Plastco Compensation Management Case Study

Plastco Packaging Case

Prepared by: Richard Marx

Spring 201_ 

2 Table of Contents

Table of Contents

2

Introduction and Synopsis

3

Background Information/ Current Operating Environment

4

Primary Problems

7

Secondary Problems

9

 Alternatives/ Solutions

13

Recommendations

18

Implementation Plan

20

 Appendix A - Plastco Departmental Chart

23

Endnotes

24

Bibliography

25

Case Study Analysis Form

26

3 Introduction and Synopsis This report introduces us to the Plastco Packaging Company, its current operating environment, and the many problems it faces. The report proceeds to identify solutions, and weighs their their costs and benefits. This document then proposes some recommendations and an implementation plan to resolve the serious business crisis facing Plastco." Plastco Packaging is a medium sized company producing a variety of plastic bags for  the retail chain market. The company is organized into two main departments: the bagmaking and maintenance departments. Plastco’s classical managerial style heavily influences the company's culture and values, employee and labour relations, and compensation system. The maintenance department staff ensures the bag-making machines are regularly serviced and maintained in proper working condition. But it is the bag-making department where Plastco is experiencing poor employee relations and low job satisfaction and low employee motivation as well as significant turnover of female employees. Management is keen to improve the motivation and morale of bag-making employees to boost the quality and and quantity of their production. And it has to to act quickly because customers are complaining about the the quality of the the company's plastic bags. What's more alarming is that a competitor has suddenly emerged on the scene. The competitor  is producing better quality plastic bags at a lower price and thus is quickly gaining market share. Plastco management recognizes these internal and external changes as triggers to revise its compensation compensation strategy. The company is considering re-designing jobs within the bag-making department to incorporate more intrinsic rewards. By changing its reward strategy, the goal is to add the greatest possible value to their organization and yet remain cost effective. Management is also open to changing its managerial style and organizational structure to improve employee relations, the quality of its products, creditability with customers, and boost profitability and market share to ensure long-term viability.

4 Background Information: CURRENT OPERATING ENVIRONMENT Contextual Framework Variables 1

i.

Plastco's environment is stable and non-complex

ii.

Its corporate strategy can be described as a defender and low cost. The company wants to dominate the narrow plastic bag market.

iii.

Its technology can be characterized as long-linked. The task of producing Plastco bags is routine. The company produces large batches of identical bags in a standardized way.

iv.

Plastco’s unionized workforce is low skilled and of modest income.

Managerial Strategy

Based on the preceding contextual framework, the company has clearly adopted a classical managerial strategy. The next heading below examines the structural  implications of such a strategy  Structural Framework Variables 2

Besides the rewards system, these are the levers Plastco employs to produce a desired behaviour from its employees. i.

In terms of  job design , Plastco’s bag-making jobs separate thinking from doing and are narrow and fragmented

ii.

Coordination and departmentation is strict and formalized with a pyramidal

hierarchy emphasizing accountability. This structure enables vertical coordination and departmentation by function. iii.

The processes used to control employee behaviour require external control through supervision, along with strict rules, punishment and some extrinsic rewards.

iv.

Communication can be described as formal and vertical and is restricted.

v.

Decision-making and leadership at Plastco is limited to a task-oriented

autocratic decision making style. Supervisors are quite controlling of their  subordinates actions.

5 vi.

The reward system (compensation system) at Plastco is an extrinsic economic reward system directly linked to hours worked. In addition, the company provides 20% indirect compensation in the form of benefits to company employees. Benefits increase with seniority.

