Reward Management Issues of Refusenick - Essay Example

?Executive summary The report considers the situation of business requirements of Refusenick in the light of the contract with Fellshore County Council. A brief introduction looks at the waste management model adopted by the council and the implications for Refusenick. Refusenick has to prove its capability to manage waste disposal efficiently with no disruptions and with due attention to the environment and pollution in the course of disposal. This is to be done with highly automated processes that the council has provided and reduced manpower. In case these requirements are satisfied, the company will be considered for tender negotiations that will be held after five years. The report considers the council expectations as the immediate business goals to be met and looks at means to drive the organization to achieve the goals. The company will need to re-look the processes and increase the focus on teamwork. The issues that are likely to hinder the ability of the company to gear up to these requirements lie in the tall hierarchical structure that operates at the plant and the remuneration structure both of which are unsuited to team effort. In addition, the workforce is associated with UNISON, a union with a large membership that has the capability to affect the ‘no service disruption’ expectation of the council in case of a conflict. The report further recommends ways to manage the changed method of working to reach the business goals. The report explores the various incentive schemes that may be considered and chooses the appropriate options. It recommends a review of the existing pay structure and introduction of an incentive structure that recognizes team as well as individual output. Contents Executive summary 1 Introduction 3 Critical analysis and evaluation 5 Decision to rationalize operations 5 Remuneration structure 5 Organisation structure 5 Recommendations 6 Develop a reward strategy 6 Current pay structure 6 Incentives 7 Union and workforce perception management 8 Expected flashpoints with Unison 8 Bibliography 10 Introduction Refusenicks PLC is in the business of waste disposal and recycling that has a contract with Fellshore County Council. The Council has recently taken the decision to rationalize operations by shutting down 4 out of 6 waste disposal plants and selling the land for buildings and refurbishing two plants with sophisticated machinery. Refusenick must cater to the requirements of the council in order to be considered for tender negotiations to be held after 5 years. The requirements to be satisfied are: efficient disposal of waste appropriate management of environment and pollution no service disruption be a model employer These requirements lay the ground for arriving at business goals and consequently the design of business processes to reach them. The workforce that supports these requirements is headed by a Works Manager assisted by the Deputy Works Manager. They are in turn supported by two shift superintendents and deputy superintendents and 12 supervisors to oversee the work done by 75 operatives in a shift. The Works Manager also has a maintenance team that operates over the weekend. Waste processing was earlier conducted in 6 plants which is now curtailed to 2 with more automated processing. The earlier system operated on a 9-hour shift over a 5-day work week. The current system operates on three 8-hour shifts over a 5-day work week. The current financial remuneration components are: Base pay Unsocial hour allowance for the Works Manager and Deputy Works Manager Shift allowance from the level of Shift Superintendent and below Bonus is paid only at the level of the operative The salary ranges are below: Level Min Max Bonus Allowance Min Total p.a. Max Total p.a Works Manager 22512 24000   1200 23712 25200 Deputy Works Manager 20295 21654   1200 21495 22854 Shift Superintendent 17922 19656   10% 19714.2 21621.6 Dy. Shift Superintendent 15675 17460   10% 17242.5 19206 Supervisor 14363 15372   10% 15799.3 16909.2 Operative 13550   540 10% 15445 15445 In addition to the financial remuneration, Refusenick provides salary pension, 24-day holidays and 11 bank holidays. Critical analysis and evaluation Decision to rationalize operations The council has taken the strategic decision to rationalize operations by letting go of 4 plants and investing in sophisticated technology. The Council has considered ‘opportunity cost’ defined as ‘the next best alternative foregone’ in the use of scarce resources (Harris, 2001, p. 8) for utilizing the scarce resource of land for waste processing versus for buildings and arrived at a rational decision. The council has provided a dual advantage to the community by letting go of land of four plants for buildings and introducing upscale technology to process waste at two plants. Machine utilization is conducted on a 24X5 basis while maintenance is carried out on