shrm benefits and business case study

8/4/2019 SHRM Benefits and Business Case Study

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B n t an Bu inAfac an L.L. B aBy Sandra M. Reed, SPH

ToTAL RewARdsinstructors Manual


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Project team

Author: Sandra M. Reed, SPHR

SHRM project contributors: Bill Schae er, SPHR Nancy A. Woolever, SPHR

External contributor: Sharon H. Leonard

Copy editing: Katya Scanlan, copy editor

Design: Kellyn Lombardi, graphic designer

2009 Society or Human Resource Management. Sandra M. Reed, SPHR

N Hr l nd ns s:SHRM cases and modules are intended or use in HR classrooms atuniversities. Teaching notes are included with each. While our current intent is to make the materials available without charge, we reserve the right to impose charges should we deem it necessary to support the program. However,currently, these resources are available ree o charge to all. Please duplicate only the number o copies needed,one or each student in the class.

For more in ormation, please contact:SHRM Academic Initiatives1800 Duke Street, Alexandria, VA 22314, USA Phone: (800) 283-7476 Fax: (703) 535-6432

Web: http://www.shrm.org/education/hreducation

09-0235-IM


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2009 s ci ty r Human R urc Manag m nt. san ra M. R , sPH1

Ca ov rvi

In its 2008 annual Job Satis action Survey Report , the Society or Human ResourceManagement (SHRM) reported that or the past ve years, employees ratedcompensation and bene ts among the top three aspects most important to their

job. But despite the importance o these aspects, employee satis action with theircompensation and bene ts packages remains low. According to a Con erence Boardreport, employees are least satis ed with their companies bonus plans, promotionpolicies, health plans and pensions. Employers are missing critical opportunities tomaximize employee job satis action and other organizational outcomes through theirtotal rewards programs. 1

In the book Dynamic Compensation or Changing organizations: People, Per ormance & Pay , The Hay Group asserts that traditional pay structures no longer keeppace with the emerging, strategy- ocused organizations that exist in todaysglobally competitive market. What shi ted were organizational work values, work cultures and business strategies. Although they have been largely overlooked,dramatic changes in the organizational rules have requently rendered traditional

compensation strategies ine ective. Employees today are expected to work in teamsrather than solely on their own. They are expected to keep learning new skills andto assume broader roles. They are expected to take more risks and responsibility orresults. As a consequence, we are slowly coming to the realization that we may bepaying or the wrong things, sending inconsistent messages about the company to itsemployees, or creating arti cial expectations o continued advancement and raises,no matter how well the company per orms. 2

Furthermore, in its publication Implementing Total Rewards Strategies , SHRMnotes that the right total rewards systema blend o monetary and non-monetary rewards o ered to employeescan generate valuable business results. These resultsrange rom enhanced individual and organizational per ormance to improved jobsatis act ion, employee loyalty and work orce morale. 3

Today, HR pro essionals are responsible or programs ar beyond the pro essionsadministrative personnel roots. They are expected to measure the success or ailure o HR practices based on the achievement o organizational outcomes. Brand identity,bottom-line pro tability, employee job satis action and increased management ocusare all outcomes that can be achieved in part through an organizations total rewardsprogram. This case examines two very di erent organizations and how they aligntheir total rewards programs with their organizational goals and values.


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2 2009 s ci ty r Human R urc Manag m nt. san ra M. R , sPHR

A ignm nt d tailLeveL of DifficuLty

Moderate

auDieNce

Undergraduate

Summary of SPecificS

This case study is ocused on how two di erent companies use total rewards ton

support the organizations mission and values and achieve strategic outcomes.

It includes an overview o the two companies, Afac Insurance, a publicly tradedn

company, and L.L.Bean, a privately held retail store. The Afac case study is basedon an interview with Casey Graves, Afac vice president o Human Resources,about Afacs compensation and bene ts programs, with emphasis on how totalrewards statements and employee communication helped the company improveemployee job satis action and retention. The L.L.Bean case ocuses on how elements o total rewards are used as tools to enhance the strategic review process.

Both companies have extensive employee recognition and rewards programsn

designed to support speci c outcomes, such as employee training and development, work/ amily balance, and equitable compensation practices, as well as to create apositive work environment or their employees.

The case study ends with a team presentation using PowerPoint with the goal ton

educate ellow students on the teams ndings and opinions.

Hr toPicS covereD

Total rewardsn

Total rewards statementsn

Strategic planningn

Corporate valuesn

Corporate social responsibility n


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LearNiNg aPPLicatioNS aND objectiveS

By the end o this case study, students will be able to:

Correctly de ne elements o strategic compensation and bene ts administration.n

Apply the concepts o traditional and li estyle bene ts administration as a tool ton

achieve corporate objectives.

