Thompson Technology:------------------------------------------------- A Case Study in Controlling Labor Costs |

Thompson Technology: A Case Study in Controlling Labor Costs
Summary:
Thompson Technology provides software solutions to the financial industry. From its founding in 1988 through the 1990s, the company experienced significant financial success, growing rapidly from a small startup to a publicly traded organization with approximately 800 employees. The recent economic recession and increased regulation of the financial industry, however, have caused Thompson to experience significant decreases in revenue for the first time. This case focuses on the organization’s attempts to control labor costs by decreasing expenses.
Restructuring After a Hiring Freeze Objectives:
The objectives of the strategic planning retreat were twofold. The first objective was to formulate plans to move the organization into new markets to increase revenue. The second objective was to find ways to reduce expenses. Compensation was a key component of those discussions, because labor costs are Thompson Technology’s largest expenditure. A number of ideas were generated to control costs, although no agreement was reached on exactly what should be done. As the discussions concluded, however, everyone agreed that compensation equity was a top priority and that it must reinforce the organization’s strategic advantage of product innovation and exemplary customer service.
Montgomery was well aware that some employees believed their workloads had increased as a result of the reorganizations and staff reductions, so it came as no surprise to him when he returned from the retreat to find his desk piled with employee requests for compensation reviews.
The strategic planning team will meet again later this week. Montgomery wants to be ready with a plan to refocus Thompson’s compensation system. He has scheduled a meeting with your team this afternoon and has asked you to provide him with the following information:
1. What should be done about the numerous employee requests for compensation review, and how can Thompson Technology ensure equity in the compensation system?
2. How can compensation at Thompson Technology reinforce the organization’s strategic advantage of product innovation and exemplary customer service?
Resolution & Alternatives:
1. What should be done about the numerous employee requests for compensation review, and how can Thompson Technology ensure equity in the compensation system?
Montgomery cannot ignore the requests. The fact that his desk is piled with employee requests for compensation review indicates a widespread belief among employees that the reward system is inequitable and not appropriately correlated to the level of work being done. Reward systems are expected to attract, retain and motivate employees. It is imperative, then, that employees perceive the system as equitable to avoid decreased morale decreased productivity and employee turnover that results from employee dissatisfaction. There are a number of actions that Montgomery can take to address employee dissatisfaction and to ensure compensation equity: * Realign workloads to ensure equity and reasonableness. The employee loss from the long-term hiring freeze caused an imbalance across the organization and significantly changed the workloads for the remaining employees. HR must work with managers and employees to conduct an audit of the workload changes that occurred. There may be employees who are significantly overburdened because they assumed the workload of a co-worker who left the organization. Montgomery may need to conduct a job analysis to get a better understanding of the work being done by employees. At the very least, the job analysis should include employees who were affected by workload re-alignment. Based on information derived from the analysis, workloads should be redistributed, and managers must be reasonable in their expectations of employees. * Audit the compensation of all employees to determine where workloads are out of balance with compensation. If compensation has become significantly distorted by changing work assignments, Thompson may need a complete overhaul of the compensation system. Thompson should adjust the compensation of those employees who are most affected by workload reassignment. * Conduct a job evaluation. A job evaluation is the process of determining the relative value of one job in relation to another in an organization. Its primary function is to ensure internal equity across the organization (Mondi, 2012). In addition, Montgomery should assess the organization’s compensation strategy to ensure it is appropriate for the current circumstances. * Conduct a salary survey. Thompson should ensure external compensation equity if it wants to be competitive in the marketplace. If Thompson’s compensation has sunk below the market price for comparable jobs in the community, they will experience unintended employee turnover. A salary survey can determine if Thompson’s compensation is still at competitive levels. * Realign the salary structure as needed. Thompson should realign its compensation structure where needed based on the information derived from the job analysis, job evaluation and market survey. Pay grades and pay ranges must be updated to ensure competitiveness in the marketplace and equity across the organization.
2. How can compensation at Thompson Technology reinforce the organization’s strategic advantage of product innovation and exemplary customer service?
If they haven’t done so already, Thompson may want to include performance based pay as part of its total rewards package. According to a 2010 survey from outsourcing firm Kelly Services, there is a high degree of interest from employees in having a portion of their compensation tied to the financial performance of their organizations. The survey also found that nearly a third of U.S. workers whose pay was not tied to performance believed they would be more productive if they had a greater stake in the companies that employ them through benefits such as profit sharing. Linking compensation to performance may also help Thompson increase sales revenue (Miller, 2010).
Incentive plans must be well designed if they are to contribute to the organization’s success. Effective plans meet the following requirements (One, Hollenbeck, Gerhard & Wright, 2011): * Performance measures are linked to the organization’s goals. * Employees believe they can meet performance standards. * The organization gives employees the resources they need to meet their goals. * Employees value the rewards given. * Employees believe the reward system is fair. * The plan takes into account that employees may ignore any goals that are not rewarded.
For Thompson, exemplary customer service is a strategic advantage. Thompson may want to consider linking performance bonuses directly to accomplishment of customer service goals. Performance bonuses maintain flexibility in compensation because they do not add to the employee’s base pay and have the advantage of being re-earned during each performance period. Bonuses can be used as a one-time reward, or they can be part of an ongoing system. Thompson employees would probably like to see the company institute a performance plan; research indicates strong support from employees for performance bonuses that are linked to productivity (Miller, 2010).
Thompson may also want to consider adding a profit-sharing plan to its existing rewards system. Profit sharing encourages employees to think like owners and increases understanding of how their individual performance is linked to company profitability. Profit sharing also has the practical advantage of costing less when the organization experiences financial difficulties.