Task Environment/Domain

Plastco’s narrow domain is defined by the variety of plastic bags it makes. Key elements of the company’s task environment include its customers, competitors, suppliers and regulatory agencies it must adhere to, i.e. the Ministry of Labour and the Provincial Human Rights Commission. Competitors, Employees, Culture & Values & HR Function Competitors: Plastco must contend with an emerging competitor who can produce

better quality bags for less. Plastco is losing market share to this competitor. Employees: the Company’s non-management employees are unionized and are

divided into two departments; the bag-making and maintenance departments. The Maintenance Department staff ensures the bag-making machines are regularly serviced and kept in proper working order. It is the bag-making department where Plastco is experiencing poor employee relations coupled with low job satisfaction, motivation, morale and significant turnover of its female employees. This department consists of: •

• • •

1 bag-making supervisor at the top, followed by 6 all male bag-making operators; 4 all male utility workers, and finally 6 all female inspector/ packers.

The last group of workers is the lowest paid at $12/hour and is experiencing almost 100% turnover each year. See Appendix A for full details on the salary, reporting relationship and flow of  information within Plastco’s bag-making department. Culture & Values: Classical firms prefer to depend on formal structures and focus very

little on organizational culture Human Resources Function:

6 Note: The case assigned does not make any mention of a human resources manager, or even an HR department operating within Plastco. There does not appear to be

anyone at Plastco who serves as an HR Generalist to work in concert with the plant managers and two departmental supervisors to motivate employees. Thus, it is not clear  who bears ultimate responsibility for the successful design and administration of  Plastco's compensation system. This responsibility could reside with the owner of the company or its CEO, which is also not mentioned in the case. The company could also choose to contract out the compensation function to firms who specialize in this area. However, it is more feasible to assume that Plastco would create a new HR Manager position to take on this vital function in collaboration with the union. Plastco absolutely needs approval from the union representing company workers to institute changes to their compensation system via a collective bargaining process. 3

7 Here are the Primary Problems facing Plastco from most to least severe: 1. Ineffective Compensation System4 Who’s Involved

Plastco CEO, the Plant Manager, 2 departmental supervisors, input from workers and the union representing the workers. Impacts Low Job Satisfaction

Negative membership behaviour leads to increased employee turnover; Workers group norms are negatively impacting the bag-making department’s output; and Poor interpersonal relationships are creating divisions among the workers. Low Organizational Identification

Negative organizational citizenship behvaiour leads to low employee cooperation, and no desire from them to demonstrate extra effort, initiative, customer service, and to go the extra mile. Low Employee Motivation

Negative task behaviour leads to an inability to reach desired performance levels defined by management as well as decreased job effort.

2. There is no HR manager to recruit new and capable staff, to work with departmental supervisors to motivate staff, and to design and administer the compensation system. Who’s involved?

Plastco's senior management does not appear to be taking the company's human capital very seriously. They have yet to hire or promote from within an HR manager and develop a strategic HR plan linked to the company's vision, mission objectives, values and culture. Impacts

It would be cheaper to promote someone within the company to the position of HR manager rather than hiring externally. 3. Female employees are not being maximized and there is a near 100% turnover  of female employees.

8 Who’s Involved

Senior management at Plastco has done nothing to promote its female employees into higher positions within the bag-making department and into the management team. The union has failed to properly represent the female Plastco employees. The union could do more to advocate for their career success. Impacts

The company is not following employment equity legislation. The female workers could very easily file a grievance with their union given they are not rising within their department and often are blamed unfairly for their incompetence by male colleagues. If relations continue to deteriorate between management and the staff, the company could face a strike only further impairing its productivity and profitability. 4. There does not appear to be a succession plan in place for employees. Who’s Involved

The company's management and hr personnel have not prepared a succession plan to promote from within and attract new talent from outside. Impacts

The time and cost of preparing a succession plan is well worth it. Currently, with no succession plan in place, the company's productivity and bottom line are suffering.

5. Production has fallen to minimum levels and is adversely affecting profitability. Who’s Involved

Production has fallen to minimal levels because there is no real employee communication and coordination between Plastco’s two departments Furthermore, the maintenance department is not properly servicing the bag-making department's machines resulting in low productivity levels. Impacts

Plastco's reduced productivity and reduced quality plastic bags have led to increased customer complaints and high levels of waste. This in turn, has led to a loss in customers, market share and profits.

