Corporate Benefits and Compensation: Ford Motor Company and Toyota of North America - Essay Example

Corporate Benefits and Compensation CORPORATE BENEFITS AND COMPENSATION Corporate Benefits and Compensation: Ford Motor Company and Toyota of North America, Differences in Compensation related to Overall Corporate Strategy Corporate Benefits and Compensation 2 The cost of employee turnover in the U.S. has been estimated at $2,300 to $13,000 per worker, depending on the company and job title. Major companies take one to three months to fill important slots. Still, about 22 percent of American workers voluntarily leave their jobs in less than one year. Turnover quickly becomes expensive for large corporation, and an immediate financial punch for smaller enterprises. This phenomenon causes employers to focus their attention and demand to small details, when hiring. The result is the marathon hiring process which is now very familiar to job seekers nationwide. The question becomes why such high turnover in major corporations. What Can be done to keep employees interested in their jobs? It certainly is not the strategy That Ford Motor Company is taking. According to Business Week Online, the auto Maker “lost 7.24 billion dollars the first three quarters this year and is cutting thousands of jobs and closing plants to cut costs over the next few year.” Therefore, it should not come as a shock that cuts are employee health care benefits and merit raises for salaried employees are next. Employees will pay an increase of 30 percent toward their health benefits. Retirees will no longer be eligible for health benefits. On a positive note, Ford has reinstated its matching 401K plan, contributing 60 cents on each dollar, up to 5 percent of the employees gross wages. Ford claims the cost cutting measures are necessary to maintain competitiveness in the automotive market. It plans to cut “10 thousand salaried from its current 25-30 thousand and 25-30 thousand blue collar jobs from the current 75 thousand” (Online Newshour.) As sales and production have declined, it makes sense that jobs would be eliminated, despite the disappointment of such measures to those who lose their jobs Corporate Benefits and Compensation 3 or face reductions in benefits and compensation. According to Bill Ford, the auto maker’s actions show “how serious we are about winning in the 21st Century, both in North America, and around the world. By taking the actions we are today in the long run, we will create far more stable and secure jobs. We all have to change, and we all have to sacrifice.”(online Newshour). While it is admirable that Mr. Ford is willing to make sacrifices, it gives little or no incentive to employees in remaining for long periods of time. In 1997, Ford, GM and Nissan Motors had similar benefits programs. In recent years General Motors has also had to cut jobs and benefits due to decreased sales. Ford’s slump in sales over the past decade is blamed on many factors. First, is the theory that the auto maker experienced extreme success in some models such as the F-series, Mustang, Thunderbird, and Explorer, while the others have not become nearly a popular. In this view, Ford’s lack of current financial success can be seen as a lack of understanding in what Americans want. In viewing the success of Japanese auto makers such as Toyota in the U.S. market, a greater sense of responsiveness to American buyers does seem in part, to be one of the strategies employed. Another factor is costs of manufacturing. “Ford has a $1,200 or so cost per vehicle for healthcare compared to $450 for the foreign-owned automakers operating in the U.S.,” according to U.C.Berkeley Professor, Harley Shaiken. The fact that Toyota has lower health care costs per vehicle is not necessarily a reflection of its benefits offerings. Toyota currently boasts one of the best benefits packages in the U.S. with retirement package fully funded by Toyota, extensive employee assistance programs, dental and vision coverage, 13 paid holidays yearly, vacation time available after 6 months, varying levels of health insurance, with Corporate Benefits and Compensation 4 some coverage levels offered at no cost and a host of other benefits. It has been pointed out though, that Toyota employs much younger workers in the U.S. as it has not been had a manufacturing presence for nearly as long as the American auto makers. This helps to keep health care costs down. Partnerships with companies like JM Family Enterprises , the world’s largest private Toyota distributor and Fortune 100’s 15th best company in compensation, also help to keep overall employee costs down for Toyota. Still, Toyota has also faced the challenge of higher than desirable turnover rates. This issue is being addressed with its Signature program, which surveys customer and employee satisfaction to identify problem areas. Although this may not be an ideal program it is a few steps above Ford’s statement that employees have to sacrifice. Toyota, at least, is realizing that employees have value beyond what they produce and offer more value over a period of time. High turnover means more costs for hiring and training. Valued employees who remain loyal do so as they feel their needs are being met. They also have much to contribute as they have a greater understanding of the day to day processes within their work environments. They can offer many useful insights when changes or new processes need to be