Introduction
A good hiring and pay plan is essential for the success of any business establishment. If the plan is not good enough then it is likely to reduce on the productivity of the employees thus reducing the firm’s profitability. A pay plan for instance cannot be the same for all the employees in a given company. Therefore the payment for different employees has to be varied. Many companies are in the process of increasing the proportion of variable pay in their employee pay packets. Employers always want to incent and reward their employees while at the same time tying such incentives to identifiable results. A variable pay plan can be viewed positively or negatively depending on how it is communicated and the nature of the business. Variable pay plan can be a very powerful way of motivating the employees thereby increasing their productivity and in the long run improving the organization’s profitability. A pay plan should be able to motivate and compensate while at the same time providing some measure of security to the employees. A variable pay plan should also have some form of upward mobility. A company needs to carry out a thorough analysis of the market situation and the firm’s profitability so as to be able to determine ways of implementing a successful hiring and pay plan.
Evaluation of the hiring and payment plans
The following procedures should be followed by companies that want to implement a hiring and variable payment plan for their employees:
1. Understand the firm’s strategy: What business goals is the plan going to achieve?
2. Align the metrics with the strategic goals: involves determining the extent to which the plan will benefit the organization
3. Communicate clearly up and down the organization: All stakeholders must demonstrate support for the plan and give their input on the plans viability
4. Monitor the program: This is done so as to ascertain that the program is working
1. Summary of the situation
Effective Management Solutions (EMS) is a small and rapidly growing consulting company that has a variety of activities queued up in its operations. The company has divided its practice into four areas namely: The Management Systems, Business Process Improvement, Human Resources and Quality Improvement. The company has embarked on a growth plan seeking a 25% revenue increase in each of the next five years for each of the four practice areas. One of the key components in the plan is an improvement in staffing since the company is lacking in staff to take up additional clients. Each of the four practice areas has 25 associates. Each year five associates are promoted to senior associate within the area and five associates also leave EMS for other consulting firms. Therefore each practice area needs a replacement of about 10 new associates each year. The company is currently providing each of the job receivers with generous packages and a nonnegotiable competitive salary. Out of the total offers made by EMS, only 50% of the offers are accepted. The other 50% take up jobs in larger establishments that offer better packages with rapid promotions and short-term variable pay program. Such challenges facing EMS has pushed the company into revamping its current job offers. EMS has therefore asked Manual Rodriguez, who functions as a one-person HR "department" for EMS, to develop a job offer proposal for the EMS partners o consider at their next meeting. Rodriguez is therefore required to make a plan that will increase the job offer acceptance rate, slow down the outflow of associates to other firms, and not create dissatisfaction problems among the currently employed associates.
The proposed plan required the offer receiver to choose on one of the payment plans namely: the high-risk, standard, and low-risk.
i. The high-risk plan provides a starting salary from 10% to 30% below the market average and participation in the annual bonus plan with bonus range from 0% to 60% of current salary.
ii. The standard plan provides a starting salary of 10% of the market average and participation in the annual bonus plan with a bonus range from 0 to 20% of current salary.
iii. The low-risk plan provides a starting salary that is 5% above the market average and no participation in the annual bonus plan.
i. The average market rate will be determined by salary survey data obtained by HR.
ii. The individual bonus amount will be determined by individual performance on three indicators: number of billable hours, number of new clients generated, and client-satisfaction survey results.
iii. The hiring manager will negotiate starting salary for those in the high-risk and standard plans, based on likely person/job and person/organization fit and on need to fill the position.
iv. The hiring manager may also offer a "hot skills" premium of up to 10% of initial starting salary under all three plans
v. Switching between the three plans is permitted only once every two years.
vi. Current associates may remain in their current plan or opt into one of the new plans at their current salary.
2. Would the HVP program be attractive to an applicant?
Yes, the HVP program would be attractive to me as an applicant since it takes into consideration the welfare of the employees. It gives the employees a chance to participate in the annual bonus at ill. This will help the employees to get a reward for the good job done throughout the year. The HVP program is also flexible and gives the applicant a chance to get good pay for a work well done.
If I am to choose an offer, I would go for the standard plan which has a good pay even though below the market pay price, but the difference is relatively smaller. The plan also gives the offer receiver a chance to participate in the annual bonus. This plan has less risk since the pay is relatively higher as compared to the high-risk plan which relies mostly on the annual bonus. Incase the company’s profitability declines, the applicant will not be exposed to much risk therefore making this plan more favorable.
3. Will the HVP program increase the job offer acceptance rate?
Yes, the HVP program will increase the job acceptance rate as it has flexible packages that can allow different applicants to choose from. Most of the associates who were leaving EMS were moving to other establishments that offered similar packages and some had even less superior packages. The introduction of the program is likely to help in the retention of employees as they will be able to participate in the annual bonus as they get a reasonable pay. Any applicant not willing to participate in the annual bonus offer will also receive a higher pay for the job done thus improving on their earnings.
4. Predict and justify if the HVP program will likely reduce turnover
The HVP is likely to reduce the turnover for the company while at the same time improving on the earnings of the employees. If a person does not participate in the annual bonus offer, the company has to reward him/her through increasing on his/her pay. This will in turn reduce on the earnings of the company. If an employee chooses to earn less from his/her pay and participate in the annual bonus offer, he/she will be rewarded from the annual bonus offer. Therefore no matter the plan chosen by an associate, the company has to reward the associate in one way or the other thereby reducing the company’s turnover as the additional pay to the associates could have otherwise been part of the company’s revenue.
5. Give your opinion about how current associates will react to the HVP program
Most of the current associates are likely to be attracted to the new HVP program as it has very attractive rewarding schemes for the associates. Most of the large firms that absorbed associates from EMS did not have such attractive plans. Therefore the associates are most likely going to stay within EMS and continue discharging their duties effectively as there is a very attractive plan for them. Most of the associates are likely to choose the standard plan as it has good pay and also gives the associates a chance to get some share from the company’s profits at the end of every year.
6. Suggest what issues and problems the HVP plan will create for Human Resources and for the hiring manager
The HVP program looks very attractive to the associates as they are able to get a share from the work done to the company. However, the program is likely to cause some problems to the human resource and the hiring manager. Some of the problems include the complexity involved in determining the pay for the workers and the bonus at the end of the year. The hiring manager is also likely to be faced with challenges of determining the productivity of the associates and establishing the associates legible for promotions since the plans do not give a formula for determining the associates legible for promotions.
7. Propose and justify changes in the HVP program
The program should also have a plan for determining the associates who are legible for promotions. This plan focuses mainly on the reward schemes for the associates and does not focus on ways of improving the profitability of the company. There is no mechanism that can be used by the company to determine the productivity of the associates, associates who choose the low-risk scheme are likely not to be productive since there is no metric for determining whether they have been productive or not. A mechanism needs to be introduced for determining individual associate productivity and reward or interdict them in order to improve on their productivity.
References
1. Davis, Michael L., Edge, Jerry T., (2004) Executive Compensation, The Professional’s Guide. Windsor Publishers
2. Ferracone, Robin A., (2005) Selecting Performance Measures and Setting Goals, in Executive Compensation the Professional’s Guide to Current Issues & Practices