Understand that strong shareholder returns and excellent customer service aren

achieved through employees, not in spite o them, and that employees are moreassets than liabilities.

taSkS

Students will select either the Afac or the L.L.Bean case as a basis o study n

or their team presentation. This exercise is not meant to be a comparison o companies, but rather an exploration o how two di erent companies use theircompensation and bene ts structures to achieve organizational outcomes.

Using the material presented in the case studies and publicly available in ormationn

obtained through independent research, student teams will create a PowerPointpresentation to present to the class. It may be use ul to have students prepare abibliography and summary o the resources used to ensure that the appropriatelevel o research is conducted to accomplish these objectives.

iNformatioN to be iNcLuDeD iN StuDeNt Pre SeNtatioNS

Student presentations should include the ollowing in ormation:

Company overview.1.

How the company uses its own products or services to enhance the total2.compensation or its employees.

The internal strengths and weaknesses your team identi ed and how the3.company responded to these actors rom a total rewards perspective.

The external opportunities and threats your team identi ed and how the4.company responded to these actors rom a total rewards perspective.

Examples o traditional and non-traditional rewards and how they are used to5.meet organizational objectives.

How the company aligns its bene ts with its corporate values.6.

Recommendations by the team regarding an expansion o the bene ts programs7.o ered at the company that would urther align HR with the accomplishment o organizational goals and values.


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recommeNDeD reaDiNg

It may serve the objectives o this case study to assign this case at the beginningo the semester and require a summary o each o the web sites researched to becompleted a week prior to the nal presentation. This is more likely to result inthe students accessing the data they will need to accomplish the objectives so thatlearning occurs.

Mathis, R.L., & Jackson, J. H. (2007).n Human resource management (12thedition) [Section IV, Compensating Human Resources, Chapters 12-14].United States: Southwestern Publishing.

Heneman, R. L. (2007).n Implementing total rewards strategies . Alexandria, VA: SHRM Foundation. Retrieved rom www.shrm.org/hrdisciplines/bene ts/

Documents/07RewardsStratReport.pd .

Afac corporate web site:n www.afac.com .

L.L.Bean corporate web site:n www.llbean.com

Daigle, L. (2005, April 15). Afac. Retrieved romn www.georgiaencyclopedia.org/ nge/Article.jsp?id=h-1754 .

Afac. (2008, January 22).n Afac ranked among the 100 Best Places To Work or tenth consecutive year [press release]. Retrieved rom www.afac.com/us/en/aboutafac/ PressReleaseStory.aspx?rid=1098780 .

Necerra, J. (2004, April ). A tale o two companies.n CNN Money . Retrieved romhttp://money.cnn.com/magazines/ ortune/ ortune_archive/2004/04/05/366369/ index.htm .

Gorman, L. (2006).n L. L. Bean: The making o an American icon . Cambridge, MA:Harvard Business School Press.

L.L.Bean is number one in customer service. (2008). Retrieved romn www.marketingvox.com/ll-bean-number-one-in-customer-service-in-2007-035941 .

Simon, E. (2006, December 5).n Attention workers, eat your vegetables.Herald Tribune . Retrieved rom www.heraldtribune.com/apps/pbcs.dll/

article?AID=/20061205/BUSINESS/612050545/1007 .

L.L.Bean (2006, August 30).n L.L.Bean named one o AARPs Best Employers or Workers Over 50 [press release]. Retrieved rom www.llbean.com/ customerService/aboutLLBean/newsroom/stories/08302006_LLBean_Named_One_o _AARP_Best_Employers_ or_Workers_over_50.html .


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L.L.Bean Inc. reports 2006 net sales results. (2007, March 9). PR Newswire.n

Retrieved rom www.prnewswire.com/cgi-bin/stories.pl?ACCT=109&STORY=/ www/story/03-09-2007/0004543313&EDATE .

McGregor, J. (2008, January). The right perks.n Business Week . Retrievedromhttp://images.businessweek.com/ss/08/01/0117_global_perks/index_01.

htm?campaign_id=msn .

AAR P.org. (2008, September).n L.L.Bean, Inc.: 2008 AARP Best Employers or Workers Over 50 . Retrieved rom www.aarp.org/money/work/best_employers/ articles/ll_bean_2008.html .


