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COMPENSATION AND NEGOTIATION IN EMPLOYEE RELATION
TABLE OF CONTENTS 1.0
Introduction - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -- - - Page 3 1.1
Scope and Objectives - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - Page 3
1.2
LAUFEN Company brief and Overview - - - - - - - - - - - - - - -- - - - - - - - - Page 3
2.0
Body - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - Page 4 2.1
Organizational value - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - Page 4
2.2
Straight Salary Plan - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - Page 5
2.3
Commission Only Plan - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - Page 5
2.4
Combination Salary and Commission Plan - - - - - - - - - - - - - - - - - - - - - Page 5
2.5 Guaranteed Draw Against Commission - - - - - - - - - - - - - - - - - -- - - - - - - - - Page 6 3.0
Overview of compensation strategy - - - - - - - - - - - - - - - - - - - - - - - - - - - - - Page 7 3.1
Regional Cost Calculator - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - Page 8
3.2
Regional Comparison Spreadsheet - - - - - - - - - - - - - - -- - - - - - - - - - - - Page 9
4.0
Salary and Additional Benefits - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - Page 11 4.1
LAUFEN Company Total Compensation Table - - - - - - - - - - - - - - - - - Page 12
5.0
Conclusion and Recommendations - - - - - - - - - - - - - - - - - - - - - - - - - - - - - Page 13
6.0
Reference - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - Page 14
Adua Famonure 109021072 MBA – HRM
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1.0
Introduction Compensation is one of the most important activities in the running of a company, according to (Haseeb, Fahad & Ali, 2012) it is a key element of the employment relationship and, in addition to being the single greatest operating cost for many organizations. It is one of the key elements to attracting and retaining employees. Compensation can be defined as including all forms of pays given to the employees arising from their employment (Dressler, 2008). By my understanding, compensation can be defined as the totality of what is given to an employee in return for services rendered to a company. For compensation to be satisfactory to the employee of an organization, it must have a few very basic elements. (Thomas Patton, 1977) explained that compensation must be; Adequate, Equitable, Balanced, Cost effective, Secure, Incentive providing and acceptable to the employees. 1.1
Scope and Objectives The main objective of this report is to review the compensation strategies of the LAUFEN company group. the relation between compensation and employee performance and contribution will also be elaborated
1.2
LAUFEN Company brief and Overview The focus of this study will be the LAUFEN Company’s compensation strategy. The LAUFEN Company which is a giant in the kitchen and bath sector, with a wide range of products. When the company LAUFEN was founded in Switzerland in 1892, sanitary conditions were well below today's standards and level of convenience – standards to which LAUFEN, the only sanitary porcelain manufacturer producing exclusively in Europe, contributed. The history of some of the company's production sites goes back even further in time. Around 1878, the pioneer of the mechanized production of sanitary ceramics was a factory belonging to the Austrian monarchy. Not only tradition, but also the well-established situation of the various European manufacturing sites in their home markets of Switzerland, Austria and the Czech Republic, has
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helped lay the secure foundations of LAUFEN quality. The aim of LAUFEN back then and also today is to be a leader in technology, service and design. As early as the 1980s, the most efficient injection molding technology in the field of ceramics processing was invented in Switzerland by LAUFEN, a breakthrough that constituted a lasting contribution to industrial production. Just as important for LAUFEN are the continuing developments in the field of design: Wall mounted toilets and floor-standing washbasins, for instance, have made a new aesthetic possible. LAUFEN has now widened its expertise and its portfolio of sanitary ware, bathtubs, furniture and accessories by adding faucets to the product range. In 1854, Charles Kugler founded a small company for brass products in Lausanne. The first water and gas valves in Switzerland were produced here in 1863. Faucets have been manufactured at the LAUFEN site since 2009 2.0
Body 2.1 Organizational value
What are the compensation types and rates in your specific marketplace?
Do you determine the value of each position in the company and how much that position is worth?
What type of compensation program will appeal to your staff?
What job requirements does each position demand?
Will your program be individual or team driven – or both?
