The existing compensation system at Henderson Printing seems to be working properly, as all employees know how to maximize their annual bonuses. Even though it is not described in the company’s statute, the system is helpful for improving overall employee performance and increasing productivity because people know that their work affects the volume of compensation. In this way, it does meet most of the criteria for an effective compensation system. For instance, because in case of signing a promising contract, rewards are higher, it does help to reach organizational objectives – increasing incomes.
For the same reason, it promotes desired employee behavior, as all of the employees know how to work in order to maximize bonuses. Still, there are some misconnections with the criteria. For example, this compensation system is complicated to call an equitable one because the volume of rewards depends not only on employee outcomes but also on George’s mood and his subjective opinion, thus discriminating new employees whom he is unlikely to remember by name. In addition, because George has received the notice from the bank, it is likely that this compensation system does not correspond with the company’s financial means (Long, 2013). Finally, it is hard to determine whether it complies with the law because it is not declared in the organization’s official documents.
Recalling the subjectivity of the existing compensation system, it is acceptable to state that there is a problem with the high turnover of new employees. A potential cause of this challenge is discrimination in the workplace and the lack of communication between employees. The first reason is connected to substantially higher rewards for those who work longer and whom George can remember by name. At the same time, George believes in the necessity to support those employees who have families. On the other hand, there is a potential challenge of ineffective communication between employees because longer-term workers seem to be interested in maximizing rewards and not sharing details of the compensation system with the new ones. From this perspective, this system is unfair and ineffective because it does not attract professionals and contribute to retaining employees and talented people. That said, it violates the equitability criterion (Long, 2013). Still, it is possible to improve the system by making it more transparent and basing it on the objective assessment of performance indicators instead of preserving a subjective approach to bonuses. In addition, informing all employees of the peculiarities of the existing system when hiring them is as well advisable.
Georgette Henderson is undoubtedly right thinking of the implementation of the appraisal system. This idea has both pros and cons. First and foremost, it would make the compensation system objective and transparent, as it would be based on particular determinants of performance. Moreover, the appraisal system would help to specify the volume of rewards and bonuses, thus eliminating the risks of discrimination. Still, longer-term employees might oppose the change, as they are used to the existing subjective system. In this way, the reform might lead to a decrease in employees.
As for the second idea, linking pay to appraisals, it as well as advantages and disadvantages. The most evident benefit is an opportunity to cut the costs, especially keeping in mind current financial problems, and achieve organizational objectives in a cost-effective manner. In addition, it would increase overall employee performance because of the natural desire to earn higher wages. More than that, due to the objectivity of payments, it would help to overcome the problem of high turnover as well as attract and retain talented people. At the same time, there are some potential challenges connected to making payments based on appraisals. Just like in the first case, it might face employees’ unwillingness to change. So, the risks of opposing novation are high. Still, regardless of the evident drawbacks, it is recommended to implement the system of pay based on the appraisal as well as connect bonuses to it. The rationale for advising these changes is the fact that they would motivate employees, potentially increasing their productivity, company outcomes, and customer satisfaction.
The introduction of the merit pay system is a challenge due to the potential employee unwillingness to embrace change. Still, it is possible to implement one in case of having a detailed plan of action. In order to foster change, it is critical to design the list of performance indicators that will be estimated. For instance, time spent at work, customer feedback, the volume of sales, number of contracts, and fulfilling job duties should be appraised. Based on these indicators, it is recommended to form a leaderboard, thus making the volume of merits proportional to performance.
As for the implementation of the system, the first step is the review of the company’s financial means with the aim of specifying the ratio of merits. In addition, it is crucial to inform all employees of the novation, distributing details of the approach. Once all employees are notified, it is essential to conduct a readiness survey in order to find out how many employees will oppose the change. The third step is the design of the implementation schedule and merit timeline. The next move is forming a small group for the simulation of change. The fifth stage is communicating with this group and concluding whether the system is effective. Finally, in the case of recognizing its efficiency, the last phase is the introduction of the system that would cover all employees.
Long, R. L. (2013). Strategic compensation in Canada (5th ed.). Toronto: Nelson College Indigenous.