weekends. The council has tapped on the inherent advantages offered by technology to accelerate ‘organisational processes… improves coordination of operations and their efficiency’ (Sutherland, 1991, p. 131). The council has taken a well considered decision and has now laid out the requirements of Refusenick. Remuneration structure Remuneration consists of a Base pay and a flat ‘unsocial hour’ allowance for the works manager and deputy works manager and a percentage based shift allowance for the other levels. The operatives are paid a bonus (5% for waste disposal and 3% for meeting core standards). This is the only form of performance related pay that exists in the system and forms 3.5% of the total earnings of the operative. Berger and Berger (2008, p. 212) refer to studies on companies that provide incentive as 7% of earnings at the lowest level. The business of the organization was earlier considered to be waste management and recycling. The operative earned bonus on one of these goals while ‘core standards’ remained unidentified. The work with the council must bring about a change to the definition of the business goals. The compensation structure does not consider two aspects that can aid in goal-orientation: Definition of the outcomes that constitute good performance at the level of the operative A quantum of incentive that will act as a motivator and guide behavior to desired outcomes Performance related incentive for levels above the operative Organisation structure The hierarchy in Refusenick shows two levels of Works manager and two of superintendent. It is difficult to envisage differences in the job at each level. Dive (2004, p. 115) denounces a tall hierarchy that arises out of an absence of clear job demarcations. The author points to the signs of ‘over-managed’ departments: Frenetic pace of work with key tasks being omitted Long work hours and overtime The ratio of approximately 1:6 supervisors to operatives may be considered acceptable. However, the tall hierarchy from Superintendent to Works Manager points to the possibility of reducing levels by two. The entire structure should then be reviewed to check for redundancies. Dive (2004, p. 262 – 265) recommends three work levels for carrying out projects and a fourth to create or identify ‘breakthrough solutions’ that are either new to the organization or based on new technology. The company may review the need for more than 3 levels at the plant on this basis. Recommendations Develop a reward strategy The aim of a reward management exercise is to ‘develop and implement the reward policies, processes and practices required to support the achievement of the organization’s business goals’ (Armstrong and Murlis, 2007, p. 3). Brown (2001, p. 2) quotes Ed Lawler’s view of developing a reward strategy to link ‘company strategy, pay systems and employee behaviors’ and as a means to communicate and reinforce business goals. The requirements of the council may be converted to business goals that can be further communicated and responsibilities set across the workforce. The business goals are: Efficient waste disposal Daily waste clearance Minimal pollution during process Appropriate environmental protection in the process Maintain good employee relations Once the business goal is clear, standards should be developed to clarify the overall outcomes. A definition of each business goal and a minimum expectation of outcome must be stated for the company as a whole. Some goals are dependent on human effort while others are limited or enabled by the technology available. The reward strategy takes into account those aspects of the processes that are driven by human effort. A job analysis should be conducted to demarcate the tasks carried out at each level (Schuler and Jackson, 2005, p. 334) to reach these goals. The job analysis is a method to ensure that key tasks are covered and responsibility clarified. It also forms the basis for defining the hierarchy and optimizing the levels of responsibility. Once the structure is optimized and the levels of responsibility are clear to all incumbents, the attention should go to reviewing the reward structure. Current pay structure The current practice of base pay and shift allowance may be retained since this takes care of the costs of living and hardships of the worker. The current remuneration practices consider only financial aspect of remuneration. Pay for special skills, performance incentives and team-based pay are not in use. Bonuses are paid to the operatives and constitute a small percentage (3.5%) of the earnings. Increasing the contribution of performance-based pay to the total earnings and making it applicable at all levels will draw the attention of the workforce to achieving the goals of the company. Armstrong and Murlis (2007, present a holistic view of pay – Total Rewards. This considers the financial remuneration (inclusive of allowances and bonus) and non-financial