Effective Compensation System as an Important Element to a High Performing Organization - Case Study Example

Designing an Effective Compensation System: The Case of Marshall & Gordon Student’s name Institution of Learning Introduction Compensation system plays a critical role in the management of human resource in any organization. Employees are the most important assets in an organization. They need to be motivated and rewarded accordingly in order to perform optimally. If an organization has poor reward schemes; it might not achieve its strategic goals and objectives in the long run. An evaluation of Marshall & Gordon’s current compensation system. Marshall & Gordon Company is committed to pursuing a diversification strategy which will enhance the services offered by the company. The traditional PR environment has witnessed a big switch from the normal way of operations. Marshall & Gordon intends to incorporate an Executive Positioning Practice-EPP program in its operations. The main objective of the new strategy is to boost the new company strategic objective and attract more clients to EPP program. However, the company is faced with a multitude of challenges in its endeavor. The performance management tools used for EPP programs are the old PR tools, and the reward system is also the same despite EPP execution being very different from PR. There are no guidelines on how the fees splitting and reconciliation should be made. There are Inherent challenges in developing a compensation system which addresses the two sides of the businesses. The current environment is challenging, the company employees need to be motivated in order to support the new strategic objective of EPP program. The new compensation system may have a negative impact on the top performers who are comfortable in the current environment. All they need is their bonuses when they deliver revenues. The worst scenario is that all the consultants below the level of principal and non consulting staff are paid salaries only. Reward for performance by practice Directors is arbitrary, and there is no clear cut formula to execute the rewards. There are no parameters to support 10% reward for performance. Consultants have all along been complaining about the metrics used to reward the performance. This has to be addressed if meaningful performance is to be realized. Significance intervention increase job performance, (Grant 2008). For instance, production below the consultant’s salary, performance was not rewarded. The tiered compensation system is flawed. Consultants also write bonus cheques to their associates and assistants from their bonuses, this is an open window for favoritism. There also exists a conflict of splitting the O/E fees. Partners get compensation on both transactions regardless of whether execution was handled by another partner. Any project carried out by two partners, negotiate of the bonus had to be agreed between the two. Practice Directors have the discretion to award top performing consultants even if their behaviors are not aligned with the company objectives. Research has shown that behavior mediates the relationship between commitment and performance (Elorza et. al., 2011). The company has recently embarked on mitigation measures to support this strategy. Development of new performance management tools and a solid compensation system is underway. Despite this bold step, there exists Skepticism about the new initiative in general. In addition, It is difficult for the company to get consultants to mentoring and training. When a formal mentoring was proposed by the company earlier, consultants were apprehensive that their fees will be cut to their juniors and also the notion that by engaging in EPP, they will be doing non client related tasks. The current system encourages entrepreneurs without teamwork, there is no collaboration, a case example of the response by Bitch about the failed EPP pitch in China, there is a clear indication of individual fiefdoms among the partners. He also confirms that the small PR team he was aware about in Beijing was not committed to the EPP program. The current compensation system does not support the new strategy in the company. There seems to be trust issues between the partners and their clients. The partners would not like to entrust their customers with EPP consultants, neither no consultant would be willing his execution fees slashed by half to someone else. The tricky scenario in implementation of the strategy is that many partners, especially the top performers who bring the company a lot of revenue in a year, and have very good networks are not supportive of EPP strategy. If the EPP program is forced on them, they may opt to leave the company and work for competitors, hence the company loosing huge revenues and lucrative clients. The lateral hires for EPP doesn’t have any impact so far due to compensation issues; they are not keen on getting new clients or mentoring other associates since their guarantees ends in two years. Recommended changes to Marshall & Gordon compensation system Marshall & Gordon compensation plan needs a total overhaul, the company has been using a flawed compensation system for years. The effective compensation system helps firms achieve their strategic objectives. The rewarding / compensation system is not well defined. This has resulted to conflict and resentment amongst the staff. The company should develop proper performance management tools and a compensation system supported by the output measured by the performance tools. There should be no case where rewards is arbitrary determined. To achieve its new initiative, Marshall & Gordon must separate traditional HR from EPP program. Different reward systems should be used between the two company processes. Performance measurement should also be different. Pay for individual performance and teams should be clearly defined. The current system encourages individualistic tendencies among the partners. No one wants to share the “pie”. Everybody seems to be concerned about the revenues generated to the company. Behaviors are not rewarded, as long as a consultant is a high performer, there are no qualms with any deviations against the company policy. Reward based system in organizations should not only focus on the revenue output alone. It should also focus on other employee predispositions and personality. A loyal employee should also be recognized and rewarded. Marshall & Gordon should also focus on equality in the compensation system. There is no equality in the current system. The O/E compensation is demoralizing as is discriminative, it does not reward a partner who may join in the middle of a project, it’s akin to the winner takes it all policy. Projects carried out by two partners should have clear cut formula on how to share bonuses. Projects done by teams should have a defined compensation metric based on the roles played by each team member. All the staff should be eligible to rewards. Rewarding mechanism is confirmed to have a positive impact to the company. Monetary reward is desirable, but that should not always be the case. Promotions in Marshall & Gordon are pegged by revenue generated by an individual and years worked in the company. This is healthy in terms of company’s financial strength, but promotions should not be pegged on revenue alone. Promotions are part and parcel of reward systems. Other factors should be incorporated into promotions which