Will your total compensation program be in line with total company expenses and operating costs?
Will you be able to communicate your compensation strategy and philosophy to staff?
Will your pay scale for various positions reflect the relative importance of the job and the skills and experience required to perform the job?
Will your compensation program and policies keep up with the changing nature of the labor market – such as in recruiting and retaining the best employees?
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In the kitchen and bath industry, there are almost as many compensation plans as there are businesses. This is okay – as long as your plan works for you. Here is a look at four of the most popular plans and their pros and cons: 2.2
Straight Salary Plan – This plan pays the employee a set salary (for exempt employees) or an hourly wage (for non-exempt employees) on a regular (weekly, bi-weekly or monthly) basis.
Employee pros to this plan include security, a guarantee of the same amount of money each month, ease in budgeting and the fact that the employee makes the same amount regardless of productivity of performance. The con is that it provides no real incentive for the employee.
For management, the advantages to this type of plan are that it’s easy to plan and budget, easy to administer and it offers total control over what is paid. The disadvantages for management include the lack of incentive and that the employee makes the same amount, regardless of productivity. 2.3
Commission Only Plan – This may only apply to salespeople. It pays a certain percentage on monthly sales or gross margin – or a combination of both.
The advantages for employees are the incentive to sell more or increase the margin – or both. There’s no limit to how much can be made. Disadvantages for employees are that there can be a variance in income, making it harder to plan and budget.
For management, the pro is that they only have to pay for productivity. The cons for management is that, since this plan is hard to plan, budget and administer, it tends to discourage team players; it can cause employees to become too aggressive and it can lead to management losing control over employees. Additionally, if pay is set by sales only, then there is no incentive to achieve margins. 2.4
Combination Salary and Commission Plan – The compensation is made up of a percentage of guaranteed salary and commission which is driven by productivity.
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Management sets both with a goal that the total will offer both security and incentive.
Employee pros include some income guarantee and some incentive, which provides more security than a straight commission structure, while still offering employees the chance to have some control over pay. Cons include a salary that only accounts for part of the total compensation, and a limited incentive that may not
be
enough
to
give
employees
a
feeling
of
control.
For management, the pros to this arrangement are similar: There is some incentive, and the employee must be productive to earn at least part of that total compensation. The cons include the difficulties in administering such a plan, while the incentive may not be large enough to keep staff motivated. Plus, management can only budget a portion of the plan. 2.5
Guaranteed Draw Against Commission – This is a straight commission plan (can be on sales, margin or both), but instead of waiting for sales/margin results, the employee gets a guaranteed amount in advance. This is then deducted from the commissions
when
the
results
are
tabulated.
Employee pros for this plan are that the employee doesn’t have to wait until the commission is figured to see some income, and there’s a big incentive to sell more, increase margins or both. Even better, there’s no limit on how much can be earned – but with the guaranteed draw, the employee can still plan and budget. Employee cons for this plan include that underachievers can fall behind and end up
owing
the
company
money.