remuneration. This includes investments in a human resource such as training, growth opportunity, meaningful work, quality of work life, work-life balance. The total rewards framework may be considered in the organizational context of providing round-the-year service with specified quality expectations that must be performed by teams. The larger aim of the organization to clean the environment may be communicated as a larger goal for each member of the company. Refusenick can consider the inclusion of non-financial rewards like training to support group processes and creating job definitions to provide meaningfulness. Incentives The company is advised to consider the case for the introduction of incentive payments. Incentive design requires the presence of ‘incremental profit or benefit’ to the organization (Fisher, 2005, p. 8). In this case, the benefit will be that of retaining the contract with the council and calls for high performance orientation in the interim. Fisher (2005, p. 26) recommends an analysis of the key tasks and applying a credit to each of these. Each credit may be converted to a cash component. Schuler and Jackson (2005, p. 340) suggest the identification of key competencies or skills that differentiate a few resources in order to design a skill-based pay. These suggestions will focus attention on the tasks or skills possessed and run the risk of losing sight of the overall goal. These methods are useful for individual excellence whereas the need is to bring about superior team effort. The immediate focus of the incentive program is to ramp up in the immediate future and show the capability to meet the expectations of the council. This is an important design consideration of the incentive program (Berger and Berger, 2008, p. 207). The authors warn against ‘unintended consequences’ caused by overemphasizing specific behavioral outcomes. The factors to consider when designing an incentive scheme are ‘the organization’s strategy, the quality of the measures and the behavior desired by the organization’ (Jackson, Schuler and Werner (2008, p. 407). These are important pointers for Refusenick to consider and keep its focus on catering to the stated needs of the council. Bohlander and Snell (2009, p. 457) highlight the importance of creating a ‘clear link between performance and payout’ and keeping the scheme simple for the workforce to understand. Berger and Berger (2008, p. 550-551) warn of the two factors that can derail effective implementation: communication and insufficient internal skill to support the program. An incentive program that is easily understood by the workforce promotes the intended behaviors. The communication mechanism must be designed to aid understanding and feedback. The managers, supervisors and workforce may have to adopt new methods of providing inputs on performance. The immediate business goals require that the workforce cooperates to ensure that processes are completed with attention to the environment and the management of pollution. The key factors that will enable the achievement of goals are the provision of seamless service to the council with clear processes and defined outcomes. These definitions should be clearly communicated to the workforce and the importance of cooperation may be re-iterated in the form of a team-based incentive. Two additional incentives are recommended for consideration: Team-based performance pay Individual incentive Jackson, Schuler and Werner (2008, p. 420) explain that team-based incentives are effective when goals are designed in terms of team accomplishments. Berger and Berger (2008, p. 261-262) list some of the advantages of team-based incentives as strengthening cooperation, cut across cultural and work-related barriers, increase focus on goals and allow for differential rewards to teams. The inherent disadvantages of the method are that it does not identify ‘free-riders’, talent and individual excellence remain unseen. . Schuler and Jackson (2007, p. 208) point to research that link team-based performance rewards to the organizational context and demonstrate how it is possible to maintain a team-based focus by ensuring that people are ‘socialized’ to an acceptance of this concept. Brown (2001, p. 144) points to evidence that companies are improving upon traditional job-based incentive schemes by introducing rewards as an evolutionary process over the years for ‘reinforcing what will make the business a success’. Considering this view, job analysis should be utilized for the purpose of clarifying the structure while key processes should form the basis of the incentive plan. The incremental workload at each level must be analyzed and processes designed and communicated across levels. Once this is done, the incentive package can be worked on the basis of the anticipated benefit (in financial terms) to the organization. This exercise will lead to the development of a budget for incentivizing the entire