Case Assignment # 2: The Design of a PFP System for Mega Manufacturing Overview This exercise evaluates the feasibility of different ap- proaches to PFP given the strategic plan of the organiza- tion. As discussed in the chapter, the effectiveness of the PFP system depends on a number of factors. This exercise will give the student the opportunity to consider some of these factors in proposing an ideal PFP system. Learning Objectives After completing this exercise, you should be able to 1. Identify the key organizational variables that should be considered in the development and/or revision of a PFP system. 2. Understand the role and importance of other HRM activities (e.g., job analysis, performance appraisal) in the development of a PFP system. Procedure Part A: Individual Analysis Step 1. Read the scenario that follows. Step 2. You have been retained as a consultant who must report to Ellen Lennett, director of incentive program development at Mega Manufacturing corporate headquarters. You will be working with the Kanto division. You have been asked to address the five issues raised on Form 11.1.1. Respond to each of the issues and recommend a specific program that supports both Mega’s incentive policy and Kanto’s situation. Your recommendation should consider at least the five points. Also, complete the Assessment Questions form. What were the key variables you considered in your selection of an individual- or group-based PFP system? What changes in organizational characteristics would seriously affect your recommendations? What circumstances would lead you to conclude that a PFP system would not be in the best interests of the organization? YOU WILL SUBMIT YOUR INDVIDUAL ANALYSIS TO THE “INDIVIDUAL ANALYSIS OF CASE 2” SUBMISSION LINK ON THE ASSIGNMENTS PAGE. The two memos in Exhibits 11.1.1 and 11.1.2 may be relevant to the recommendations you will make. Ellen Lennett has received the notes, one from Don Walker, vice president, compensation and benefits, and the other from Bill Idrey, a compensation specialist she sent to help the Kanto personnel department. Part B: Group Analysis Step 1. In groups, each member should review the individual reports and take notes on the most important points. Each member also should devise his or her own strategy for identifying the best group response to make for each of the five questions presented in Form 11.1.1 plus any additional issues the group considers to be relevant. The group also should devise a list of key questions that must be answered by management before a firm position can be taken on the elements of the PFP system.
Step 2. ONE group member should be designated to submit a five-page paper listing the recommended questions and summarizing alternative recommendations. SUBMIT TO “GROUP CASE ANALYSIS 2” TURNITIN SUBMISSION LINK ON THE ASSIGNMENTS PAGE. Scenarios Mega Manufacturing International is a large diversified company with its corporate headquarters in Boston and manufacturing plants, research and development facilities, and distribution and marketing centers in the United States and around the world. Mega Manufacturing is pursuing a long-range strategy of producing high-technology products for three markets: military, industrial, and retail consumer. Because of the intense competitive pressures in its chosen arenas, Mega Manufacturing believes it must obtain the maximum effort from its personnel. In support of this belief, Mega Manufacturing has adopted a policy of paying for performance (PFP). Typically, many of its divisions have incentives comprising a substantial portion of executive pay (40 percent to 150 percent of base pay possible in various types of incentives) and a significant portion of supervisory and employee compensation (5 percent to 25 percent possible). To expand its capabilities in the new electronic surface- mount technology, Mega Manufacturing acquired GW Industries, which had several plants producing high-quality surface-mount electronic parts. The Kanto assembly plant was part of GW Industries; however, it was an older plant producing electronic parts for an industrial process rapidly approaching obsolescence. Although the products were produced on an assembly line, individual workers had relatively little contact with each other, and the skills required were relatively low. Kanto had been a profitable operation for GW, but Mega Manufacturing has to switch Kanto to a different product and process or close the plant. Kanto has a reputation for paying average to below- market wages, but it was viewed as a dependable and stable employer with a good benefits package. As a consequence, Kanto has had a stable and loyal workforce; but with the buyout of GW and the consequent uncertainty surrounding Kanto’s future, there has been talk of unionizing and some of the more skilled employees are known to be seeking other jobs. Mega has decided to offer Kanto the opportunity to manufacture an extremely complex switching device for a military contract. Although the total manufacturing process is complex, it can be broken into steps, with each step consisting of individual skills that can be learned relatively quickly. Groups of individuals, each with a specific skill, will have to work closely together to achieve the required quality levels for each step in the switching device assembly. The nature of the process is such that each individual will have to take an active interest in the success of the assembly or the device will be unsatisfactory. The two memos in Exhibits 11.1.1 and 11.1.2 may be relevant to the recommendations you will make. Ellen Lennett has just received the following notes, one (Exhibit 11.1.1) from Don Walker, vice president, compensation and benefits, and the other (Exhibit 11.1.2) from Bill Idrey, a compensation specialist whom Ms. Lennett sent to help the Kanto personnel department.
We need to give Kanto some more help on setting up its incentives to
adequately support the new switching assembly process. We cannot allow the
conversion process to delay our completing switching assemblies as there is
a large late delivery penalty. Also, Bids and Contracting apparently goofed
and bid too low on the contract to maintain our usual margins. It appears
we have to make up 3% somewhere.
Just a quick note to advise you of some early problems I’m encountering. 1. The employees are learning the new skills, but the supervisors are
having trouble (resisting?) learning the necessary composite skills. 2. The parts we’re getting from our Indonesian plant will sometimes test OK
individually, but not work in the final assembly. It apparently is not feasible to test the intermediate assembly steps.
3. Although job analysis says the steps and tasks are essentially equal, two of the assembly steps are perceived as being more important and thus as having higher status by the workers.
4. Robert Horne, the plant manager, is complaining that the new final quality check supervisor, Beatrice Inggold, is too strict and will slow down production.
5. Engineers from Design & Fabrication come in and watch, occasionally making suggestions, but I’m darned if I can see what they are contributing.
1. Is an incentive program appropriate? Explain your position.
2. If so, should there be one, two, or several plans?
3. Who should be included?
4. What should be the basis for incentive payments?
5. What kinds of incentives should be included?
1. What were the key variables you considered in your selection of an individual- or group-based PFP system?
2. What changes in organizational characteristics would seriously affect your recommendations?
3. What circumstances would lead you to conclude that a PFP system would not be in the best interests of the organization?
EXERCISE 11.1 ASSESSMENT QUESTIONS
- Learning Objectives