9 6. A new competitor has emerged offering better quality and cheaper bags. Who’s Involved

Since Plastco employees are not happy with their jobs and feel poorly compensated for  their work, performance levels have declined resulting in lower productivity and lower  quality plastic bags. Customers are upset with Plastco’s inconsistent product quality and are migrating over  to the new competitor. Impacts

Plastco cannot afford to lose its customers and market share. The company is at real risk of going under if it does not act quickly to turn its production levels and profits around.

7. A shift in consumer attitudes to embrace environmentalism has made the future of the plastic bag industry uncertain. Who’s Involved

 All company employees are at risk if they find themselves in an industry that has no future. Impacts

The company needs to expand beyond its current narrow domain of only manufacturing conventional plastic bags. New alternative bags should be developed and sold immediately, i.e. 100% biodegradable bags, or plastic bags manufactured from recycled materials. Plastco needs to develop alternatives which are cost-effective and popular with customers to regain market share and profitability.

Here are the Secondary Problems facing Plastco from most to least severe: 1. Plastco employees are dissatisfied with the rewards they receive Who’s Involved

Senior management, HR personnel, Plastco's unionized employees and their union.

10 Employees wanting to be better compensated may demand better pay at Plastco. If  they feel they are not being heard, they may demand improved job duties. They may even decrease their work performance, or leave the company altogether. Impacts

Plastco's employees' reward dissatisfaction was caused by a: 5 •

Violation of Psychological Contract Plastco employees believe their job efforts

are not fairly compensated. •

Employees perceive an inequity for the rewards they receive for all their hard work.

•

Relative Deprivation Plastco female perceive they are worse off compared to their 

male coworkers. •

Lack of Organizational Justice

The bag-making department's employees perceive the company’s procedures, interactions and outcomes to be unfair in nature

2. Plastco's classical managerial strategy is suboptimal and creating a host of  employee relations and declining performance and profitability problems.

Management’s reliance on the classical managerial style is only providing enough rewards to foster a bare minimum employee and employer relationship. As a result, job and reward satisfaction, as well as company loyalty, membership behaviour and organization citizenship are all low. The current rewards are not sufficiently motivating staff. And frankly, the real employee motivator is the threat of dismissal. 6 Impacts

Employee turnover and declining productivity and profits cannot be sustained much longer. Market conditions and customer satisfaction are deteriorating rapidly particularly as a new competitor has emerged on the scene. Given the extremely high level of female employee turnover, Plastco may be subject to a grievance. 3. Plastco's classical managerial strategy is suboptimal and creating a host of  employee relations and declining performance and profitability problems. Who’s Involved

11 Company management, Plastco bag-making department’s unionized employees and their union.

Within the bag-making department, one operator leaves the company every year. 33% or 1.32 utility workers depart every year. Nearly 100% or almost 6 out of 6 of the female inspector/packers leave the company every year. Impacts

Continued employee turnover cannot be sustained for much longer. Female employees may very well file a grievance with the union or a human rights complaint with the provincial human rights commission. 4. Employee relations are so poor that a rift now exists between the two departments, and within the bag-making department. Who’s Involved

Employees from both departments and employees within the bag-making department. The wage gaps across the bag-making department are creating serious tensions and contributing to employee turnover. Impacts

There is poor communication between the two departments. Currently, lower level employees in both departments have to rely on vertical communication up through their  supervisors and the plant manager. Communication then flows back down again so that they may finally communicate with each other. This is impairing their sense of  organizational commitment and creating a lack of confidence in management. See Appendix A for an illustration of this flow of information.

The six bag making operators earn $24/hr, and the four utility workers earn $18/hr  followed by the six female who only earn $12/hr. Given that women employees are not advancing up the department ranks and their turnover is nearly 100%, they have clear  grounds to file a grievance. 5. Plastco's management needs approval from the employee union to institute changes to their compensation system via a collective bargaining process.

