Running head: XCEL ENERGY PAYS FOR EMPLOYEES WHO EXCEL

Xcel Energy
Dyneaka Harrison
Kaplan University
MT203: Human Resources Management
Instructor Sarah Scott
April 16, 2011

Xcel Energy Pays for Employees who Excel
Introduction
Excel Energy based in Minneapolis, Minnesota, is a public utility company that generates electric power and transmits and sells electricity and natural gas to customers in Colorado, Michigan, Minnesota, New Mexico, North Dakota, South Dakota, Texas, and Wisconsin. Xcel serves 3.3 million electricity customers and 1.8 million natural gas customers in these eight states. In 2007, Xcel was the 260th biggest corporation in the U.S., and the 15th biggest gas & electric utility in the country. Xcel Energy has decided to implement merit bonuses; which are paid for individual, group and corporate performances. Merit pay refers to the process of determining employee compensation “base salary or bonuses,” in part, on the basis of how well each employee performs at work. (Xcel 2011)

Review/Analysis of the Case
1. Based on the information given, do you agree with management’s conclusion that merit pay can support Xcel’s strategy better than paying for suggestions? Why or why not?

Based on the information given I do agree with managements conclusion that merit pay can support Xcel’s strategy better than paying for suggestions. Management and leaders must continually encourage and reward fresh thinking, promoting and keep open loops of communication in which employees are confortable sharing suggestions. When Xcel first started paying for suggestions they were just basically paying any and every one for suggestions. They were not putting a monetary value on the suggestions. Thus causing the company in my opinion to lose money. Now the company will have more constraint over how they reward their employees for suggestions. (Noe, Hollenbeck, Gerhart, & Wright, 2009).

2. How might Xcel continue to encourage suggestions as it aligns incentive pay more closely with its strategy? How do you think employees might react to these changes?

Xcel energy can encourage suggestions as it aligns incentive pay more closely with its strategy by simply stating that the top 10 or 20 suggestions chosen are the ones who will receive incentive pay. The suggestions should be ranked according to how each suggestion contributes to the overall growth of the organization. The company can also create an employee idea box that's kept in a central location. Xcel can keep blank paper, pens, markers, and pencils near the box so employees can jot down ideas and submit them anonymously whenever ideas come to mind. Ensure that the box is checked weekly and that ideas are addressed either during meetings, in the company newsletter or on the company's internal blog. I believe the employees would like the changes. They can look at this opportunity as a contest and be rewarded as such. There might be some employees who liked the old way basically getting easy money for doing nothing; but overall I believe the employees will enjoy their suggestions being heard. (Noe, Hollenbeck, Gerhart, & Wright, 2009).

3. Imagine that Xcel has asked you to be a consultant advising on how to improve its merit pay system. Make three suggestions for ensuring that merit pay at Xcel is effective as an incentive. As a consultant advising on how to improve the merit pay system one suggestion for ensuring that the merit pay at Xcel is effective as an incentive, would be to start off by separating performance and pay reviews. For example, on the six-month anniversary of hire, employees get a performance review with feedback on their strengths and areas for improvement. At the end of the review meeting, manager and employee both agree to a limited number of specific performance goals. For strong performers, the goals could be more developmental than remedial. Six months later, on the one-year anniversary of hire, employees receive a pay review. At this meeting the manager informs the employee of the amount of her or his raise, based on progress observed toward the goals. This approach prevents the tendency I've observed for annual goals to be set and then forgotten. Another way to improve the merit pay system would be to weed out the weak or indolent employees. When a naturally energetic man works for a few days beside an indolent one, the logic of the situation is unanswerable. The energetic employee will begin to ask his or her self why work hard when the lazy employee gets the same pay that they do, and does only half as much work. The third suggestion I would make to ensure merit pay at Xcel is effective as an incentive is to ensure those who are administering the exam are not rating the employee biasedly. It’s not fair that employee who works hard not receive merit pay do to a supervisor not liking them. (Noe, Hollenbeck, Gerhart, & Wright, 2009).

Summary and Conclusions If Xcel decides to implement merit pay, it needs to separate the performance and pay reviews by at least a few months. Then when it is time for pay review, base the pay raise decisions on progress observed toward the goals set in the performance review. Also, make sure the pay ranges are wide enough to allow for significant differences in the amounts of raises. If Xcel can’t afford significant pay differences between high and low performers, or if Xcel believes that its staff is underpaid in relation to the cost of living in its labor market, then the company might need to postpone the implementation of merit pay for non-management employees. In place of this change, the company can give everyone predictable seniority raises and reward the high performers with positive feedback, new responsibilities, and promotions. Then the company can position the managerial time and attention into better coaching and counseling of employees with performance problems, and more timely corrective action, including removal of poor performers who demoralize the rest of the workforce.
References
Noe, R., Hollenbeck, J., Gerhart, B., & Wright, P. (2009). Fundamentals of human resource management, 3rd edition. New York, NY: McGraw-Hill/Irwin.
Xcel Energy (2011). Individual Performance and Development, (IPAD), Retrieved: April 16, 2011 from: http://www.xcelenergy.com/Minnesota/Company/AboutUs