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Afac In uranccomPaNy iNformatioN

Afac is a Fortune 500 insurance company ounded in 1955 by three brothers, John,Paul and Bil l Amos. Today, Afac employs more than 4,500 people and has morethan 71,000 l icensed independent agents throughout the United States and Japan.The ollowing is an excerpt rom the New York Stock Exchange business summary.

Afac Incorporated is a general business holding company and acts as a managementcompany, overseeing the operations o its subsidiaries by providing managementservices and making capital available. Its principal business is supplemental healthand li e insurance, which is marketed and administered through its subsidiary,

American Family Li e Assurance Company o Columbus (Afac), which operatesin the United States (Afac U.S.) and as a branch in Japan (Afac Japan). Afacsinsurance business consists o two segments: Afac Japan and Afac U.S. Afac Japansells cancer plans, care plans, general medical indemnity plans, medical/sicknessriders, living bene t li e plans, ordinary li e insurance plans and annuities. Afac U.S.sells cancer plans and various types o health insurance, including accident/disability,

xed-bene t dental, sickness and hospital indemnity, vision care, hospital intensivecare, long-term care, ordinary li e and short-term disability plans.

afLac corPorate PHiLoSoPHy

Since its beginning, Afac has believed that the best way to succeed in our businessis to value people. Treating employees with care, dignity and airness are oundingprinciples o Afac.

afLacS miSSioN

To combine innovative strategic marketing with quality products and services atcompetitive prices to provide the best insurance value or consumers.


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guiDiNg PriNciPLeS

To o er quality products and services at competitive prices and use new technology to better serve our policyholders.

Build better value or our shareholders.n

Supply quality service or our agents.n

Provide an enriching and rewarding workplace or our employees.n

tHe caSe at afLac

With a desire to be an employer o choice, Afac Insurance is no stranger to the

competition or talent among employers in the United States. In act, accordingto the Bureau o Labor Statistics (BLS), the unemployment rate in the insuranceindustry was at 3.3 percent in March 2008, a number consistently below thenational and state levels in other industries (Exhibits A and B). This makes ndingand retaining quali ed individuals to deliver positive results to shareholders anongoing challenge.

Organizational outcomes related to human resources at Afac refect many o thebasic unctions, including recruiting, retention, diversity and training. At Afac,the company strives to deliver quality service to its 4,500 employees while stayingcompetitive in the insurance market. Afac prides itsel on being ahead o the curve

rom a consumer perspective and desires to mirror that philosophy in its treatment o

employees. How does the company made amous by the duck maintain the integrity o its brand while delivering results through its people? How important are bene tsand compensation to the companys ability to compete in a growing industry?

Casey Graves, vice president o human resources in charge o compensation andbene ts at Afac, says that the needs o the companys employees continue to be thedriving actor behind Afacs total rewards programs. As with most programs, itbegins with an employee needs assessment and continues to be measured throughoutcomes, which have been directly infuenced through the companys enhancedtotal rewards e orts. The consistent thread throughout this process, according toGraves, is the quality o communication. Graves explains that Afacs total rewardsstatements have evolved rom a one-page document to an in-depth review o the true

value o the employment compensation and bene ts.

Employee satis action surveys and ocus groups conducted in 2007 with Afacemployees and managers drove the needs identi cation process. A key ocus o thesurvey was to help recruit talent and improve retention in an industry with low unemployment rates. Although survey results varied, Afacs response was consistent:to give employees what they need rom a bene ts perspective while balancing thecost, all within a rapid period o growth.


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Throughout the process, the company ocused on providing value-added programsthat would improve employee job satis action, support organizational initiativesand provide opportunities or pro essional development. Afac seeks to accomplishthis by:

Providing A ac products to employees at little to no costn or example,o ering employer-paid li e insurance, a company-paid cancer policy and company-subsidized accident protection insurance.

Providing total rewards in line with philanthropic goals.n Afac dedicatesresources to e orts that support the community in our areas: health, education,

youth and the arts. One bene t o ered to Afac employees is the recognition o a Volunteer o the Month, in which an employee is awarded or the time spent

volunteering at his or her charity o choice.Developing employees or their next career level through extensive employeen

training and leadership programs to keep pace with the strategic growth goalsbeing executed company-wide. More than 91 percent o Afacs employees atthe senior vice president level and above have been promoted through the ranks.

Afacs corporate training department hosts two employee learning initiatives. Therst is a leadership development program with on-site courses or all employeesrom entry level to senior management. There are three levels o classes; some

classes require employees to have taken prerequisite courses that are a part o theo ered curriculum. Instructor-led classes o er a variety o subjects or workersseeking both career and personal development and are designed to help employees

achieve a quality work/li e balance. Course topics range rom Managing YourCareer to Preventing Diabetes.

