be divided in the ratio of 10:10 for the performance of the team and the overall performance of the organization.

Employees should be rewarded in other indirect methods like health insurance, kids education policy or a holiday for individual performance and suggestions that led to the annual increment. A gift should be given for exceptional performance.

Bonuses can show an employer appreciates his/her employees and ensures that good performance or special events are rewarded. Some indirect elements are up to the employer and can offer excellent ways to provide benefits to the employees and the employer as well. For example, a working mother may be given a few flexible hours of work for a few days/weeks etc (depends on the success and the importance of the suggestion that led to the