What is compensation Management? Companies have a process, or procedure they use when deciding the terms of the compensation. Thus, compensation management is the act of distributing some type of monetary value to an employee for their work, by means of the company's policy or procedures. In basic terms, it is paying an employee based upon the decided pay and benefit package for the position. The goal of compensation management is to find quality people, who perform quality work, and then compensating them in order to retain them and reduce turnover rates. Some different types of compensation include, salary, overtime pay, commission, bonuses, and benefits packages that might include, health and dental insurance, vacation time, and retirement savings.

Blue Flowers (Pvt.) Ltd
Blue Flowers (Pvt.) Ltd is an 8 years old company engaged in manufacturing of high quality artificial flowers to the local and international market.it is situated in a remote area in Moneragala District, with a total workforce of 350.Its products are very well established in local and International outlets. The vision of the company is “To be a leading manufacturer of world class quality artificial flowers in South Asia by year 2015”.
The company operates through functional departments, namely Purchasing Department, Production Department, Sales/Marketing Department, Accounts Department and HR Department. From last year onwards, they have been flowing with steady import orders.
This trend can be anticipated in the coming years as well. In this background, in order to increase the production at least by 40%, the company engaged in implementing an incentive program, where they gave 10%-15% as an additional incentive when they produced more than the original targets given.
After this incentive program was introduced, they ran this for 6 months and evaluated the pros and cons of the incentive plan. The results were as follows. * Increase production for 1st month was 20%, 30% for the 2nd month, 32% for the 3rd month, 28% and the 4th month, 20% for the 5th month 20% for the 6 month.

At the same time, during these 6 months, the lower quality and rejects rate has increased by about 10-15%.Meanwhile the members of the production department has complained that due to no fault of their and due to slowness of other departments they have to suffer and has requested the management to take steps to remedy the situation.
Also at the same time, about 60% of the production workers have complained about the following through their Trade Unions. 1. The new incentive scheme is a system to exploit their labor. 2. Supervisors are blending the products as rejected or low quality, purposely. 3. The other department people (purchasing, Accounts, Sales and HR) are enjoying more of this incentive scheme. 4. The incentives are not paid on time by Accounts Department. 5. The lower end workers are not reaping any benefits of this incentive scheme. 6. Some managers/supervisors consider workers as machines and expect that level of constant uninterrupted work.

Hence this incentive scheme is not that beneficial to the employees and hence the objection for it. On these grounds, Trade Unions have called a meeting to its members.
At this meeting, about 40% of the production and other department workers were of the view that since this incentive scheme is helping to earn about Rs.1,000/= to Rs.1,200/= extra than earlier ,not to disturb it and let it continue. But the other workers were of in view that this is not an incentive scheme but just another way of exploiting the labor. Hence the Trade Union action should be initiated.
After the meeting the representatives met the management and informed them that this incentive scheme is not that lucrative or equitable when it is compared with the targets given. But the management stance was, if they are not in a position to cater to this increase in order in the future, they are in for a heavy loss and as a result they might even consider an employee redundancy plan also.
As a result of a meetings with the management, the Trade Union requested the following: 1. To reduce the targets to a 30% increase. 2. Instead of an incentive, to add Rs.1, 000/= to their basic salary. 3. To have a maximum of 2 hrs. Over Time per day. 4. To have a system to ensure that product rejection procedure is uniformed and does not depend on the supervisor concerned. 5. To have better working conditions within the factory and generally to increase the other facilities given to workers.

Executive summary
In a very challenging work environment as what we are experiencing today, employee productivity and contribution are becoming paramount importance to any organization. Organization provide various forms of financial and non-financial reward in order to obtain optimum contribution from their employees and these payments and other benefits encourage and motivation the employees for better and enhanced performance level.
“Compensation management system is designing, implementing, and maintaining reword system which are fairly, equitably and transparently across the organization which is gear to the improvement of organizational, team and individual performance.” Compensation management is one of important influencing success of the future organization. When consider blue flower (Pvt.) ltd company case we can clearly identify they haven’t proper compensation management syste
In a Challenging environment employee productivity and contribution are become supreme of any organization. Organizations provide various forms of financial and non-financial rewards, in order to obtain contribution from their employees.
These payments and incentives encourage and motivate employees and enhance their performance well.
Compensation management is one of the most important thing of the organization. When consider Blue Flower (Pvt.) Ltd we can identify many issues. They are Communication errors, Employees are uneducated so they understand the language and incentive scheme. They haven’t team spirit and so forth.
I presented some suggestions for eliminate these situations. They are incentive scheme must be very simple because employees are uneducated. Vision and goals should be aligned and so forth.