For management, the pros of this plan are that they can plan for paying the same amount every month, which makes it easy to budget. And this plan means they only pay for productivity. Cons for management include difficulty in collecting if the employee falls behind, the challenges in administering such a plan, inability to accurately budget, the danger of employees becoming too aggressive and the loss of some control over
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employees. If the commission is only on sales or margins, this could cause the employee to lose incentive, as well. Fair Wages - A new Kitchen & Bath Design News survey reveals that while compensation structure varies widely, designer/salespeople are consistently working long hours for less than stellar pay, with the salary gap between the sexes particularly evident. For complete results of the survey, check out the 6/07 issue of KBDN, and see how it compares to KBDN’s compensation survey from several years ago. 3.0
Overview of compensation strategy The compensation strategy determines the limits on compensation for employees in a company. It provides the business with the predictability of the personnel expenses and helps to control the personnel expenses efficiently. (Andie. C. Z, 2012). Every company has to have a compensation strategy such that works fine for them and their employees. The right compensation strategy would help a company attract and retain employees. It should be externally competitive and market driven. The atmosphere in LAUFEN is basically egalitarian; the compensation strategy is such that it is fair and transparent. Everyone in a certain class begins with the same salary and as the class rises, so does their salary. It is such that everybody knows what every other person’s take home is at the end of the day. Once a year, a presentation is made revealing everyone’s take home. The essence of this is to eliminate the issues of petty salary jealousy or gender bias. In addition to being fair, the starting salaries at MBAs, fresh graduates and even summer interns are very externally competitive, in some cases even higher than the bigger consulting firms like Mckinsely and Bane & co. The big difference in compensation is seen in the yearend bonuses. It’s given based on individual performance, and courtesy of the fact that it is merit based; an employee’s bonus can range from zero to 40% of salary. It’s also dependent on d season, off seasons, the bonuses are considerably lower but peak season, the bonuses are higher. (Wetfeet insider guide). In addition to good salaries, LAUFEN gives topnotch benefits which include free 100% health insurance, three months' paid
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maternity leave, and a bonus 15% of pay deposited in a retirement plan. (www.money.cnn.com). More perks like automatic "gold" status on key partner airlines. Everyone gets three weeks' vacation to start -- which rises to four weeks after two years on the job. To make the pot even more attractive, LAUFEN last year launched "Project Choice," which lets people decide how their total compensation is split up. LAUFEN also looks out for employees' work-life balance. The firm issues a "Red Zone Report" showing which consultants have worked more than 60 hours for five weeks straight, so managers can lighten their load. (www.money.cnn.com). 3.1
Regional Cost Calculator
The cost dynamics in Europe can be significantly different than in North America and Asia, and it is important to understand these issues when selecting a call centre outsourcing provider. Finding a call centre outsourcing provider that can optimize:
country specific taxes,
employment regulations,
cultural diversity,
work practices etc
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This is critical, since these factors vary by country, skill set and language. The lowest labour rate does not always translate into the lowest cost-per-transaction after you consider employer taxes, working hours, paid vacation, productivity, etc. 3.2
Regional Comparison Spreadsheet The average wage is a measure for the financial well-being of a country's inhabitants. A similar measure is GDP per capita. However, GDP (on the income side) = compensation of employees + gross operating surplus/mixed income + taxes on production - subsidies. This way, various components increase the GDP that are not directly contributing to the well-being of citizens. In particular, the gross operating surplus consists of corporate profits, which is money that companies save, reinvest, or pay to their shareholders in the form of dividends (who may be located outside the country). Even in the case of reinvestment, much of the money moves offshore, especially with larger multi-national companies. In order to measure the part of the income generated by the domestic economy that is actually earned by the employees, it is better to break down the GDP to its components and consider only wages and salaries.
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4.0
Salary and Additional Benefits
Pay: Not fantastic, but definitely above minimum wage for even general warehouse positions. The pay is reasonable, but you certainly won't get rich working for LAUFEN.
Respect: Incredibly respected as an individual and coworker. As someone else said, there are two sides to LAUFEN. the management from those who were hired into high positions as outsiders manage nothing close to LAUFEN management philosophy, while those who worked their way up are much more respectful, understanding, and motivating. The latter find a way to relate to coworkers without making them feel like they're on a different level, although they may be.
Benefits: LAUFEN's benefits are great. What may be lacking on your pay stub is seriously made up with the benefits. Dental is so cheap and covers a considerable amount every year. The education assistance is a great incentive to finish a college degree. Medical insurance is also a great incentive to work.
Job Security: Great job security because employees feel valued in their department, but location did let go of nearly 30 people during the slump in the economy for general warehouse positions.
Work/Life Balance: With sick days available when your spouse or child is sick, LAUFEN has a good work/life balance. In the departmental level, employees feel incredibly fortunate to have a team leader and boss that so understand if there is something that they need to do. For example, they allowed employees take a few days off during a blackout period because or occasions such as marriage, which would seem obvious. Also, if employees have something going on, they try to be flexible with work schedule if possible. Employees used to be a seven day operation, but they made incredible adjustments to the operation to reduce it to Monday through Friday so coworkers could be with their families on the weekends.