include skills, experience and training among others. The guarantee period should also be reviewed. A case is where recently hired consultants cannot add any value to the organization since their performance cannot be rewarded, not until after some years. Such disparities should be addressed. A salary structure should be developed for the EPP consultants. The current structure has huge disparities, and this may not measure up with the skills and training required for EPP consultants. The pay structure should be pegged on what is offered in the market, it should identify important characteristics for each position so that each characteristic can be, defined, and weight with compensable factors (Cascio, 2013).Various factors should be considered when setting the basic pay to avoid a situation where skills are not adequately rewarded,and hence talents are lost to the competitors. A systems-oriented definition of talent management that focuses on the strategic management of talent (Robert 2006) should be defined.EPP assignments also seem to be tougher than the traditional PR tasks. Evaluation and compensation of such projects should not be based on days as it is the case with PR projects. Bonuses sharing regime of crediting 100% of originating and execution is not sustainable and may lead the company to further financial crisis as the net income has been falling drastically since 2008. This has witnessed the company conduct layoffs, which resulted to legal issues. A case in mind here is when the laid off staffs were not properly compensated, and the layoff process was not conducted in accordance to regulations. That is a glaring evidence that there are issues with the company exit policy and compensation. This needs to be addressed and resolved. Apart from Individual incentives Marshall & Gordon Company may consider Profit sharing and Stock ownership arrangements with its staff. This will improve their loyalty to the company since they will have a sense of belonging. The company will also manage to cushion its talent from its competitors. Actions which may support Marshall & Gordon new strategy In its effort to achieve the new strategy, Marshall & Gordon should keenly address some of the key human resources issues. The essence of human resource department in any organization, is to manage personnel in a proper manner so as not to jeopardize the objectives of the organization. Due to the paramount importance attached to employee management, Marshall & Gordon need to address the issue of job design. The PR consultancy work and the EPP project should have a well defined job design which details job description, roles, requirements in terms of training, skills and experience. Job analysis should be carried in the organization to determine whether individual employees fit in the job categories they are in. This will identify the gaps in terms of training needs and any skill deficiencies. It will also be possible to identify the staffing needs of the organization. The recruitment process should be properly structured in order to attract the best talent. This will be addressed by spelling out the terms of engagement from the initial hiring phase. Potential employees should be fully made aware of the job requirements even before they are engaged. Hiring practices should embrace diversity in order to have a wider offering of talent. Nielsen & Nielsen (2013), argues that nationality diversity is positively associated with firm performance. In a similar scenario, Hambrick et al. (1998) proposed that nationally diverse teams are likely to have the best performance effects when grappling with creative tasks. Training the staff should be encouraged in the organization. This is to ensure continuous development of staff in terms of skills and creativity. The company should come up with a system for ensuring that all the staff benefits from training programs. This should form part of promotion and reward criteria in the organization. Mentoring programs should be introduced in the organization where senior staff can share their experiences with others. Collaboration, teamwork and better communication methods must be addressed in this institution. Everybody seems to be too engrossed in his/her own domain. Organizational goals and objectives must be properly communicated to all the staff. This will ensure that the employee’s behaviors are aligned with the organization’s strategic goals. A performance management system, which has never been in place, should be implemented; this has been a contentious issue all along. The best starting point could be considering Management by objectives (MBO). This is where performance and goal achievement are mutually agreed between the employee and the employer. The agreed targets should be continuously monitored through appraisals and feedback provided to both parties. Feedback from the job is the extent which one gets information about the effectiveness of job (Hachman & Oldham, 1976: Morgeson &Humphrey, 2006). This will enhance individual performance and any gaps are easily identified. Job satisfaction should be addressed to avoid cases of high staff turnover. Employee turnover refers to an employee's exit from an organization (Taylor, 2007). Costs associated with turnover are typically much higher (Hom & Griffeth, 1995). Job satisfaction could be achieved by ensuring that employees feel good about their jobs. They should be motivated in other ways other than monetary rewards. Employees should be assigned tasks which they are comfortable executing. Assignments should not always be pegged on seniority, but according to capability. Job rotation should also be encouraged in order for the staff to gain hands on knowledge of different processes in the organization. The company must have “ability to integrate, build, and reconfigure internal and external competencies to address rapidly changing environments” (Teece,Pisano, & Shuen, 1997, p. 516) Industrial relations should be looked addressed to avoid cases of legal suits as it happened after the layoffs in 2009. That not only tarnishes the image of the organization, but also cause apprehension among the staff. Employment regulations should be observed, and exit policies strictly observed. This will in the long run build staff loyalty and retention to the organization. Conclusion Proper compensation system is important to a high performing organization. Employee compensation should be well defined and devoid of any ambiguities. Employees should be rewarded as per their performance, which should be based on defined metrics using performance management tools agreed by all parties in the organization. References Cascio, W. F. (2013). Managing Human Resources (9th ed.). New York, NY: The McGraw- Hill Companies, Inc. Elorza, U., Aritzeta, A. and Ayestarán, S. (2011). ‘Exploring the black box in Spanish firms: the effect of the actual and perceived system on employees' commitment and organizational performance’. The International Journal of Human Resource Management, 22: 7, 1401–1422. Grant. (2008). The significance of task significance: job performance effects, relational mechanisms, and boundary conditions. Journal of Applied Psychology, 93(1): 108-124 Hachman, J.R, & Oldham, G.R. (1976).Motivation through the design of work: Test of theory. Organizational and Human Performance, 16,250-279 Hambrick, D. C., Davison, S. C., Snell, S. A., & Snow. C. C. (1998). 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