Riordan Problem Solution

The purpose of this paper is to evaluate Riordan Manufacturing’s current situation and identify the changes that the company will need to implement in order to align its compensation and rewards systems to the new corporate sales strategy.

As Riordan focuses on the transformation, some changes are clearly needed in order to get the company ready to face the challenges and opportunities presented by this new approach. These changes will be key factors in ensuring the company’s future growth and success.

Situation Analysis

Issue and Opportunity Identification

Riordan Manufacturing is a global producer of plastics with production divided among three plants: Albany, Georgia (plastic beverages containers), Pontiac, Michigan (custom plastic parts) and Hangzhou, China (plastic fan parts). The company employs a total of 550 people and has projected annual earnings of $46 million. Major customers include automotive parts manufacturers, aircraft manufacturers, the Department of Defense beverages makers and bottlers and appliance manufacturers.

As a result of declining sales and uneven profits for the past two years, the company has changed its sales processes and has adopted a customer-relationship management system. Under this new approach customers are serviced primarily by sales teams instead of a single sales representative, with each team focusing on a particular customer segment. A typical team includes a sales person, a product engineering specialist and a customer service representative. The company hopes that this approach will improve sales and increase profitability.

However, in order for the company to achieve this goal, management is going to have to deal with some serious issues related to the company’s compensation and reward system that can negatively affect this plan. The company’s current reward system “is barely based on performance, instead recognizing cost-of-living increases, seniority and position. Faced with declining morale and work ethic, Riordan’s managers have been pressuring the CEO to do something about the reward system” (Riordan Manufacturing Scenario).

At Riordan, performance reviews are not conducted regularly and promotions tend to be based on politics rather than performance. Recent performance data shows 25% of employees as “high achievers”, there is a large group of mid-tier performers and a small group of people not performing well. The current reward system is not aligned with the new company strategy. R&D wants to set up incentives to reward its employees for their support and contributions to the sales department’s efforts while Sales want to revamp the sales incentive system to compensate employees based on team’s performance.

The company currently has an employee recognition program (Outstanding Employee award, Employee suggestion program, Seniority awards) however; most employees feel that there is not enough recognition of good performance. Currently there is no clear understanding of how pay works with newcomers often being paid more than internal promotions. In addition pay is below market in some areas. The head of IT is concerned that programmers are underpaid while R&D management worries that researchers are not compensated adequately. Both fear that they will lose key employees if no changes are implemented.

Most employees believe that the overall benefits package is good and the vacation package is fair. However, there are few opportunities for training and advancement, training is sporadic and there is currently no succession planning in place.

Stakeholder Perspectives/Ethical Dilemmas

Michael Riordan is the company’s 60-year-old founder and CEO and primary shareholder with 80% of the company stock. He is seen as a sharp individual with a clear understanding of the issues faced by the organization. However, he believes that the company takes good care of the employees and that more loyalty is needed to solve the problems. As he nears his retirement age, he is increasingly concerned about the value of his investment.

Hugh McCauley is the company’s COO and has been with the organization for six years. He is an engineer with a long career in the auto industry and believes that the motivation issues are more the results of poorly designed processes and that focus should not be on compensation. He is very opinionated and firmly believes that the company should improve job design.

Dale Edgel, Riordan’s CFO, has been with the company for five years. He has held various tax and general management positions in manufacturing and pharmaceutical organizations and currently also oversees all HR functions as Riordan. He believes that the current compensation systems are adequate.

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