group 6 bestlaidincentiveplans

8/13/2019 Group 6 BestLaidIncentivePlans

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The Best-Laid Incentive Plans

By :

Group 6

Neha Agarwal

Ramyaa Ramesh

Ashima Malik

Ritesh Pandey


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Case Introduction

Hiram Phillips is the CFO and chief admin officer atRainbarrel Products

Rainbarrel is a diversified consumer-durablemanufacturer.

Hiram is of the opinion that the company has greatpotential for growth but was held back by lack ofdiscipline.

He brings about various changes to throughout theyear to get the company on track by working onoperational inefficiencies and cost reductions.


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Changes Made

Reduction in labor cost : Identified the bottom quartile ofperformers throughout the company and offered them agenerous buyout package. This was not accepted so heimposed a headcount reduction of 10% on all units.

Better customer service: Improved number of calls per-day by50% by reduction of time spent on each call made by retailcustomers regarding questions and complaints

Monitoring : Monitored the calls after announcing newertargets and places names of worst offenders on wall ofshame.


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Changes made

Shipping: Good were to be shipped on the date promisedand they will not be counted as shipped until they leftcompany premise.

Commission on sales employees: Sales personnel received

commission on goods sold at lowered prices to employeesand retired employees on the full retail price, it was changedto commission on actual purch.ase price


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Issues arising due to changes

Patents: Creativity is lost due to mindless counting ofwho gets most patents, copyrights, grant proposals.

Salespersons: There were complains by current andretired employee about poor treatment by salespersonnel when enquired about the companyproducts.

Layoffs: Reduction was based on headcount andnot on cost, highest performing departments had

been forced to layoff companysbest employees


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Issues

Shipping : Although the product left the companypremises and were hence marked shipped, theywere still not delivered to the client on time

Call-center : Replies to the emails were late andwhen calls were made to complain, the employeesseemed to always be in a hurry to end the call.Hence reduction of average time for one callresulted in a feeling of unwillingness.


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What went wrong

Measuring no of calls is not a good indicator of customersatisfaction, whether the call resolved the issue is important.

No inputs were taken from the employees on design of thesenew measures.

The measures were based on the assumption that thecompany is not working hard enough.

By rewarding the short term performance they were missingout on long term success.

Uncertainly among employees due to poorly planned layoffs

and increments. No involvement of other top level managers into the changes

brought about.


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Traps of performance management

Measuring against yourself: Phillips just looked at internal comparisonsand did not benchmark what other were doing.

Looking backwards: The performance system must ensure that thedecisions being made are going to help in future. The future scope ofthe decisions made was not considered. The aim was to cut costs inthe present.

Putting faith in numbers: the plan looked only at profits and did notconsider the fact that more satisfied employees produce moresatisfied customers.

Gaming the metrics: The metrics could be manipulated as the lowperformance employees were being paid highest. We could also

observe employees gaming with the system of mail responses. Sticking to number for too long : Instead of considering greater

number of calls taken as employee satisfaction, each customersindividual queries are resolved or not must be considered. HencePhillips just stuck to the defined number without analyzing its impacton the business.


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What could have been done

Use performance metrics that are less employee focused andmore customer focused.

The criteria for success has to be clearly defined whether it issales, profits or retained business

CEO and HRM must be involved and not leave the rein in

hand of CFO alone. The decisions taken in the organizationshould be taken unanimouslyby all stakeholders .

Take regular feed back from employee while implementingnew measures or changes to measure its impact.

Hire new employees to decrease workload Require employees to answer emails within 24 hours of

receiving them

Provide customers with a tracking System


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Thank You

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