Who’s Involved

 An imminent workplace conflict may be brewing between Plastco’s management team and its unionized employees

12 If management is not careful, the union may push for a grievance and possibly a strike in an attempt to improve working conditions for its members. Management should also investigate a variety of organizational and workplace innovations to improve employee as well as labour relations. Impacts

Management should be keen on creating more harmonious relations with the union. But collective bargaining takes time. It may take 4 months to a year for the union and company to agree on compensation changes. The length of time depends on the changes proposed, and how complex they are to administer. Plastco may not be in a position to tie up its management staff for so long even though it may not have a choice. If employee and labour relations continue to deteriorate, the union may call for a strike and that would be disastrous to company production and profits.

13 Alternative/ Solutions 1. Design and implement an optimal reward and compensation strategy to advance Plastco’s corporate strategy and support a new managerial strategy to add the greatest possible value to their organization.

BENEFITS/ PROS •

•

If designed properly, this solution can motivate employees, boost morale, and promote desired work behaviour, controls compensation costs, and ensure pay equity.  An effective compensation program can retain and attract qualified employees.

•

Meet employees' intrinsic needs leading to greater work satisfaction and performance. Intrinsic needs are the non-financial psychological rewards employees receive by completing meaningful work and doing it well. 7

•

Redesign employee jobs to contain the 5 intrinsically motivating dimensions of job enrichment. 8 These five dimensions are as follows: o task identity o task significance skill variety o o  job autonomy o  job feedback

•

Strive to offer a comprehensive total rewards package, including an attractive base salary, comprehensive health and wellness benefits, vacation package, company pension plan and stock options to help employees reach their potential at work and at home.

COSTS/CONS •

•

Plastco needs union approval first before it can make changes to the compensation system and this will take time. This is time it may not have given its current unfortunate position in the marketplace.

Plastco needs union approval before it can implement performance pay which is in opposition to seniority-based pay. This method of pay increases with an employee’s tenure. 9

14 •

•

Plastco will likely not be offering above market wages to its employees given its constrained financial position. It may have to offer non-monetary rewards to employees instead. Implementing a Total Rewards Package may cost more and time then the company can afford in the short-term. But it is definitely worth striving for if the company recovers a healthy profit margin through restoring the quality of its products and trust with customers.

2. Plastco can abandon its current classical managerial strategy and adopt a human relations approach and then perhaps later, pursue a high involvement strategy.

BENEFITS/ PROS

•

•

•

By moving away from a top down managerial strategy to alternative managerial strategies which encourage more learning and participatory decision-making, Plastco employees can experience greater autonomy at work, i.e. working as part of  self-managing teams.

This option affords greater staff cross-training, capacity building and workforce retention.

Both human relations and high-involvement managerial strategies are more intrinsically motivating thus resulting in higher morale and better employee performance and greater productivity.

COSTS/CONS

•

Plastco may not have the staff expertise, resources, time and money to switch managerial strategies.

3. Plastco can select an HR Manager from its existing management or  supervisory team and then create an HR plan.

15 BENEFITS/ PROS

16

•

•

 An HR manager is a vital management position necessary to revamp company operations for the better.

 A new HR manager can proactively manage the company's workforce and help anticipate any major staffing changes and assist with succession planning.

COSTS/CONS

•

•

4.

There is no guarantee that senior management will create this new position.

Plastco may not have sufficient internal candidates capable of doing this job well. The company may have to go through an expensive external competition to find one.

Plastco can deliver better products with improved quality and customer  service. A total quality management tool like Six Sigma can reduce production costs and improve quality. 10

BENEFITS/ PROS •

This is absolutely essential to reassert the company's position in the marketplace and win back its customers.

COSTS/CONS

•

The company may not be able to respond in time to the competitive threat it faces and regain the trust of lost customers.

