Performance Management Supporting Base Pay and Benefit in Boeing - Case Study Example

Performance management supporting base pay & benefit in Boeing Introduction Boeing, according to the latest revenue estimates, is the largestmanufacturer of aircraft in the world. The same is true for the number of deliveries and orders. Its current staff strength is in the region of 158,000 employees working in 70 odd countries. This figure alone speaks volumes about its pay & benefit related strategies and initiatives. This paper would focus on the learning outcomes on the current strategic policy environment concerning pay & benefit at Boeing at present. For instance currently about 114,000 non-executive grade employees are eligible for pay and benefit related incentives under its Employee Incentive Plan (EIP). Launched in the year 2000, the Plan provides additional pay between 1 to 20 days as an incentive for better performance that goes to meet the Company’s economic profit targets. Theoretical and conceptual frameworks on employee performance and pay have been developed over the years to support pay-related job enrichment and enlargement schemes. (Coppala, 2007). Employers have often been influenced by the existence of a variety of factors like performance enhancement and strategic skills development processes to adopt such schemes or programs. While the economic principle behind such pay schemes is basically the productivity enhancement there is also the motivation factor that such inducements as money and non-monetary benefits might not be able to bring about (Robb, 2007). Performance related pay schemes are nothing new in the modern work environment though, many of them might be lacking in those essentially significant aspects of performance paradigms and pay/benefit packages. However, the theoretical and conceptual frameworks of reference and analysis in this paper would seek to cover an adequate amount of current literature on the subject of performance related pay & benefits so that the paradigm shift in the Boeing’s policy and strategic initiatives would cover a sizeable area of literature on the subject. Analysis Boeing’s current strategic initiatives on pay & benefits to its strong international workforce and the US domestic workforce aren’t intended to distinguish between the two workforces. In other words any employee irrespective of his or her geographical location on its US Payroll will enjoy the same pay & benefits. However despite this claim there is a qualifying statement which says that international employees hired locally would be entitled to pay and benefits according to that country’s domestic laws. The universal principles on which Boeing promises its employees a performance related pay & benefit package (including base and incentives) can be summarized as follows ( D’initio, Boyles, Neck & Hall, 2008). They are intended to meet the requirements of a culturally diverse workforce and a fast changing corporate environment. They are intended to provide the company with that competitive edge in the markets where it competes against other companies for labor resources. They are intended to provide a wider array of both monetary and non-monetary benefits and above all security to those employees and their family members. They are more or less expected to enhance pay & benefits for performance. To support Boeing’s strategic imperatives in global growth. To mitigate employees’ and retirees’ health care burden by way of compensating through an improvement in the quality of life brought about by consumerism. To guarantee that the sum total of retirement benefits made available to the employee ultimately matches the expectations of the workforce. However despite these claims still some glaring differences between what’s universally promised in the offers made to employees at the time of hiring and the real pay and benefits can be noticed at Boeing. Though many of these principles were initially intended to help create an internationally competent workforce at Boeing’s diverse units of production in the world, the evolving twin strategic environments of competition and corporate social responsibility (CSR) compelled Boeing to go back on some of the principles. The current pay & benefit programs as made available to new recruits promise job enlargement and enrichment related benefits that when translated into monetary terms mean quite a lot (www.boeing.com). Despite Boeing’s overall approach to performance related pay & benefits through the adoption of strategically determined pay and incentive schemes, there is a clear lack of motivational factors such as productivity-related incentives based on the principle of contribution to the measurable criteria – volumes and revenues. The theoretical postulate on pay and benefits related to performance is dependent on the economic concept of marginal productivity of labor. In fact Boeing has adopted the economic value concept in determining the employee’s contribution. Thus MP of labor must be the basic criterion here (Mark Oleksak,& Brian H. Kleiner,1998). The policy dichotomy of Boeing Boeing has successfully adopted a pay & benefit package based on employee performance depending on the geographical location. Thus its current strategic initiatives and policies on pay & benefits can be divided into two main categories. The following are the best representative summation of this policy dichotomy of Boeing. a. Pay & Benefits (including all incentives under the Plan) for domestic US employees. b. Pay & Benefits (including all incentives) under the international pay package for international locally hired labor. Under the first category, those employees in the US are entitled to what the company provides to international and domestic employees resident in the US. Thus, irrespective of the employee’s nationality and country of origin/citizenship, he is entitled to all the pay and related incentives provided in the US. Naturally this kind of pay policy as the inevitable impact of currency movements.