Compensation Management

Assignment On Case study

Designing a variable Incentive Scheme as part of overall Compensation Policy the Farlang Aluminums experience"

SUBMITTED BY:

Monica Pattela-10337 Dilip kumar MN-10310 G.V.Sarath Prabhu -10113

Assignment Designing a variable Incentive Scheme as part of overall Compensation Policy the Farlang Aluminums experience"

1. Analyze the process of designing and implementing Performance Incentive Scheme at Farlang Aluminum and give your general views. Farlang initially had a traditional compensation policy where in the employees would get a fixed amount as their salary. After a new Vice President- HR has joined this company she proposed about Performance Based Variable Incentive plan. She thought that this fixed compensation system doesnt promote initiative and motivation for improving their performance levels and cover that last mile to achieve results. And so she had arranged for a meeting and explained. After she had explained about the concept and its merits and benefits, all the divisions including CEO agreed to it. She was also advised to come up with appropriate schemes and plans, in consultation with others present in the senior management meeting. So she headed by meeting each divisional head and asking and learning about the processes and activities included in their department and noted their opinions. Each divisional head shared their views on factors and criteria on which the employees performance can be evaluated and linked with their pay. Like for example, Manufacturing President expressed his view that, for manufacturing function should primarily be based on four factors-production department shall get highest priority; service functions like Plant Maintenance, Quality, etc. shall the next and people from functions like Planning, Dispatch / Logistics, Safety and etc., would go in to the third category. In terms of levels, work staff and operators performance would purely be assessed on the basis of productivity and volume of production, at supervisory and frontline managers some behavioral and personality aspects like ability to plan, communication, cost and quality consciousness, safety, etc. should also be kept in mind while quantifying the overall level of performance. Similarly various departmental heads have expressed relevant and suitable factors to evaluate. And eventually in a two months scheme, she came up with a Performance Based Incentive Scheme in four different parts 1. Manufacturing Personnel; 2. Marketing Personnel; 3. Mining Division and 4. Other Functions. In terms of manpower cost, these Incentive Schemes involve a 15 to 28% increase in the current total manpower cost, which was Rs. 280 crores per annum. After intense discussion and analysis, the final scheme was sent to the global head quarters, the Board had approved and the Performance Incentive Scheme was implemented in April, 2011 for all regular employees in Indian Operations of Farlang Aluminum. Employees at all levels welcomed it. Most of the individual employees and teams felt that the incentive

scheme would give them motivation to strive to perform well. The results were evaluated. But the results showed a little distracted from what were expected. In my view, this is a good step taken by Ms. Seema Banerjee. She has attempted to improve the scope of performance of employees by linking them to their pay. This is a good attempt, but I think she missed out considering few things like other external factors, competitors, etc. if she would have considered even that, this concept would have been completely successful. She should have also spoken to few senior employees before finalizing the factors of consideration to their pay. Since in the present situation only the views and opinions of divisional heads have been considered and this might have lead to difference in goals of individual and the organization.

2. Was it possible for Seema Banerjee to develop a better incentive scheme which would take care of all known and unforeseeable factors? The attempt she made in introducing the Performance based incentive plan is admirable and it in fact was able to motivate to strive to perform well initially. But the results showed mixed opinions. Manufacturing function had a positive result where as marketing function did not get their desired results inspite of their extra efforts. This had shaken their morale to an extent. There was a little more scope to develop or improvise this incentive scheme which would take care of all know and unforeseeable factors. She should have also considered external factors like market conditions, competitors, etc. because our results would not only be impacted by our own efforts but also on other players efforts in the market too. She should have also consulted experts in the industry and taken their opinions too. There is a point mentioned that though extra efforts were put by marketing people, they couldnt achieve what they had to. I think in this point, in marketing the performance criteria were sales volume for each sales team, product wise or region wise. This being a new product launch from their company, they mustnt have had good market share and their competitors are really tough to compete. And these people should be given more chance and scope. The brand name must have been little low compared to other players. Since it is a B2B product, normally sales are relatively tougher compared to general products (non B2B) and also as it is mentioned that there is a recession effect too. Even that would have been another reason that the sales volume is not much by each team. She must have also taken the experts opinions too before designing the incentives scheme. And also she must have considered various other elements in the incentive scheme along with only monthly salary hike. Other elements could include insurance and health benefits, perquisites, other allowances, etc.

3. How would this one years experience of the 4 divisions of the company affect their future operations and employee morale? The results after one year of the implementation had different and unexpected mixed outcomes. Out of the four major divisions, manufacturing division had got positive results and they could earn performance incentives slightly lower than the envisaged maximum levels. Their spirit has gone really high and got extremely motivated. Their future operations would proceed the same way and they might even be looking to go extra mile and work hard. The projects division also made very good progress and they had most of their projects schedules ahead of dates, could get their required equipment and machineries at a lower cost from equipment manufacturers. They could reap the maximum benefit. They got incentive to its full potential- 100% of the promised amount, every month. They are highly geared up and motivated extremely and developed self confidence, team spirit, and positivity. And this would motivate them to perform the same way. They would continue to put in the same efforts and continue their operations. The mining department didnt have much impact of this incentive plan on them. They maintained same levels of productivity and safety. They were not much bothered about the incentives and made no attempt to improve themselves. The reason could be that the safety levels that they are following now are not too bad and they do not want to stretch too much. Their operations would continue the same way as previous. One of the reasons could be increase in the salary might not motivate. There could be some other factors that could motivate them. May be the insurance or medical assurance might motivate them. The marketing division attempted and put in extra efforts to reach their sales targets. But they were not able to reach them. This might have an adverse affect on their morale. Since marketing is the first department that should be able to gain more benefits of incentive schemes. One of the reasons for their not meeting their targets could be higher sales targets (not attainable). Other reason could be recession effect. They might have to re-look into their targets, processes and all. And then head towards their next action plans. May be they could revise their plans before they step ahead. I think they should consider external factors before they set the targets for the coming year ahead. And also they should also consider checking if there is any need for training required to the sales force. They could also improve the % to motivate further. The division President should take care that the employees do not lose their morale and motivate them to keep trying and train them on few special tricks and tactics to reach their targets. They should also consider about any requirement of training workshop to be conducted, etc.

4. What modifications / changes you suggest for this scheme for future implementation in 2012-2013? I feel that this performance based incentive plan is a good initiative taken as it would give larger scope for the employees to improve themselves. I suggest the factors to be considered for the incentive plan should include both monetary and non-monetary elements like salary hike (which is already existing in Farlang) and recognition and reward system because the motivating element differs from individual to individual. Hence when a combination of both is considered then it might improve the performance (like in the case of mining division). It should also consider various internal and external factors while setting the targets and performance criteria. They can also considering taking industry experts opinions. They should also look back into their procedures and processes and work backwards so that they might be able to bring their missing part into light.