5. Plastco's new compensation strategy can improve employee interpersonal relationships.

BENEFITS/ PROS

17 •

•

•

•

•

•

This is absolutely essential to reassert the company's position in the marketplace and win back its customers. Plastco can pay its female employees more and can promote them to higher  positions within the company to address pay inequity and avoid the risk of a union grievance. Improving interpersonal relationships boosts employee morale leading to improved product quality and quantity.  A new compensation strategy incorporating more intrinsic rewards can lead to more harmonious and satisfied employees. Resolving the significant wage difference between Plastco employees can also help boost employee harmony and morale. Management can strive to reward top performers to further enhance workforce productivity.

COSTS/CONS •

•

•

•

Plastco needs union approval to institute the changes to its compensation system. Plastco proposed changes to wages, hours and working conditions must be made in collaboration with the union via a collective bargaining process. This process can take a long time (4-12 months) depending on the complexity of the changes proposed. This is time Plastco may not have given the precarious business situation it finds itself 

6. To address rising environmental attitudes, Plastco can develop quality green products to retain its customer base and regain lost customers.

BENEFITS/ PROS •

•

Plastco can replace its current product line with similar bags that are all 100% biodegradable. The company can investigate converting its excess waste for reuse at the plant.  Alternatively, it can convert it into other marketable plastic products.

18 COSTS/CONS •

•

It will take and money to convert Plastco's production process. The company may be incapable of affording these changes right now given its weakened financial position and that a competitor is quickly gaining market share from Plastco.

7. Plastco can automate its entire bag-making department and thus dispense with the department's compensation costs altogether.

BENEFITS/ PROS •

This option makes sense if Plastco's revised compensation strategy for its bagmaking department costs more than automating the department.

COSTS/CONS •

•

•

Overhauling the plant will be expensive and more than what the company can afford right now. The union representing the bag-making department’s workers would never accept this option. They would never accept the sudden job loss of its members. This option could trigger a prolonged strike over the automation issue.

19

Recommendations Here are 2 or 3 activities offering the best payback & which offer the most bang for buck 1. Plastco should adopt a cost-effective optimal reward system consisting of a total rewards package to support their corporate strategy and promote desired employee behaviour.

The company should also switch to a human relations strategy, and at a later date switch to a high involvement managerial strategy. "There are five elements of total rewards, each of which includes programs, practices, elements and dimensions that collectively define an organization's strategy to attract, motivate and retain employees." 11 These elements include i.

Compensation

ii.

Benefits (non-monetary)

iii.

Work-Life Balance

iv.

Performance and Recognition

v.

Development and Career Opportunities

Justification for choosing this action Both human relations and high-involvement managerial strategies are more intrinsically motivating than the company's current classical managerial strategy. Both result in a more engaged work group and higher morale which leads to better performance and higher productivity.  A comprehensive total rewards package can be designed to incorporate more intrinsic rewards into existing company jobs motivating employees to be more harmonious and satisfied to perform at their best. A total rewards approach reduces turnover and absenteeism and retains and attracts qualified employees. Furthermore, a more engaged workgroup improves the quality and quantity of production and can thus boost profitability and thus pay for the cost for the new compensation program. This recommendation assumes that the union also agrees the launch of a Total Rewards Package is in the best interests of its members.

20

2. Plastco should select an HR Manager from their existing management team.

Justification for choosing this action The new HR manager should devise an HR Plan and work immediately to retain women in the company as well as promote them to higher positions in the company ranks. This will address the pay inequity women face and get the company in compliance employment equity legislation. From a strategic point of view, an HR manager can proactively manage the company's workforce and assist with succession planning. Such a manager could prepare written guidelines for clarification with respect to all company policies such as “when and how employees are paid, how bonuses, incentives or salary increases will occur, and all elements that have to do with what happens if an employee leaves the company, whether they are terminated or voluntarily quit.” 12

3. Plastco should improve the quality of its products via the Six Sigma methodology to regain the trust of its customers and improve profitability.

Justification for choosing this action By improving the quality of existing products and by developing innovative new ones, such as biodegradable plastic bags and new plastic products developed from waste, Plastco can rebuild its profit margin, customer base and market share to take the lead over its competitors.

21 Implementation Plan Short Term (