Q1. What are the management issues faced by this company?

Problem Statement a) Vision and goals are not aligned.
The vision of the company is “To be a leading manufacturer of world class quality artificial flowers in south Asia by year 2015”.but when consider Blue Flowers (Pvt.) Ltd they couldn’t conduct quality of the product. Important thing is incentive scheme should align with the company cooperate plan. It helps to achieve organization’s vision. b) Not having better management amongst the several department.
Rendering to the Blue Flowers (Pvt.) Ltd has separate Purchasing, Production, Sales/ Marketing & Accounts department. But these have not well relationship. Example: * Productivity rate reduction month by month. So production department members have complained that due to no fault of their and due to slow down of other department.

c) Unable to maintain constant production flow.
After introducing incentive program, management evaluates 6 months production, according to these evaluation,
1st month production increased 20%
2nd month production increased 30%
3rd month production increased 32%
4th month production decreased 28%
5th month production decreased 20%
6th month production decreased 20%
When considering above results we can obviously identify production flow is not continuous. a) Incentive scheme was confused for existing employees.
Because this incentive scheme introduced since 8 years. So requirements of employees not match of kind of long term incentive plan. And also this company locates in Monaragala district. Thus these people haven’t more knowledge regarding kind of incentive schemes. And also they have language problems directly be influenced. b) Low quality of products.
Based on Incentives employees try to produce more. In that time they do not consider quality of products. They always try to produce more & more to achieve incentives. c) Unable to meet market demand.
Because month by month company productivity is reduced. So in that time they can’t fulfill market demand. d) Increased trade union actions.
According to this case obviously classify trade union actions increased gradually.
Eg: 60% production workers have complained something through their trade unions.
e). Low team spirit among employees.
Eg: According to this statement, accounts department did not pay incentives on time for production department. And they also pass their responsibilities to department to department.
f). Communication error.
Once reflect this case we can obviously identify they haven’t effective communication between departments. So top management should be explained conditions and benefits for bottom level employees.
g). Employees are de motivated. Lower level employees are de motivated because they think management are misusing their labor resources.

Q2. What are the suggestions you suggest to the company in order to come out from this situation? 1) Appoint a panel to get ideas, and suggest regarding incentive scheme.
Panel should represented top level management, Head of each department & trade union member. So under that they can get suggestions and ideas regarding incentive scheme from every appointed member. 2) Objective should tally with vision.
Blue Flower (Pvt.) company vision is “To be a laddering manufacture of world class qulity.so objective of company should be aligned above vision. Especially management should think about quality of products. To achieve that objective management should establish good quality control system in organization.
Ex: ISO 9000, 9001 3) Incentive scheme should be simple.
When consider Monaragala district, It is rural area.So employees also are in same district. They have language problems. And also they can’t understand complex incentive scheme. Because most of employees are uneducated. That’s why incentive scheme should be sampled. Specifically incentive scheme in Sinhala medium. 4) Arrange a party for employees with their family members.
Arranging kind of events can improve team spirit among employees. And also increased loyalty of employees. 5) Department work study. 6) Can introduce computerized system.
Sometime accounts Department makes many mistakes. Consequently present new incentive software management can eliminate those circumstances.
Eg: IBM Kenexa People Ticker Sumtotal

7) Consult employees and trade unions suggestion and ideas.
Employees are more important resource in an organization. So management should be managed these resources effectively. That’s why they should consult trade union suggestions. Trade union is an organization made up of members. 8) Get staff feedback regularly regarding work place condition.
Day by day .weekly or monthly get feedback of employees are very important thing in an organization. So Blue Flowers (Pvt.) Ltd management can get feedback of employees regarding incentive scheme. It helps to eliminate some circumstances. 9) Check working conditions to help increase production.
Working condition should help to increase production. And also these are should familiar with employees. 10) Provide frequent contact to top management.

11) Provide a greater sense of personal sluggish.
Treat their employees as family.