Cost-containment is on every HR pro essionals mind when discussing employeebene ts. According to the National Coalition on Healthcare, the cost o o eringhealth insurance continues to outpace infation. In act, in 2007, employer healthinsurance premiums increased by 6.1 percent, which was two times the rate o infation. The annual premium or an employer health plan covering a amily o ouraveraged nearly $12,100. The annual premium or single coverage averaged over$4,400. And, as Graves points out, that is added to the cost o steadily growingthe business each year, which includes adding sta . Suddenly, employee bene tsbecome a conspicuous line item on pro t and loss statements and must there ore

enhance the achievement o organizational outcomes in order to be justi ed. Animportant theme in Afacs communication to its employees is that the health carecost containment is an employer and employee shared responsibility.


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Afac seeks to administer bene ts in a cost-e ective manner while staying true tothe concept o employee service. Afac recognizes the actual value o employeebene ts, and as a result, its overall philosophy is that its all about the employee.For Afac, in addition to competitive salaries, it includes designing bene ts packagesthat refect the needs o a multi-generational work orcesome seeking portability,others seeking stability. It is about creating a positive work environment that isconducive to productivityby o ering one o the largest on-site child care acilitiesin the United States. Afac sponsors outdoor adventure days, on-site tness centersand service discounts. It pays 100 percent o the employee premium or its ground-breaking cancer insurance, in line with the companys philanthropic commitments asa socially responsible organization, positioning Afac to lead its industry to enhancedservice levels. These bene ts, according to Graves, send the message to employeesthat they and their li estyles are important to the organization. The proo continues

to be demonstrated in recent employee survey results:

Approximately 90 percent o employees were attracted to and remain at Afacn

because o company reputation.

Employees are happy with the pro t-sharing bonus, with 81 percent o employeesn

saying they believe it is better than that o other companies.

Eighty-nine percent o employees consider Afacs total rewards statement ann

e ective communication tool.

Perhaps most telling o all in the competitive world o insuranceemployee turnoverell below 10 percent in the rst quarter o 2008.


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exHibit a : tHe bureau of Labor StatiSticS, aPriL 2008

iNSuraNce carrierS aND reLateD activitieS: NaicS 524

empl ym nt, Un mpl ym nt & Lay :

D s s D . 2007 j n. 2008 f . 2008 m . 2008

Employment (in thousands)

Employment, all employees(seasonally adjusted)

2,316.8 2,313.9 (P) 2,310.2 (P) 2,314.1

Employment, nonsupervisory workers 1,848.0 1,836.0 (P) 1,839.7

Unemployment

Unemployment rate 2.3% 2.9% 2.6% 3.3%

LayoffsMass layo events 9 13 7

Initial claimants or unemploymentbenefts

514 1,022 468

Footnotes (P) Preliminary

(Source: Current Employment Statistics, Current Population Survey, Mass Layo Statistics)

exHibit b : tHe bureau of Labor StatiSticS, uNiteD StateS civiLiaNuNemPLoymeNt rate, aLL iNDuStrieS

Lab r F rc stati tic r m th Curr nt P pulati n surv y

y j n f m ap m j n j l a S p o N D

1998 4.6 4.6 4.7 4.3 4.4 4.5 4.5 4.5 4.6 4.5 4.4 4.4

1999 4.3 4.4 4.2 4.3 4.2 4.3 4.3 4.2 4.2 4.1 4.1 4.0

2000 4.0 4.1 4.0 3.8 4.0 4.0 4.0 4.1 3.9 3.9 3.9 3.9

2001 4.2 4.2 4.3 4.4 4.3 4.5 4.6 4.9 5.0 5.3 5.5 5.7

2002 5.7 5.7 5.7 5.9 5.8 5.8 5.8 5.7 5.7 5.7 5.9 6.0

2003 5.8 5.9 5.9 6.0 6.1 6.3 6.2 6.1 6.1 6.0 5.8 5.7

2004 5.7 5.6 5.8 5.6 5.6 5.6 5.5 5.4 5.4 5.5 5.4 5.4

2005 5.2 5.4 5.2 5.1 5.1 5.0 5.0 4.9 5.1 5.0 5.0 4.8

2006 4.7 4.7 4.7 4.7 4.7 4.6 4.7 4.7 4.5 4.4 4.5 4.42007 4.6 4.5 4.4 4.5 4.5 4.6 4.7 4.7 4.7 4.8 4.7 5.0

2008 4.9 4.8 5.1 5.0 5.5 5.6 5.8 6.2. 6.2 6.6 6.8 7.2


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2009 s ci ty r Human R urc Manag m nt. san ra M. R , sPHR11

L.L. B ancomPaNy iNformatioN

L.L. Bean is a privately held outdoor apparel specialty catalog and retail storeounded in 1912 by Leon Leonwood Bean, an outdoor enthusiast and entrepreneur.

