I have been asked to review the compensation system practices for Henderson Printing with a view to establishing a common set of principles and practices that are understood by both management and employees of the organization. In addition, it is both logical and desirable to ensure that Henderson Printing is motivating and rewarding a common set of skills and behaviours to all employees consistently in the organization in order for Henderson Printing to be the most viable organization as possible.
Findings and Issues:
Employees of Henderson Printing need to be feel that they are all being paid fairly at all levels within the organization. Currently there is no formal system of compensation that Henderson Printing follows and employees are being paid at different rates for sometimes the same job and experience level. In addition, Mr. Henderson decisions relating to compensation are done on the “spur of the moment”. His approach lacks rigour and discipline in making any of these decisions.
Employees also need to have a common understanding on how the compensation system works and it should also be as transparent as possible. Currently, there is no formal process and there is a lack of clarity to what exactly the policy or process is. As a result, Mr. Henderson is being approached by employees at random as this is the only way employees know how to seek a pay raise for themselves. Most decisions are being made at his sole discretion and judgement due to the lack of organizational structure.
The current compensation structure is also contributing to employee engagement. Employees of “long service” have been granted higher benefits and compensation. Mr. Henderson doesn’t apply any performance management practices in granting salary and bonus decisions. They are awarded by familiarity of the employee and their tenue with the organization and makes decisions without considering any financial impact.
Attrition and retention is also a concern at Henderson printing. The high turnover is a directly related to Henderson Printing’s benefits and compensation system. New employees do not feel they are being treated fairly and lack loyalty to the organization as they are discouraged by the lack of management. There is also a significant cost to compensate for the turnover in the organization, i.e. – loss of production, time for training, recruitment costs.
Mr. Henderson has adopted business practices based on how his parents ran the business years ago, during a time where employers showed very little consideration for their employees. Mr. Henderson has not taken into consideration the changing times of the work force and that he is now operating his business in a demographic where employees want to feel valued and treated fairly.
In addition , there are several situations in which pay equity and employment standards are not being met and complied with. By continuing with the current compensation and management approach, Henderson printing is at risk for future legal ramification and potential fines for non-compliance i.e. pay inequity, bias and discrimination, etc.
Based on the above findings, it is my view that Henderson Printing does not meet the criteria for a successful compensation system.
Recommendations: Proposed Compensation system for Henderson Printing
A successful compensation system should be designed to achieve the following: 1. Help the organization achieve its goals; 2. Fit within the organization’s strategy and support its structure; 3. Attract and retain employees who have the right skills and qualifications; 4. Promote desired task behaviour; 5. Equitable to all employees; 6. Comply with relevant laws; 7. Decisions made should align with financial means of the organization; and lastly 8. Achievement of objectives in the most cost-effective manner.
The first step in my recommendation would be to introduce a job evaluation system where base pay is determined by analyzing job descriptions and conducting a review of the skills in order to determine pay levels. This system will address the issue of pay equity in the organization as it removes factors of favoritism and preference that Mr. Henderson has displayed. It will help with the issue of cost control and ensuring no one is being over paid for their job. The job evaluation system will also engage and motivate employees to seek promotions within Henderson Printing as they will encouraged to reach the next level and advance within the organization. Role clarity will also assist in the job evaluation process assisting employees in better understanding their role and responsibilities; as is the case with the current rank of supervisors providing conflicting information to employees.
In addition to the job evaluation system described above, I would recommend Henderson printing implement a profit sharing plan in the organization which provides bonus payments to employees based on their profits of the organization. Employees of Henderson Printing will feel more motivated to improve the organization’s profits, it will promote improved cooperation with team members and stronger organizational citizenship. In addition, over time, if production becomes more efficient due to the employee’s invested interest in the organization and identify perhaps new and innovated ways to increase production seamlessly, there may be an ability to reduce the need for supervisors and/or on-site managers, which would result in further reducing operating costs. Recruitment and retention of employees may also be assisted with this strategy as employees feel that where organizations have profit sharing plans, typically they are quite successful financially. The profit sharing strategy will help promote the organizations desired behaviour and task performance. Lastly, by linking compensation to performance will assist Henderson Printing in reaching their financial goals.
The compensation strategy will also need to consider an indirect pay system as part of their compensation strategy. Although, the organization is required to oblige to both provincial and national statutory employee regulations and various standards, an evaluation will need to be conducted to ensure they are compliant in their approach. For example – proper payment procedures for statutory holidays, vacation pay, maternity leaves, bereavement pay, sick leave and other similar benefits. In addition to what the organization is legally entitled to do as detailed above, I recommend they introduce a formal benefit program in which employees will have an opportunity to participate in a program that provides several other indirect benefits. Those can include items such as health and dental care, health and wellness program incentive, pension plan, life insurance, paid time off, employee services, corporate discounts, technology allowance, etc. The rationale for introducing this strategy into the compensation system is Henderson Printing may be able to leverage a taxable credit, provides employees with a higher sense of reward and also provides a peace of mind for the employee.
Whenever a compensation strategy is implemented at an organization, it is important to be transparent about the changes and what the effects are for the employees. An important component in ensuring the changes to Henderson Printing’s compensation strategy is received both positively and understood by all employees a change management plan must be considered. Communication of the program and process undertook is important to all stakeholders so they feel informed and knowledgeable on how the changes directly affect them.