implemented. According to Toyota executive Mike Musich, “we usually find turnover stems from internal reasons, most often a conflict with immediate supervisors. Employees aren’t leaving for better jobs”(Car and Driver.com). Such statements suggest that compensation and benefits are not the only issue that causes job dissatisfaction. Tom Kochan believes “the old social contract surrounding employment is dead.” Kochan explains that dedication, hard work and loyalty are no longer rewarded by corporate America. He also states that “too many Corporate Benefits and Compensation 5 managers view their workforces as costs to be controlled.” Kochan identifies the ongoing debate over whether corporate America should compete by creating high level knowledge based jobs which empower employees, or whether low paying, cost controlling jobs should be embraced. It is the old dilemma of whether shareholders interests, or those of all stakeholders, including employees, communities and business associates should also be taken into consideration. Kochan points to research from the airline industry which indicates “no airline has been successful in turning around its performance without transforming its labor-management relations from adversarial to partnership. He specifically uses an example from the 1980’s when Frank Lorenzo took over Continental Airlines and demanded employees come back to work for half their pay if they valued their jobs. Kochan describes the next decade at Continental as chaos which resulted in Bankruptcy. Kochan’s example shows what can happen in the future with Ford Motor Company choosing to cut benefits and stop merit increases. Unhappy employees are not nearly as productive. If they feel devalued in this manner, what incentives do they have in putting forth their best effort, feeling like part of a team, and generally wanting to contribute their ideas and efforts to the corporation. Even if Ford allows some type of creativity and autonomy within its workforce, without proper compensation it will most likely fail to achieve its future production and sales goals. According to Maslow’s Hierarchy of needs, a combination of autonomy and compensation, as well as basic needs of safety and acceptance, are the best mix to keep employees motivated. Kochan identifies Toyota as one corporation which is now realizing the effects of providing all the key components of job satisfaction. Ford Motor Company is among many U.S. Corporate Benefits and Compensation 6 corporations that appear to be taking a step in the wrong direction. Though some cuts in jobs may be necessary when production decreases, current employees should be embraced as investments, not just as costs. Investment in employees today has been shown to bring rewards in the future with less costs associated with turnover and hiring. Employees do not want to sacrifice benefits, particularly when they support families. Often such benefits as medical coverage including dental and vision are viewed as necessary. Many organizations offer al-a-carte benefits packages in which one or two basics are offered at no cost, with additional benefits chosen based on each employee’s need. These are offered at low group rates to the employee. For example, a young single person or a older employee close to retirement with a mortgage paid off may not need life insurance or very little. Others may have spouses who have benefits coverage for them. As far as compensation, raises are as much a sign of worth and satisfaction in an employees work as autonomy or the ability to think independently. It is also important for employees to be heard and feel that their voice matters. This is one way in which Toyota’s Signature program is working to serve not only its customers, but employees as well. If costs of turnover due to dissatisfaction are cut, more is left for compensation, raises and benefits. It has been proven that happy employees are more productive. Higher production from each employee also lowers production costs. Overall, Ford executives need to rethink their views as Kochan suggests, from looking at employees as costs to treating them as investments. The auto maker also needs to develop a strategy of designing and offering more satisfying products overall, which are more competitive with foreign auto makers offerings. Alliances with Corporate Benefits and Compensation 7 distributors and associates should remain under separate ownership, allowing those organizations to take responsibility for their own employee benefits. It is a combination of all the strategies mentioned above that help Toyota maintain its financial fitness and enable compensation of employees with generous benefits. Only when Ford Motor Company changes its views on how to remain competitive in the 21st century, will it Be successful in reaching its goals. References Business Week online. (2006). For Cuts Health Benefits and Merit Pay. Retrieved 1-26 November, 2006 from http://www.businessweek.com/ap/financialnews/ D8L56G800.htm Finlay, S. (2006) Wardsauto.com. Retrieved 27 November, 2006 from http://www. caranddriver.com/idealb/ Kochan, T. (2006), Taking the High Road. MIT Sloan Management Review. 47, 4. Online Newshour. (2006) Ford Announces Layoffs, Closings. Retrieved 20 November, 2006 from http://www.pbs.org/newshour/bb/business/jan-june06/ford_1-23.html Toyota Financial Services online. Retrieved 26 November, 2006 from http://www. toyotafinancial.com/about/careers/benefits.html. Read More