In his autobiography, My Story , Bean wrote that nothing event ul occurred be orehis 40 th year when he created a leather-topped, rubber-bottomed hunting shoe.

As the legend goes, he sold his rst 100 pairs by mail order with a 100 percent

satis action guarantee. When 90 pairs were returned de ective, he kept his promiseand made the re unds. Bean borrowed $400 rom his brother to per ect the designand went on to become a clothing consultant or the military during World War II,an author and, o course, the president and ounder o a retail giant. As described by

Yahoo nance online:

With L.L.Bean, you can tame the great outdoorsor just look as i you could.The outdoor apparel and gear maker mails more than 200 million catalogs per

year. L.L.Beans library includes about 10 specialty catalogs o ering products incategories such as childrens clothing, fy- shing, outerwear, sportswear, housewares,

ootwear, camping and hiking gear, and the Maine hunting shoe upon which thecompany was built. L.L.Bean also operates about a dozen retail stores and some

15 actory outlets throughout the Northeast. In addition, it sells online throughEnglish- and Japanese-language Web sites.

L.L.Beans annual sales grew rom $616.8 million in 1990 to $1.169 billion in2000, with an average annual growth rate o 6.8 percent. In 2000, L.L.Bean paid a10 percent company-wide bonus.

More than 11,000 people worked or the company during the 2006 holiday season, and in 2007 the company reported $1.5 billion in sales, with approximately 80 percent o those sales coming rom Internet and catalog sales. The company continues to evolve into a multi-channel sales giant through mail order, telephone,Internet and in-store sales.

tHe braND

L.L.Bean has always been a marketing pro essionals dream o creating a brand intoan institution. Strategists, marketing specialists and other business pro essionals(including the competit ion) have tr ied to duplicate the companys achievements

with varying degrees o success. A brand is built on perceptions about quality,service and status created by using a particular product or working with a speci c


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company. A brand can be built using marketing techniques such as visual imagery, wording that identi es what the organization does, and advertising campaignstargeted to a desired demographic. Strong brand identity can build a relationship

with the consumer. In L.L.Beans case, this is a relationship with Maine and thegreat outdoors. The company operates on the belie that the brand should refectBeans values, not just the products it sells. This case examines how L.L.Bean builtthe brand by using employees as the critical channel through which to accomplishstrategic directives.

When Leon Gorman, grandson o Leon Leonwood Bean, assumed the presidency o the company in 1960, he sent a message to employees de ning their stakeholdersthose to whom L.L.Bean was ultimately accountable in a values-driven business.L.L.Beans stakeholders were its customers, employees, vendors, communit ies and

the natural environment.

In addition to a strong customer ocus, the company sought to solidi y the brandthrough social responsibility. Social responsibility is a business concept drivenby the principles o ethically sound practices, awareness o the business imprinton the environment, and improvement o the quality o li e o the companysemployees and the communities in which it operates. Social responsibility atL.L.Bean is divided into our categories:

The environmentn

With company products geared or outdoor use, L.L.Bean ocuses its

philanthropic e orts on preserving the environment. Examples include greenbuilding, charitable giving and employee participation in preservation activities.

Paper procurementn

L.L. Bean is committed to sustainable, responsible paper procurement, animportant consideration because the company mails more than 200 millioncatalogs each year. It uses recycled ber, and suppliers are required to haveprograms in place to support sustainable management o natural resources.

Labor rightsn

When the company decided to move some operations o shore, it made acommitment to labor rights, including human rights monitoring. In act, thecompany terminated at least three o shore vendor relationships that did not meetits human r ights standards. Included in Beans Vendor Code o Conduct arestandards or sa ety, non-discriminatory practices, and air compensationand bene ts. This code o conduct includes processes or auditing andinvestigating complaints.


