Date: November 26, 2011

Utley Food Markets

Pay-for-Performance System

Changing to a pay-for-performance pay system always has several implications. The most important of these are discussed in the succeeding paragraphs. The first implication is determining what to reward. Management must first align overall strategy with projected business outcomes, and decide what type of performance will be measured, analyzed and considered in a pay for performance program. Key factors such as support from the management, establishing a valid and fair measuring system, along with a credible evaluation system and projecting effectiveness of the program in the long term are all needed in order for the plan to function properly. “When used properly, merit pay will reinforce the accomplishment of individual contributions that are in line with the identity, strategic plan, and objectives of the organization” (WorldatWork, pg. 313). The second implication is documenting performance standards. A pay for performance system must be constructed according to guidelines and frameworks which when evaluated define standards and characteristics relating to the program. The program needs a baseline, expectations of progress and a rating system that is a valid determinant of performance. In addition, performance standards must be documented consistently and fairly among all peers. Specific criteria such as what to measure, how to measure and who to measure must be well defined and not impossible to attain. Objective and subjective standards should be evaluated in ensure all characteristics of performance relate to pay. As well as, establishing standards by allowing the employee to have a sense of ownership in the performance plan, and setting standards that are flexible based on current tends are critical elements surrounding consistent documentation. The most important aspect of documentation, however, is making sure the program is easily understood and defined or all employees to comprehend. “If employees cannot comprehend the standards or accept their reasonableness, they are unlikely to perform in a manner that is consistent with the mission of the organization” (WorldatWork, pg. 314). Lastly, it is important to establish a budget for allocation. Factors such as cost of living, market trends and cost of labor, just to name a few, are important factors to consider in determining budget size, and how it will be allocated. Allocation of funds should be made policy and decisions of allocation can be based on absolute versus relative, meaning the increase in pay makes a difference and is recognized as such. Timing is just as important because it allows management to determine increases at the same time. However, it’s important to recognize variables such year end financial reporting, benefit enrollments and employee workload at time of appraisal when attempting to measure performance. These types of business strategies can end up hurting the program if it is not administered at the right time. Delivery is also important. For example, whether or not the corporation wants to reward by base pay or lump sum increases must be established. Base pay is done as a percentage of payrolls, and distributed the same time every calendar year. In contrast, lump sum allows for increased discretion to reward and control compensation costs.

Changes in System Operations

In order to move to the pay-for-performance pay system, Utley will have to make several changes to its current system operations. The most important of these are discussed in the succeeding paragraphs.

The first change is effectively communicating with the union. Measure and evaluate exempt and non exempt employees using the same merit program rather than utilizing across the board increases. Management and union officials can negotiate a fair and balanced pay for performance standard that is influenced by “organizational culture, management’s willingness to share information, and readiness and ability of human resources to support the communications effort” (WorldatWork, pg. 324). The second change is incorporating more than one performance related variable. Utley used one single question to determine performance. Utley needs to utilize several rating approaches to ensure accurate and reliable determinations. For example, by using summary ratings, a corporation can rate performance on a scale of 1 through 5 which covers several areas of skill, task, and efficiency. Summary labels measure current performance based on past performance; which can lead to effective future expectations and forecasts. And multirater assessments allow for a fair and accurate balance. Multirater assessments incorporate an active relationship with more than one assessor. For example, assessments are gathered not only by management, but also, co-workers, customers, and the employee themselves. This type of assessment can result in a valuable and motivational tool toward long term progress. In addition, results should be disclosed to the employee, and rebuttals or modifications should be encouraged and accepted. I think the employee has a right to know how the evaluation is measured, scored, and who were the participants involved. The evaluation should mention past performance versus present performance, and what expectations the employer needs for the long term. The WorldatWork handbook for Compensation, Benefits & Total Rewards suggests using objective performance feedback appropriately and with confidentiality to ensure employee trust, and once trust is established, performance and individual development will evolve. (WorldatWork, 2007).

Implementing Changes

How these changes will be implemented as discussed in the succeeding paragraphs. The first change discussed above should be implemented by policy and training. Policy surrounding merit pay must be easily understood and goals must be reachable. Rewards that are out of reach will only discourage an employee. Training and knowledge on how the policy works must be known and understood. Top management and human resources must be made available to answer questions, determine time lines, and discuss program requirements. The second change discussed above should be implemented by maintaining fairness. A solid merit program should establish a valid and credible measuring system that abides by fair labor standards, does not discriminate and is not too complicated to understand. Departments should be categorized, based on midpoints, and rated according to specific range criteria. For example, customer service will have their own range and rating system according to specific CSR guidelines; the accounting team will have specific rating criteria, and the probationary employees must meet a specific threshold. Other factors such as technological advances in the ability to monitor and measure performance should be utilized as trends fluctuate, along with documenting how past employee evaluations were conducted and the positive or negative impact during each phase.

Nonmonetary Changes

Several nonmonetary changes will help motivate better performance. The most influential of these are described in the succeeding paragraphs. The first nonmonetary change is equity based rewards such as stock options, stock awards and stock alternatives. This can be allocated through employee stock purchase plans, defined contribution plans, and employee stock ownership plans. A corporation can allocate stocks based on performance reviews and assessments. For example, a performance share plan awards shares of stock based on performance. The second nonmonetary change is in the form of company paid benefits such as medical and dental insurance, and defined benefit plans. Defined benefit plans are normally based on tenure and require the employee to become vested either fully after a specific amount of time of graded meaning the employee becomes partially vested over time until full vestment is reached. Nonmonetary changes that will motivate employees can be as simple as company paid training or education. Recognition programs such as employee of the month programs and flex time can also encourage employees to be motivated, productive employees.