Career Potential/Growth: LAUFEN's philosophy of growth is motivating, but unfortunately, the opportunities aren't always there. This does not really have anything to do with the company, but rather the seemingly low turnover rate in branch location.
Location: The branch building is 30 miles from the nearest big city, so this is
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a big negative. The branch management worked with the local GET bus to arrange a special bus route for employees building to help coworkers reduce the cost of gas. Unfortunately, the buses pickup over an hour before your scheduled shift, so it is really a choice between valuing your time or your money.
Coworker Competence: this is a negative 5 because the attitude of Employees has a recurring theme of immaturity. Employees want everything handed to them, rather than work for it. Most Employees complain of not having the chance to move up, but make no effort to do so. They join committees and take no responsibility for tasks, yet they expect rewards. It's frustrating to see, as it is for management to deal with. Employees have VOICE meetings where coworkers are free to express themselves. Employees consistently hear complaints in these meetings that the team leaders haven't solved this or that problem, yet Employees admit to not trying to solve it themselves. They want raises, promotions, and recognition, but don't want to work for it.
Work Environment: Department is very laid back because the management trusts the coworkers to do their jobs. There are definitely more uptight departments in our building.
4.1
LAUFEN Company Total Compensation Table DIMENSION
STRATEGY
OBJECTIVES
Focuses on innovation and creativity, strategy and operation projects Attracts and retains the unique talents from different backgrounds. Focuses on clients and maximum delivery.
INTERNAL ALLIGNMENT
Egalitarian atmosphere. Fosters team culture
EXTERNALLY
Market competitive in base and benefits
COMPETITIVE
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Generous and unique benefits. EMPLOYEE
Recognizes individual employee contributions,
CONTRIBUTIONS
bonus is by merit, based on individual employees performance, up to 40% of base salary During low profit years, bonuses are lower, but during years of exceptional company performance, BCG rewards staff by awarding an additional bonus
MANAGEMENT
Supports
employee’s
career
and
personal
development during and beyond BCG. Open communications. Regular check-ins and individual coaching with PTO facilitators
5.0
Conclusion and Recommendations LAUFEN Company offers a contusive work environment with a lot of benefits, although take home pay yet remains uncompetitive when comp aired with regional costs and earnings. Emphasis has to be laid on motivation in order to get a high worker output.
Some improvements that can be made are a 5% increase in entry level salaries
End of year bonuses for employees, transport and feeding allowances should be given to employees
With these incentives offered, motivation amongst workers will be higher than the present level.
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6.0
Reference 1. Thomas, (1977), “Relationships between Accountability, Job Satisfaction, and Trust”, Human Resource Development Quarterly, Volume: 13, pp: 307-323. 2. http://www.laufen.com/wps/wcm/connect/laufen_com/en/company/ 3. Gary Dressler (2008), Human Resource Management, Prentice Hall, America. 4. Muhammad H.,Mirza F., Ibrahim A. . (2010). Compensations, Managing Compensations and Types of Compensations – Views of Scholars/Researchers about Compensation. Management Information System. National University of Sciences and Technology 5. Phil, A. (Unknown). What importance do organizational values have in small Available:
businesses?
http://www.task.fm/What-Importance-Do-Organizational-
Values-Have-In-Small-Businesses. Last accessed 2nd December 2012. 6. www.bcg.com 7. Andie
C.
Z.
(2012).
What
is
Compensation
Strategy?
Available:
http://andiecz.hubpages.com/hub/What-is-compensation-strategy. Last accessed 2nd December 2012. 8. www.wikipedia.com 9. Unknown.
(2012).
100
Best
Companies
to
Work
For.
Available:
http://money.cnn.com/magazines/fortune/best-companies/2012/benefits/.
Last
accessed 3rd December 2012. 10. Unknown.
(2012).
25
Top
Paying
Companies.
Available:
http://money.cnn.com/galleries/2011/pf/jobs/1101/gallery.best_companies_top_payin g.fortune/10.html. Last accessed 3rd December 2012.
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