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Charitable giving n

Charitable giving at L.L.Bean is based on Gormans concept o the stakeholderand the companys heritage in the outdoors. The company has donated more than$5 million toward environmental conservation e orts to groups like The NationalPark Foundation and Ducks Unlimited. It sponsored the Peace Climb up Mt.Everest, during which more than three tons o trash was collected. In addition,quality o li e o the Bean employee and customer is refected in the companyscharitable giving e orts to groups such as United Way and the Portland Symphony Orchestra.

tHe ProbLem

The company spent the 1970s and 1980s developing the brand into an Americaninstitution. L.L.Bean operated on the premise that pro ts are an outcome o strongcustomer service. Pro ts, there ore, were a byproduct rather than a corporate

ocus. Growth was strong, particularly in mail order. By 1990, however, sales werestagnating, productivity was declining and the mailing list was not growing. TheU.S. economy slipped into a recession, and as a result, 1990 was the worst year orL.L.Bean in a decade. Sales growth improved in 1992 when the company expandedinto the Japanese market. In 1995, Bean launched their e-commerce web site.There was signi cant upper-management turnover, though, and Gorman believedthat because o the rapidly changing external environment, the company had lostdirection. In 1996, sales fattened again, and or the rst time under Gormansleadership, the company reported a decline in sales. It was the rst time the board o

directors voted to not award annual bonuses to employees.

tHe caSe at L.L.beaN

L.L.Bean launched a strategic review. The 80+-year-old company had been throughdecades o change, yet its core business model had consistently provided excellentgrowth and pro t. This was no longer the case by the 1990s when the competitivelandscape refected a more technically savvy and cost-conscious customer and globalemployee market. The need to reorganize became obvious to Gorman.

The strategic review process began in 1996 and included analyses o bothstrategic and operational processes, including brand identity, target markets andoperational competencies (employees). HR was one o the strategic business units(SBUs) developed as an outcome o the review process. The SBUs were part o a decentralization process in which each unit had responsibility or its pro t andloss and was held accountable to a balanced scorecard approach in per ormancemetrics. This designation or the HR department allowed it to develop operationaltasks such as compensation and bene ts into a strategic process with measurableoutcomes or example, linking pay to per ormance and increasing employee jobsatis action. In addition, total rewards were used as strategic solutions to many o the


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issues identi ed in the review process, including global outsourcing, multi-channelmarketing initiatives, employee recognition and the rede ning o the brand.

Multi-channel marketing was another outcome o L.L.Beans strategic review. Multi-channel marketing is the ability to o er customers more than one way to purchasea product. The company decided to expand their brick-and-mortar stores andcapitalize on the opportunity presented by the Internet (Exhibit A). According toGorman, Internet retail sales doubled each year since 1996.

A weakness identi ed in the strategic review was that the companys nancial andhuman resources were geared to grow the catalog business but not retail expansionor Internet sales. The diversi cation initiative took sta ng to another level. Forexample, the decentralization o the management team to other locations required

concentrated e orts by the company to in use the non-corporate acilities withL.L.Bean values. The development o new jobs required thorough market research,including a comprehensive job analysis process. The lack o technical skills such asdata processing threatened to topple the organization i it didnt acquire the sta

with the required knowledge, skills and abilities to per orm in a highly competitivemarket at an organization that was used to setting the standards or quality.Developing job descriptions and conducting salary surveys allowed the company to develop a comprehensive compensation and bene ts ramework to manage thisperiod o rapid growth and diversi cation.

As a result o the strategic review process, total rewards at L.L.Bean became a corebusiness practice critical to the accomplishment o organizational goals. Traditionalbene ts o ered at L.L. Bean include per ormance-based bonuses and ca eteria-style health care. Non-traditional bene ts include store discounts, on-site tnessprograms and the use o company-owned outdoor gear such as tents and canoes.The company continues the tradition o outdoor adventure days and trips as a way toconnect employees with the L.L.Bean valuesthe love o the outdoors. L. L. Beanhimsel believed in pro t-sharing with employees long be ore it became a strategiccompensation practice. Back in the days when pay was 18 cents an hour, paid inbrown envelopes o cash, Bean surprised employees with bonuses calculated as apercentage o pro tsBeans employees were paid when the company per ormed.These practices refect the L.L.Bean philosophy that the employees passion orthe company and its products will translate to the customer. As ar as Bean wasconcerned, the company had an obligation to stakeholders, and it began withemployee satis action. As Leon Gorman put it:

Our stakeholders have invested their patronage, careers, nances, social servicesand outdoor values in our enterprise. They trust us to tell the truth, to sell quality products, to guarantee satis action, to pay air wages and provide opportunities

or growth, to secure their investment, to participate in society, and to sustain ournatural environment. They trust us to grow to the extent that we can enhance ourbene ts to them. They trust us to go the extra mile in everything we do. 4


