On-Line Human Resource Management Experiences

On-Line Human Resource Management Experiences

How Much to Pay: Finding the Right Balance at SuperFoods

Word of your consulting success is spreading rapidly, and SuperFoods has retained your services to help management evaluate the company’s compensation strategy and practices. The basic HR strategy of SuperFoods, a producer of dairy products, is to keep pay levels low but to ensure fairness. As you talk with the top managers about their beliefs concerning pay, it becomes quite clear to you how you can help them align the company’s compensation strategy with its overall competitive strategy. The management team has asked for your input on various aspects of compensation. What will you include in your recommendations that will allow the company to retain its current HR strategy?

What Action Do You Take?

A.  Recommend that SuperFoods follow the Free Agent (Variable Transactional) HR strategy.

B.  Recommend that SuperFoods follow the Bargain Laborer (Uniform Transactional) HR strategy.

C.  Recommend that SuperFoods follow the Loyal Soldier (Uniform Relational) HR strategy.

Incorrect Responses

A. The Free Agent approach suggests high pay levels and short-term incentives so that does not align with SuperFoods’ goal of low pay levels and consistent processes. / C. The Loyal Soldier approach suggests similar pay levels for everyone and rewards for employee loyalty so that does not align with SuperFoods’ goal of low pay levels and consistent processes.

On-Line Human Resource Management Experiences

How Much to Pay: Finding the Right Balance at SuperFoods

Summary of Steps Taken:

1.  Recommend that SuperFoods follow the Bargain Laborer (Uniform Transactional) HR strategy.

The SuperFoods’ goal of low pay levels and fair, consistent processes aligns very well with the Bargain Laborer (Uniform Transactional) HR strategy. Uniform compensation seeks to build a sense of teamwork by paying employees similarly regardless of performance level. Transactional commitments emphasize short-term pay and bonuses. Uniform transactional compensation fits with a Bargain Laborer HR strategy by reducing labor costs. Because pay is lower than it probably should be, an important aspect of compensation in these organizations is to develop fair and uniform practices that increase perceptions of fairness.

The SuperFoods’ senior management team wants you to recommend any theories of motivation that will work for them while still following their Bargain Laborer HR strategy.

What Action Do You Take?

A.  Recommend that SuperFoods can use the reinforcement theory to increase employee motivation.

B.  Recommend that SuperFoods can use the expectancy theory to increase employee motivation.

C.  Respond that while there are many theories of motivation, SuperFoods will likely not have much luck getting any of them to significantly increase employee motivation because of the low pay approach of the Bargain Laborer.

Incorrect Responses

A. Reinforcement theory suggests that people engage in behavior when they receive desirable consequents. These consequents only motivate behavior though when they are contingent. In terms of compensation, this suggests that higher pay should be given if and only if performance is high (i.e. pay for performance plans). This theory will likely not provide significant benefit to a Bargain Laborer. / B. Expectancy theory asserts that people are motivated when they have three beliefs: valence, instrumentality, and expectancy. Valence is belief that a certain reward is valuable. Instrumentality is the belief that the reward will be given if the desired outcome is met. Expectancy concerns people’s belief that they can actually achieve the desired outcome. This theory will likely not provide significant benefit to a Bargain Laborer.

On-Line Human Resource Management Experiences

How Much to Pay: Finding the Right Balance at SuperFoods

Summary of Steps Taken:

1.  Recommend that SuperFoods follow the Bargain Laborer (Uniform Transactional) HR strategy.

2.  The SuperFoods’ senior management team wants you to recommend any theories of motivation that will work for them while still following their Bargain Laborer HR strategy. Unfortunately, you have to let them know that they will likely not have much luck getting any of them to significantly increase employee motivation because of the low pay approach of the Bargain Laborer.

While one or more of the theories of motivation (reinforcement, goal setting, justice, expectancy, and agency) may provide some increased motivation to the SuperFoods’ employees, uniform compensation practices are not nearly as effective as variable compensation practices for encouraging high motivation. The goal with uniform practices is instead to create a culture of fairness and cooperation. Incentives that encourage high individual performance can lead to sabotage, which reduces the performance of the group as a whole. With a Bargain Laborer strategy seeking to pay the lowest possible wages, employees are likely to move from organization to organization depending on which organization is willing to pay the most.

The conversation next turns to pay level strategies and how the compensation structure is determined. The SuperFoods’ management team is looking for more positive news with this set of recommendations (but still wants to keep their current strategy).

What Action Do You Take?

A.  Recommend that they continue to focus on the lag-the-market pay strategy but strive to reach the meet-the-market level. In terms of compensation structure, recommend a skill-based pay approach.

B.  Recommend that they continue to focus on the lag-the-market pay strategy but strive to reach the meet-the-market level. In terms of compensation structure, recommend a job-based pay approach.