workforce. The distribution of the budget must be designed and implemented in a fair manner for the incentive scheme to succeed. Fairness is ensured by highlighting the actions that are connected with the expected outcomes and identifying teams that have perfected internal processes to realize the necessary business goals. Individual incentives may be designed for those stand-alone jobs that rely on individual skills. The traditional incentive schemes that focus on output in a set time frame are not advised since this will counter the effort of the team incentive. Key jobs that aid the processes without being limited to them and run the risk of being left out of the team incentive may be covered under the gambit of individual incentive. Jackson, Schuler and Werner (p. 418) describe an individual scheme that awards innovations in a corporation that thrives on these. Innovations are important to the company’s success but do not fall under routine team processes. Similarly, key individual tasks that help achieve goals should be identified and standards defined in order to make them eligible. This ensures that no job is left out of the incentive scheme. Union and workforce perception management Unison is a strong union given to open displays of protest against policies that they do not support. Refusenick must ensure that the workforce is not incited to protest the ‘no-service-disruption’ clause and accept the suggested changes. Expected flashpoints with Unison 1) Organizational restructure The organizational restructure is likely to affect incumbents at senior levels and can lead to a sense of insecurity regarding the plans of the company towards the remaining workforce. The workforce may view the reduced number of levels as a sign of the company’s intent to exploit them by increasing the workload while providing no extra benefit. Communication on the strategic needs of the organization and the requirements of the company as a whole must be clear to every member of the company. The importance of matching up to the requirements must be clearly stated so that the workforce and union are aware of the importance of the intended actions. 2) More work in less time The reduced annual processing time has the potential to put pressure on the workforce to increase the throughput levels on an hourly basis. Earlier 24 million tonnes were processed annually with 6 plants operating on an 8-hour schedule. This was replaced by a 24-hour work schedule spread over two plants. Table 1 Calculation of annual processing hours Original schedule New schedule No. of plants 6 2 Shift X hours per shift 1X9 3X8 No. of processing hours per day 9 24 No. of annual processing hours * 14040 12480 (12% reduction) No. of operatives per shift 80 to 100 75 per shift (total 450) * - No. of plants X no. of processing hours per day X No. of days per week (5) X No. of weeks in a year An attempt to introduce an incentive structure while doing away with the existing bonus scheme is likely to be misunderstood. This can be overcome by involving the union and the workforce through clear communication strategies that allow for clarification and feedback. The calculation of the incentive package and the benefits to the employees should be highlighted. Small group meetings may be conducted by small teams to ensure complete understanding of the adopted incentive scheme. It must be re-iterated that the scheme is an attempt to drive behavior in a particular direction and that the development of the scheme is an evolutionary process. A feedback mechanism that allows the workforce to share any incongruence between the stated work expectations and work realities allows for scope to perfect the scheme over time. Bibliography 1. Armstrong, Michael and Murlis, Helen (2007). Reward Management: A Handbook of Remuneration and Strategy and Practice. Revised fifth edition. Philadelphia. Kogan Page Publishers. 2. Berger, Lance A. and Berger, Dorothy (2008). The Compensation Handbook. Fifth edition. USA. Mc-Graw Hill. 3. Bohlander, George and Snell, Scott (2009). Managing Human Resources. Fifteenth edition. Ohio. Cengage Learning. 4. Brown, Duncan (2001). Reward Strategies. From Intent to Impact. London. CIPD Publishing. 5. Dive, Brian (2004). The Healthy Organisation: A Revolutionary Approach to People and Management. Second edition. London. Kogan Page Publishers. 6. Fisher, John G. (2005). How to Run Successful Incentive Schemes. Third edition. London. Kogan Page. 7. Harris, Neil (2001). Business Economics: Theory and Application. Oxford. Butterworth-Heinemann. 8. Jackson, Susan E., Schuler, Randall S. and Steve Werner (2008). Managing Human Resources. Tenth edition. Ohio. Cengage Learning. 9. Schuler, Randall S. & Jackson, Susan E. (2007). Strategic Human Resource Management. Second edition. Oxford. Blackwell Publishing. 10. Sutherland, Ewan and Morieux, Yves (1991). Business Strategy and Information Technology. New York. Taylor & Francis. Read More