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Global outsourcing o operations brought intense scrutiny to the unction o compensation and bene ts. This resulted in Gorman leading the challenge or air

wages at the companys global subsidiaries and vendors and, in some cases, ringthose who ailed to comply. 5 In addition, global bene ts were markedly di erent

rom U.S. bene ts because they were in used with cultural purpose. For example,among Japans o cial holidays are Respect or the Aged Day, a Cultural Day,the Emperors Birthday and Physical Fitness Day. In addition, although Japansretirement system was similar to the United States (a combination o Social Security and employer-sponsored plans), Japanese employees typically collect one lump-sumseverance payment at the time o retirement based on years o service. Commutercosts and housing subsidies are also common ringe employment bene ts in Japan. 6

Did the 1996 strategic review work? Were employees rewarded or their continued

excellence, loyalty and dedication to the corporate objectives? Lets look atL.L.Beans 2006 Year in Review press release, as reported by PR Newswire:

L.L.beaN iNc. rePortS 2006 Net SaLeS reSuLtS

For the 2006 scal year ending February 25, 2007, L.L.Bean reported recordannual net sales o $1.54 billion, a 4.6 % increase over 2005. The company alsoannounced that its Board o Directors approved a cash award o 7.5% o annual pay to eligible employees, a payout o approximately $25.5 million. An additional $8.8million will be allocated to the pension plan, keeping the plan ully unded.

Its a well deserved bonus, said Leon Gorman, L.L.Beans Chairman o the Board.2006 was a year in which we made excellent progress on a variety o strategicinitiatives important to the uture o our business. We are pleased to be in theposition o rewarding Bean employees or their achievements.

Chris McCormick, L.L.Beans President and CEO, expanded on the year-endresults or 2006. We had a strong start and strong nish to the all and winterselling season, he said. Although unseasonably warm weather had an impacton sales in December and early January, our business per ormed very well andthe product line continues to hit the right mark with our customers. I am very proud o all that we accomplished in 2006 through our employees hard work and dedication, he continued. It was an exciting year with a lot o energy and

growth, including the opening o three additional stores, launching $90 millionin investments in our hometown o Freeport, and making urther progress on theinternational side o our business.


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iNStructor aNSwer guiDe

Company overview.1.In addition to the overviews provided in this case, both Afac and L.L.Bean haveextensive corporate in ormation available online both on their web sites and inthe media. Much o this in ormation is also in this instructors resource and inthe cases themselves.

How the company uses its own products or services to enhance the total2.compensation or its employees.

The instructor should review the student presentations to ensure they haveidenti ed that employees recognize when a disconnect exists between whatan employer o ers its customers and what it o ers to employees. Throughout

the research process, students should recognize that organizations can enhancetheir total rewards programs with bene ts unique to their core business servicesor products.

For example, Afac helps und pediatric cancer research. For that reason, thecompany o ers cancer insurance to their employees with 100 percent o thepremium paid by the company. Ask students how this bene t eature enhancesthe total rewards more so than i a non-insurance provider were to o er it.In addition, would it be as valuable i Afac did not ocus a portion o itsphilanthropy on this charitable cause?

Students may nd this type o insurance valuable regardless o the act that Afacis an insurance provider, as many will have known someone with cancer. As aresult, this may be a good opportunity to discuss corporate responsibility toemployees in particular and society in general.

It is also important to note that employee demographics play an important role increating bene ts packages that will enhance employee per ormance or retention.Families with children may enjoy company-sponsored health care; however,

younger workers may pre er additional time o . Depending on the demographiccomposition o the student group, answers will vary and may include how an organizations bene ts enhance their quality o li e and quality o theiremployment with the organization.


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At L.L.Bean, a passion or the outdoors drives many o the company practices.The company maintains an employee-use room that houses outdoor equipmentsuch as kayaks and hiking gear or employees and retirees to use ree o charge.This ringe bene t also enhances total quality because employees are encouragedto provide eedback on how the products hold up to their designated use. Itis a regular pract ice or teams o employees to take adventure days together.This practice serves as both a team-building e ort and an opportunity to makerecommendations or L.L.Bean product improvement.

The internal strengths and weaknesses your team identifed and how the3.company responded to these actors rom a total rewards perspective.

Afac was struggling with retention and responded through increasedcommunication o the value o employment with the company. The company putin place HR programs with clearly de ned, measurable outcomes and assessedemployee opinions through comprehensive surveys.

L.L.Bean was struggling with the changing industrial landscape in severalareas, including technology and the Internet. Its response was to improvethe companys existing strengthits employeesby rewarding per ormance,increasing opportunities or advancement and enhancing employee service levels.