C.  Recommend that they move to a lead-the-market pay strategy to attract top-quality workers. In terms of compensation structure, recommend a job-based pay approach.

Incorrect Responses

A. The pay strategy in this choice is fine, but skill-based pay does not make much sense as it uses differences in employee skills as the basis for determining pay. In that approach, employees are given an opportunity to earn more as they develop more skills (very inconsistent with SuperFoods’ Bargain Laborer strategy). / C. While a move to a lead-the-market pay strategy would indeed attract better quality applicants, this approach simply does not make sense to a company focused on maintaining a Bargain Laborer HR strategy. The job-based pay approach in the second half of this answer is correct though.

On-Line Human Resource Management Experiences

How Much to Pay: Finding the Right Balance at SuperFoods

Summary of Steps Taken:

1.  Recommend that SuperFoods follow the Bargain Laborer (Uniform Transactional) HR strategy.

2.  The SuperFoods’ senior management team wants you to recommend any theories of motivation that will work for them while still following their Bargain Laborer HR strategy. Unfortunately, you have to let them know that they will likely not have much luck getting any of them to significantly increase employee motivation because of the low pay approach of the Bargain Laborer.

3.  The conversation next turns to pay level strategies and how the compensation structure is determined. Recommend that they continue to focus on the lag-the-market pay strategy but strive to reach the meet-the-market level. In terms of compensation structure, recommend a job-based pay approach.

While a lag-the-market pay strategy probably makes the most sense for a company such as SuperFoods, it is possible for Bargain Laborers to be at meet-the-market in terms of pay (average level for other organizations). With job-based pay, each job is assigned a point value based on various characteristics of the job, and people working in jobs worth more points receive a higher pay. Since Bargain Laborers usually don’t seek to hire people who have developed specific skills, this strategy can be an attractive option.

You are still meeting with the SuperFoods’ management team and start talking about the Fair Labor Standards Act (FLSA). Knowing what you do about SuperFoods, which of the compensation practices governed by FLSA is likely to be the biggest concern you need to make sure they are aware of?

What Action Do You Take?

A.  Remind them of the FLSA regulations concerning minimum wage laws.

B.  Remind them of the FLSA regulations concerning exempt vs. non-exempt employees.

C.  Remind them of the FLSA regulations concerning overtime.

Incorrect Responses

B. This is a possibility with a company like SuperFoods (Bargain Laborer) as they may try to classify their hourly employees as exempt just to avoid paying them overtime. We need to assume they are not unethical though. / C. This is also a possibility with a company like SuperFoods (Bargain Laborer) as they may try to avoid paying the overtime rate of 1.5 times the normal wage rate because of their emphasis on reduced labor costs. More likely though is them simply not allowing OT hours at all.

On-Line Human Resource Management Experiences

How Much to Pay: Finding the Right Balance at SuperFoods

Summary of Steps Taken:

1.  Recommend that SuperFoods follow the Bargain Laborer (Uniform Transactional) HR strategy.

2.  The SuperFoods’ senior management team wants you to recommend any theories of motivation that will work for them while still following their Bargain Laborer HR strategy. Unfortunately, you have to let them know that they will likely not have much luck getting any of them to significantly increase employee motivation because of the low pay approach of the Bargain Laborer.

3.  The conversation next turns to pay level strategies and how the compensation structure is determined. Recommend that they continue to focus on the lag-the-market pay strategy but strive to reach the meet-the-market level. In terms of compensation structure, recommend a job-based pay approach.

4.  You are still meeting with the SuperFoods’ management team and start talking about the Fair Labor Standards Act (FLSA). Knowing what you do about SuperFoods, you remind them of the FLSA regulations concerning minimum wage laws.

Great job! The relatively low skill level of the SuperFoods’ workforce suggests that the wage rate for the employees will be very near the minimum wage that is allowed under the law because of the emphasis on reducing labor costs. Keep in mind that effective organizations have compensation practices that motivate employees to do things that help increase their firm’s productivity. Strong compensation and benefits packages attract better employees who are more likely to stay and are more highly motivated, which leads to higher levels of performance (as we will discuss in the next chapter).

For More Information:______

A number of Web sites are available for more information on compensation practices, theories of motivation, pay level strategies, pay structures, and FLSA:

·  http://www.shrm.org/ - Society for Human Resource Management (SHRM) website that provides information on a variety of HR disciplines.

·  http://www.workforce.com/section/02/ – Information on a variety of HR functional areas and employment law topics.

·  www.hr-guide.com – Information on a variety of HR functional areas and employment law topics.

·  http://www.hr-guide.com/compensation.htm - Website dedicated solely to compensation issues.

·  http://humanresources.about.com/od/salaryandbenefits/Salary_Benefits_Variable_Pay_Bonuses_Profit_Sharing.htm - Website dedicated to compensation issues.

·  http://www.dol.gov/esa/whd/flsa/ - DOL website dedicated to the FLSA.