( Miller, 2009). While the company claims that despite differences in pay and incentives due to these geographical differences a competitive pay & benefits package is on the offer to the potential recruit irrespective of the local economic situation. It’s the second category of employees who are locally hired and employed at Boeing’s various production facilities that matters much more in this report. In the first instance they are locally hired locally resident employees but with the tag of an international employee of Boeing for the purpose of pay & benefits (MCB UP Ltd,2003). Given Boeing’s record of maintaining international standards at great cost and commitment, these international employees’ contribution to the company’s growth is measured by using the same economic value metrics. Thus the MP of labor can be regarded as a safe measure of the average employee’s performance. These locally hired international employees are entitled to three main financial and non-financial incentives. These incentives are categorized under the following headings and are regarded as the very basis of Boeing’s highly successful performance related pay & benefits scheme Spindler, 2008). Pay which includes base pay plus incentives Benefits including health care provision On the job learning/training and career development Boeing’s pay plus incentives package includes a substantial amount of monetary benefits to the employee. In fact this package or scheme of pay is intended for the international employee as defined above. For instance the company has categorically defined in its EIP what is meant by profit targets. If these targets fall short of achievement, employees would still be entitled to a reduced additional pay day package between 1 and 9. However if the economic calculation indicates zero value, employees aren’t entitled to any of these additional payments. Thus the incentive package has been designed to enhance employee performance as a predefined target of achievement (Lubove, 1997). The theoretical and conceptual framework of analysis and the contingency model of performance related pay & benefits at Boeing are essentially characterized by the fact that Boeing has been more oriented towards setting some international standards as a framework of reference for its employees (www.ocw.mit.edu). These international standards have benefited both employees and their families notwithstanding the other negligible variables. These negligible variables include Boeing’s own policy of distinguishing between economic value and accounting value of output or contribution. Further the Boeing’s own strategic initiative of Boeing at the organizational level to identify and reward performance by employees is based on the logical premise that individual employees are motivated by its management culture and organizational structure. Thus the rewards are based on a more general organizational approach to defining what performance is based on the above criteria.( www.boeing.com). Pay rates and benefits are calculated on the basis of this overall employee contribution. Independent researchers have found out a greater correlation between on the job training facility and the relative performance. This is perhaps the most important individual employee level contribution to the profit targets of the company (Ethical Leadership Group, 2003). However very little attention has been paid to the employee retention strategies adopted at Boeing. For instance some of the employee retention strategies such as extensive T&D programs and expatriation and repatriation programs have contributed in good measure towards the overall success of meeting profit targets of the company. Thus a far reaching strategic shift in the Boeing’s pay & benefit related programs has come from a diverse policy approach at the organizational level and in turn has been reinforced by the individual employee commitment. (Greenhill, 1990). Reflections The future pay & benefit related programs intended to enhance employee performance at Boeing would be the cynosure of many companies that hope to achieve performance related growth in their international and domestic operations(Armstrong, and Brown, 2000), The employee performance being measured on the level of individual contribution to company profits looks old-fashioned though Boeing has successfully come to realize the relative significance of the individual employee’s performance as boosted by a desire to earn more before actual retirement. In fact it’s the organizational goals that have been defined well in advance along with the strategic initiatives to achieve performance related success. Finally, Boeing has made it a point to relate success of its pay & benefit programs to the organizational profit targets. That’s perhaps more deterministic in deciding the kind of employee response to the organizational goals ( http://www.boeing.com). Conclusions and recommendations Boeing’s present performance related pay & benefit schemes have been determined by its desire to achieve profit targets. Thus employees are encouraged through pay & incentives to contribute to the overall success of the company and in turn are given additional pay days numbering between 1 to 20 depending on the amount of profit target achieved by individual employees and then by the whole workforce. Boeing’s strategic initiatives to reward employees on their performance have been successful enough to warrant some comments on its far reaching strategic achievements, including employee satisfaction and motivation. Recommendations Boeing ought to integrate its performance related pay & benefit strategies with employee motivation policy. The current rate of success with a huge workforce of approximately 200,000 employees needs to be well cemented along the lines of a more comprehensive strategy towards employee retention. Finally, Boeing should be able to adopt a more metrics centered approach to determining the performance of employees based on productivity which might not be the same as economic value by way of contribution to profits because profits might be variable between two countries due to exchange rate variations. REFERENCES 01.Armstrong, M and Brown,D (2000),Paying for contribution: Read Performance Related Pay Strategies, Kogan Page, New York. 02. 15.660 Strategic Human Resource Management. MIT Sloan School of Management journal, Retrieved October 8, 2009 from www.ocw.mit.edu. 03. Boeing SPEEA 2008 Labor Negotiations. Salary Review Process for Salaried Employees. Retrieved October 8, 2009 from www.boeing.com/2008negotiations/pdf/speea_salary_fcts.pdf. 04. Coppala, S. B. (2007). Boeing Organizational Structure. Retrieved October 8, 2009, from www.docstoc.com. 05. D’Intino, R. S., Boyles, T., Neck, C. P. & Hall, J. R. 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