The external opportunities and threats your team identifed and how the4.company responded to these actors rom a total rewards perspective.

At Afac, an external threat continued to be the increase in the cost o employee

bene ts. By improving communication and de ning bene ts as a sharedresponsibility, the company has been able to balance the rising costs o bene ts

with strategic initiatives such as o ering company products and services toemployees and communicating value over price.

L.L.Bean made changes in an e ort to grow the business while maintaining theintegrity o the brand. It did so by:

Responding to the opportunities presented by multi-channel retailing,n

including brick and mortar store development and Internet sales.

Transitioning to global outsourcing.n

Supporting the companys commitment to social responsibility.n

Establishment o global compensation standards, discretionary cash bonuses,per ormance-based pay, management training programs and expanded

ringe bene ts are all examples o total rewards items that contributed to theaccomplishment o these objectives.


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Examples o traditional and non-traditional rewards and how they are used5.to meet organizational objectives.

Both companies employ traditional and non-traditional rewards e ectively to meet the organizational needs o improved productivity, employee jobsatis action, retention, customer service, diversity and many other strategicobjectives. Examples include those mentioned above, along with a mix o ca eteria-style bene ts plans, fexible spending accounts, paid vacations andgenerous retiree bene ts.

How the company aligns its benefts with its corporate values.6.

Afac ocuses on being an employer o choice. This includes providingopportunities or management and supervisory development using a combinationo in-house training and external resources to develop strong leaders. Inaddition, the companys total rewards statement to employees is an e ectivecommunication tool designed to increase retention as a direct result o thequality o bene ts o ered while still using cost-sharing to o set the rising cost o o ering bene ts.

L.L.Bean continues to build on decades o strong customer ocus to deliverpro table results to its employees and other stakeholders while maintainingprivate ownership. Responding to changing market conditions, competing ina global landscape and a continuing its commitment to the environment arestated L.L.Bean values. For example, L.L.Bean has adopted air labor practices

or workers outside o the United States in the area o wages and working

conditions. The company provides opportunities or employees to participatein activities that sustain the environment and encourages employees to test thecompanys products in team-building adventure days. This develops strongbrand identi cation within the employee ranks that goes beyond traditionalcompensation and bene ts packages. Traditional bene ts o ered include in-housetraining to develop employees to respond to the changing market conditions,

with more than 75 percent o employees participating in in-house classes in2006. 7 L.L.Bean continues its tradition o employing older workers and o erstraditional bene ts to employees even a ter retirement.


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Recommendations by the team regarding an expansion o the benefts7.programs o ered at the company that would urther align HR with theaccomplishment o their organizational goals and values.

With the changing work orce and struggling economy, students should be ableto recommend bene ts such as:

Programs that allow employees to donate their personal time o to othern

employees in the time o crisis.

Expanded ca eteria-style bene ts so employees can spend their bene ts dollarsn

in the area o greatest need.

Financial planning or employees to manage the gap between earnings andn

increasing expenses.

Green initiatives that allow employees to save money and positively a ectn

the environment.

Expanded training opportunities or skill acquisition, particularly in jobs thatn

are more commonly outsourced.

Increased ocus on job sharing, telecommuting and other alternativen

work arrangements.

1. Society or Human Resource Management. (2008). 2008 job satis action: A sur vey report by SHRM. Alexandria, VA: Author. The Con erence Board. (2005, February 28). U.S. job satis action keeps alling [press release]. Retrieved rom w ww.con erence-board.org/utilities/pressDetail.c m?press_ID =2582.

2. The Hay Group (1996). Dynamic compensation or changing organizations: People, Per ormance & Pay .New York: The Free Press.

3. Heneman, R. L. (2007). Implementing total rewards strategies. Alexandria, VA: SHRM Foundation.Retrieved rom w ww.shrm.org/hrdisciplines/bene ts/Documents/07RewardsStratReport.pd .

4. Gorman, L. (2006). L. L. Bean: T he making o an American icon. Cambridge, MA: Harvard BusinessSchool Press.

5. Gorman, L. (2006). L. L. Bean: The making o an American icon. Cambridge, MA: Harvard BusinessSchool Press.

6. The Japan External Trade Organization. Human Resources and Payroll Tax A dministration [ act sheet].Retrieved rom www.jetro.org/documents/ act_sheets/ _hr.pd .

7. A AR P.org. (2008, September). L.L.Bean, Inc.: 2008 AA RP Best Employers or Workers Over 50. Retrievedrom www.aarp.org/money/work/best_employers/articles/ll_bean_20 08.html.


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1800 Duke Street