Two HR Case Studies - Setting Wages & Incentives.
Case Study 1:
Pay Decisions at Performance Sports:
Katie Perkins’ career objective while attending Rockford State College was to obtain a degree in small business management and upon graduation to start her own business. Her ultimate desire was to combine her love of sports and a strong interest in marketing to start a mail-order golf equipment business aimed specifically at beginning golfers. In February 1996, after extensive development of a strategic business plan and a loan in the amount of $75,000 from the Small Business Administration, Performance Sports was begun. Based on a marketing plan that stressed fast delivery, error-free customer service, and large discount pricing, Performance Sports grew rapidly. At present the company employs sixteen people: eight customer service representatives earning between $9.75 and $11.25 per hour; four shipping and receiving associates paid between $7.50 and $8.50 per hour; two clerical employees each earning $7.75 per hour; an assistant manager earning $13.10 per hour, and a general manager with a wage of $14.25 per hour.
Both the manager and the assistant manager are former customer service representatives. Perkins intends to create a new managerial position, purchasing agent, to handle the complex duties of purchasing golf equipment from the company’s numerous equipment manufacturers. Also, the mail-order catalog will be expanded to handle a complete line of tennis equipment. Since the position of purchasing agent is new, Perkins isn’t sure how much to pay this person. She wants to employ an individual with between five and eight years of experience in sports equipment purchasing. While attending an equipment manufacturers’ convention in Las Vegas, Nevada, Perkins learns that a competitor, East Valley Sports, pays its customer service representatives on a pay-for-performance basis. Intrigued by this compensation philosophy, Perkins asks her assistant manager, George Balkin, to research the pros and cons of this payment strategy. This request has become a priority since only last week two customer service representatives expressed dissatisfaction with their hourly wage. Both complained that they felt underpaid relative to the large amount of sales revenue each generates for the company.
Tasks:
Question 1. Identify at least 2 factors that Perkins and Balkin should consider when setting the wage for the purchasing agent position?
Question 2. Identify at least 2 resources that are available for Perkins and Balkin to consult when establishing the purchasing agent’s wage?
Question 3. Suggest at least 2 advantages of a pay-for-performance policy for Performance Sports.
Question 4. Suggest at least 2 disadvantages of a pay-forperformance policy for Performance Sports.
Question 5. Suggest a new payment plan for the customer service representative.
Case Study 2:
Team-Based Incentive Rewards:
Network Cable, Inc., operates throughout the central and southern portions of Florida’s east coast. With approximately 43,500 subscribers, the company is a service provider for cable TV and high-speed Internet connections. Network Cable operates in an area described as a “highgrowth market.”
In January 2001, Tara Gilbert, vice president of human resources for Network Cable, convinced company president and CEO Jeff Lesitner that restructuring the organization workforce into teams would benefit both Network Cable and its employees. Cost savings, improved morale, and team synergy were cited as inherent benefits of teams. Based on these assessments, in June 2001, a select group of three senior managers, plus Tara Gilbewrt and the company’s financial officer, implemented teams within the company’s
installation department. Here, forty installers were formed into eight teams of five installers each. Management set performance goals for the installation teams linked to attractive incentive rewards (cash bonuses above base salaries) when performance goals are reached. Performance measures included indexes for improved installation time, customer satisfaction scores, additional sales, equipment maintenance, and repair/callback problems. Each team could earn incentive bonuses up to a maximum of $15,000 annually with cash bonuses shared equally by each team member – a possible cash reward of $3,000 for each installer. Team bonuses after the first years were as follows: two teams, $15,000; one team, $12,500; one team $7,300; one team, $3,150.
During August 2002, Tara Gilbert sent to all installers and their supervisors a survey requesting feedback on the satisfaction with teams and, specifically, the incentive rewards program. While survey results were generally positive, not all was rosy. Problems could be grouped into the following categories:
1. Some installers believed that various team members did not “buy into” the team concept and were simply “free riders” – average employees who benefited from the efforts of superior employees.
2. There was a general feeling that several teams were routinely assigned difficult installations that prevented them from achieving high performance goals.
3. Teams did not always display the motivation and synergy expected, since “bickering” was prevalent between average performers and super performers. Average performers complained that high performers made them look bad.
4. A high percentage of survey respondents (29 percent) felt the incentive rewards program was unfair and asked for a return to fixed across-the-board salary increases.
Task:
Question 1. Do results from the survey illustrate typical complains about teams? Explain.
Question 2. Do results from the survey illustrate complaints specifically about team incentive rewards? Explain.
Question 3. If appropriate, what changes would you recommend to improve the incentive reward program? Be specific.
Question 4. Would management have benefited from employee involvement in the initial design and implementation of the program? Explain.