Henderson Printing is a small- to medium-sized manufacturer of account books, ledgers, and various types of record books used in business. Located in Halifax, the company has annual sales of about $12 million, mostly in the Atlantic provinces.

The owner, George Henderson, is a firm believer in making a high-quality product that will stand up to many years of use. He uses only high-grade paper, cover stock, and binding materials. Of course, this has led to high production costs and high prices. He also believes in a high level of customer service and is willing to make the products to customers' specifications whenever they so request. However, resetting the equipment for relatively short production runs of customized products takes considerable extra time and, of course, also drives up costs.

The firm employs about 80 people, most of whom work in production. The firm has a few supervisors to oversee production, but their responsibilities are not clearly spelled out, so the supervisors often contradict one another. There is no system for scheduling production; in fact, there are few systems of any kind. Whenever there is a problem, everyone knows that you have to go to George if you expect a definite answer.

The company also has several salespeople who travel throughout the Atlantic region; most of them are relatives of George or his wife. The company has one bookkeeper to keep records and issue the paycheques, and several office employees to handle routine administrative chores. The firm has no specialists in accounting, marketing, human resources, or production; George handles these areas himself, although he has no real training and little interest in any of them except production. He focuses most of his attention on ensuring product quality and on dealing with the countless problems that everyone brings to him every day. He has often been heard to exclaim, in his usual good-natured way, 'Why am I the only one who can make decisions around this place?" as he deals with each of these problems.

When George was growing up, both his parents (his father was a printer and his mother was a seamstress in a garment factory) had to work hard in order to scratch out a living for their family. In those days, employers who showed little consideration for their employees were the norm, and George resolved that things would be different if he ever became an employer. Today, George tries hard to be a benevolent employer. Although he feels the organization cannot afford any formal employee benefits, he often keeps sick workers on payroll for a considerable time, especially if he knows the worker has a family to support. George is well liked by most employees, who have shown little interest in unionization during the few approaches made by union organizers.

George has no formal system for pay and tends to make all pay decisions on the spur of the moment, so almost everybody has a different pay rate. He has never gotten around to giving annual raises, so any employee who wants a raise has to approach him. He gives raises to most people who approach him, but the amount depends on his mood at the time and on how well he knows the employee. For example, if the firm has just lost a major customer, raises are lower, and if the firm has just booked a large order, they are higher. They are also higher if he knows the employee has a family to support, or if the employee's spouse has been laid off, or if the employee has added a new member to the family.

George believes that a good employer should recognize the contributions made by employees during the year. So every Christmas, if profits allow, he gives merit bonuses to employees, which he says are based on their contributions to the firm. One day in early December, he sits down with his employee list, in alphabetical order, and pencils in an amount next to each name.

Everybody gets something, but the amounts vary greatly. If he can associate a face with the name (which is difficult sometimes, because new employees seem to turn over a lot), he tends to give larger bonuses. And if he can remember something such as a cheerful attitude, the bonuses are higher still. But if he remembers anyone complaining about that employee for some reason or another (he usually can't recall the exact reasons), the employee gets a smaller bonus. Not surprisingly, longer-term employees tend to receive much higher bonuses than new employees. He has noticed this tendency, but assumes that if an employee has been with the firm longer, that person must be more productive, so this is fair. He personally distributes the bonus cheques on the last working day before Christmas.

Since he has just turned 60, George is planning to retire in the next year or two and turn the business over to his daughter, Georgette Henderson, who is just finishing her commerce degree at Dalhousie University. Ironically, it was on the day of his 60th birthday that his bookkeeper informed him that there wasn't enough money in the bank account to meet payroll.

1.What is your assessment of the compensation system in place?

2.Do you think it meets the criteria for an effective compensation system as set out in Compensation Notebook 1.1?

3.Which criteria does it meet, and which does it violate?

4.Which managerial strategy would be most effective for this firm?

5.What reward and compensation strategy would fit this managerial strategy?

6.What problems would you encounter in using this managerial strategy?

7.Why do you think there is a high turnover of new employees?

8.What concepts may help to explain the employee reactions to the compensation system?

9.Do you think the compensation system is fair? Is it effective?

10.What principles for effective reward systems does it violate? What changes should be made?