Company A is a large manufacturing firm based in Toronto, Canada. Company A is responsible for the manufacturing, sales, delivery and installation of home furniture to its customers existent all around the Province of Ontario, Canada. The company has about 1000 employees. The company has 6 departments: Production, Sales and Marketing, Inventory Management, Finance and Administration, Human Resources, Technical Services/Support and Quality Management.

Jessica Jones, Chief Executive Officer (CEO) of Company A, has requested your consulting services since the company is experiencing serious performance problems: employee turnover is up and morale is down; customer satisfaction is down and complaints are up; and, most importantly, financial indicators such as revenue and profits are both down.

Jessica Jones, CEO of Company A, knows that the compensation system used by the company can contribute to all these problems, and since compensation is a major cost item (currently accounting for more than half of the firms expenses) she suspects that the companys compensation system may be implicated in these problems. But she cant be sure without your help. Jessica Jones recognizes that compensation is just one of several important structural variables that must all fit together if effective organizational performance is to occur. So now, as an external consultant, you are authorized to suggest any changes to the managerial strategy and structure of the organization that are needed to make the new compensation system work. Your only limitation is that she wants no changes made to the companys six-department structure, which she believes is the best way to organize. Beyond that, you have free rein to make recommendations about reward structure, job design, and the other structural dimensions.

Company A earns revenues in 3 main ways: First, it earns through the purchase orders customers place with the company which it either has to produce or have available in its stock. Delivery services make up the companys second source/stream of revenue as it caters to all of Ontario. Third, Company A installs furniture sold to customers. These are very significant sources of company revenues and are directly dependent on the quality of furniture made and the above services such as delivery and installation.

A major problem in recent years is that production workers appear to be experiencing a decline in their attitudes toward their work and the company, as indicated by both the firms annual attitude survey and the increased turnover, and there has been a sharp increase in the number of production flaws and delays, and consequently, customer complaints about the same flaws and even structural breakdowns of produced furniture as well as the quality of the delivery and installation services.

Production workers are responsible for the production of different elements and parts of furniture. The performance of the production workers is crucial to customer satisfaction with company products. Indeed, the Director of Sales and Marketing has been complaining bitterly that poor performance of the production personnel is crippling the efforts of my sales force. The Director of Technical Services/Support and Quality Management has joined the Sales and Marketing department in criticizing the work of the Production department indicating the problems with quality of the products.

Anthony Blake, Head of the Production Department resents such criticism, believing that his department deserves praise, not criticism, for trying their best to maintain production and productivity level over the years despite the 20% reduction in staffing within the Production department in the past 3 years. Company A employs about 600 production workers. Because of an increasing variety and service-demand levels for home furniture, most production workers specialize in a particular category of manufacturing (but this specialization has no implications on additional compensation or rewards they could get).

Work hours for production workers are from 8:30 a.m. to 5:00 p.m. (8 paid working hours and a 30-minute paid lunch break) Monday to Friday, and all production workers are expected to adhere to these hours (so Company A can avoid paying overtime), except in emergency situations, which must be authorized by a production manager. Since competition has been increasing in this tough market, and since company revenues and profitability levels have been slipping, expense budgets have been tightened in recent years, and the production workers have been put under tighter control. Minimum monthly, weekly, and daily productivity levels are strictly specified for each production worker. Since there is often a delay in receiving the parts, in some cases, the production worker who starts the job is not the production worker who finishes the job.

Production workers starting salary (they are paid base pay on a biweekly basis and therefore, there are 26 pay periods in a given year) is $16.00 per hour, and progression through the pay grid is based on seniority and experience as the production department is heavily unionized. Production workers starting salary is under the market average of $17.50 per hour. Surprisingly, production workers do not get any profit-sharing or any other type of organizational performance pay that would come as a result of the companys profitability, and this continues to cause tensions with the union.

All benefits and group pension plan contributions for production workers commence once the employee has successfully completed his/her mandatory 6-month probationary period. All production workers are eligible for 3 weeks of paid vacation per year. As well, they get a maximum of $2,000 for health insurance, $1,000 for dental insurance, $150 for vision care, $500 for employee assistance per year and free gym membership costing company $20 per employee after applying a corporate discount. The company also contributes into the Group Pension plan at 4% on their biweekly earnings, as well as pays 2% for unemployment tax and 6% into the Mandatory Pension Plan.

In theory, all deliveries and installations of home furniture have to meet company standards in terms of timely and successful delivery and installation. But in practice, delivery services and installation services typically experience delays in delivering and installing furniture for customers, and this is mainly due to a relatively slow and flawed production of furniture as well as poor inventory management and control. And because 25% of the delivery and installation workers salary is based on volume of delivery and installation accordingly (this is a piece rate in the form of performance pay and the remaining 75% is base pay), delays by the production department and poor inventory management result in delivery and installation workers receiving less performance pay which infuriate them, which further contributes to reduced morale, demotivation, and turnover. Recently, customers have even reported cases of improper installations that do not meet product specifications.

Sales and Marketing department is reluctant to tell their loyal customers that they should probably make more expensive purchases of home furniture as cheaper products the company manufactures dont offer very high quality because they fear that they might lose the sale in this heavily competitive business as 60% of their pay is based on sales commission. The executive committee has tacitly supported the above practice by the Sales and Marketing department.

However, total cash compensation for the sales and marketing reps has dropped as sales (and therefore, sales commissions) have dropped, and turnover among sales and marketing reps is becoming a serious problem. The decline in profitability from the past 3 years would have been even worse were it not for the cuts in compensation costs resulting from a reduced number of production workers over the last 3 years.

Employee benefits used to be good at Company A, but they have been whittled away in recent years in an attempt to cut costs as competition continues to intensify. (Company A has a fixed benefits plan.) Currently, benefits are running at about 15% of total compensation, compared with the industry average of about 20%. Because turnover of staff has become a problem, Company A has decided to revise its indirect compensation strategy.

Your Challenge

You are a top-notch team of compensation professionals employed at a leading compensation consulting firm. Your mission is to analyze your client firm (Company A), identify the sources of the problems the firm is facing, recommend any necessary organizational changes, formulate a new reward and compensation strategy, and recommend implementing a compensation system that will maximize your clients success.

The purpose of this simulation is to provide a vehicle through which you can apply your compensation knowledge, acquired from your text and your classes, to enrich your learning about this crucial topic. You will find this project challenging. It requires a lot of hard thinking and a lot of hard work, but it will definitely be rewarding.

Questions/Deliverables:

1. Based on the above information, design a 1-page Total Rewards/Compensation statement for the Production Workers using the appended Total Compensation Statement Template, and classify all the rewards that the company currently offers to the production workers.
2. Compensation of production workers: do you recommend any changes? If yes, why?
3. How can the union play a more active role to ensure production workers are compensated, and their compensation is aligned with Company As goals?
4. How could a pay-for-knowledge system make a difference if implemented for the production employees since they specialize in different categories/segments of manufacturing?
5. What management strategy does Company A use within the Production department?
6. Using the Expectancy Theory, explain causes of possible reward dissatisfaction with the Production Workers.
7. What are the problems with the reward structure for sales and marketing employees? What other elements and criteria, if any, other than sales volume, can/should be included in determining the performance pay for sales and marketing employees?
8. What are the potential problems with indirect compensation, and what solutions can be proposed to address the compensation-related problems in this context? How can enhanced indirect compensation contribute to employee and organizational effectiveness if brought up to industry standards?
9. What potential challenges or barriers might arise during the implementation of the proposed solutions, and what role can HR play in addressing them?