Case Study

Section-A

Alliston Instruments Case Study

Identification of Current Organizational Problems

The company is in loss for the first time in 50 years as the sales is low. One of the key problems of Alliston instrument was the unit costs of production. The labor cost is high thus increasing the unit price to an all-time high. The company is facing competition from other markets that are able to produce good quality products at a low cost. The company has introduced new products to face competition but faces high training and equipment costs.

The quality of the products produced by Alliston industries is low. The number of defective units has increased without a significant increase in production. There was a high wastage of raw materials caused by bad quality products and non-optimal use of raw material. The employees focus on production rather than quality of the products as standardized quality measurements were not in place and followed throughout the organization. There was no mechanism in place to identify quality issues with a product during the initial stages of component creation or assembly line production though it was the responsibility of the supervisor staff to identify quality issues.

The company could not reduce unionized work force due to the agreement with the union regarding job security in return for allowing performance based pay thus relying on attrition to reduce work force. The company is currently paying much more than the industry standard and alternative employment opportunities are less in the area, this reduces the attrition among employees. The attrition of supervisor level employees is high and is increasing; this offsets any attrition benefit caused by other employees leaving the organization as new supervisors need to be hired.

The employee dissatisfaction is a major concern for Alliston instruments. The supervision and production employees are not satisfied with their job. The motivation of the employees is very low and conflicts between various employees are wide spread.

Analysis on Root Causes

Labor cost is high due to the incentive plan provided by the company. The incentive plan allowed the employees to focus on incentive generating tasks rather than task that were difficult and generated lesser incentives. Additionally, the pay at the company is above average and the benefit package that increases with seniority is about 25% of the total compensation.

The turnover rate of supervisor in Alliston Instruments is also a problem as it was first time in the company’s history that three senior supervisors have quit the job in a same year. The reason was that, supervisors were not making any extra money as they were not eligible of any incentive program. It indicates that the compensation strategies adopted by the company were not implemented properly which led the senior supervisors to quit their job.

The company had introduced a new incentive based plan instead of increasing the base pay of the employees in discussion with the union. The incentive plan is based on a standard per hour production rate without including the quality of the product being produced. The quality check happens later by the supervisor and is at his discretion to reduce the incentive of the employee for poor quality. This pay system created many problems as the production standards for some tasks are set too high and have no chance of earning a bonus. The employees avoided these jobs in turn affecting the productivity and the quality of the products.

The company did not provide any benefits in terms of compensation to learn new skills, the employees actually received lesser financial benefits if they started working on new products as they had to train and learn the new product causing reduced productivity during that period.

The company does not have a proper job analysis or a compensation plan that reflects the roles and responsibilities of employees. The company pays much more than the market rate thus reducing the attrition among employees. This would have been a good impact if the company did not have the need to reduce the work force due to declining sales.

In Alliston Instruments, the non-unionized employees such as supervisors have a higher turnover rates as they earn lower than the production workers. The attrition of experienced supervisors has a negative impact as new supervisors need to be hired increasing cost to the company. The employee behavior is governed by the continuance commitment rather than citizenship behavior.

The production workers face issues due to improper incentive plans in place. The company did not consider the complexity of the task involved, the training required to perform a new task or the learning curve required to acquire a new skill before designing the incentive based compensation plan. The employees do not get any benefits by learning or working on the new products as the compensation is based on the productivity.

The production employees focused on familiar tasks that could be easily done and were not ready to perform tasks that required more time since their incentive was affected. This created a preference for certain tasks while other tasks lost importance and suffered in quality. Since there were no standard methods to measure quality the decision of a quality of the product rested on the supervisor.

The relationship between production workers and supervisors are not good since the supervisors determined the quality and reduced the incentive of the production employee. Production workers can be further classified into two categories as workers who produced individual components and assembly line workers. The workers blamed each other for the bad quality of the products. This also shows that the employees did not have a sense of responsibility towards the quality of the products being produced. The production standards were not similar across different products and were set too high for some while others had lower standards.

The supervisors faced issues due to conflicts with the production staff as they had to assign production staff to tasks that could potentially reduce the incentives of the employees. Since the production employees did not prefer certain tasks the quality of the tasks suffered forcing the supervisors to perform quality checks and required the supervisor to spend more effort to maintain the quality of such products. As the company did not have any specific quality standards the supervisor was forced to use his discretion on the quality of products forcing them into conflicting situations with the production employees and also raising the job stress.

The supervisors did not get any additional incentives similar to the production employees to ensure the quality of the products. There were also situations where the production employees earned more than the supervisors due to the incentives and this caused perceived inequity between the employees. The supervisor staffs were not satisfied with the reward system in place within the organization. The company lacked procedural justice. The non unionized employees were not given any pay hike in the previous year leading to perceived inequity.

3. Recommendations

Given the multidimensional problems of Alliston Instruments, they should develop and implement an effective compensation mix strategy for their company. They should consider a sizeable portion of compensation to be allocated for both short-term incentives and long-term incentives. The base salary of the employees should be determined on the basis of external market data, demand and supply of labour, internal equity value, and performance of the company which Alliston Instruments did not perform. Consequently, the base pay of the company was above the average of market rate in spite of comparable alternative opportunities were quite scarce in the area. Thus, before setting the base pay, Alliston Instruments should conduct a market survey to understand the pay structure of similar type organizations.

The compensation system and strategy design and implementation of Alliston instrument had a major drawback that there were no set standards for measuring quality of the products. The standards were simply based on the estimates made by the supervisors, and thus, different supervisors consider different quality scales for identifying a product defective or not. Since bonuses are associated with the number of quality pieces produced by a particular worker, many workers raised the issues that standard for some tasks are set too high and they have no chance earning a bonus or incentive on those tasks. Here the compensations strategy fails to determine the equality of the different tasks at Alliston Instruments as they never kept the detailed record of the per piece production time. In order to address this issue, Alliston should conduct a proper job analysis study that reflects the roles and responsibilities of every job/position. After the job analysis is done, they need to conduct a job evaluation for identifying relative importance of each job and time required to complete it, and, accordingly, rates of base pay and bonuses should be re-calculated/set depending on the importance, skills and time requirements of respective jobs. Similarly, ideal quality standards for every job can be developed from the job analysis and job evaluation information. The minimum standards expected by the organization need to be communicated among all production staffs and supervisors to get best out of this plan. This will eventually reduce the complaints of the workers as the jobs requiring more time and skills will be paid higher than the jobs require less skills and time.

The company had a major impact on the quality of the products, as everybody was trying to earn the piece bonus and they hardly care about the quality for the products. As the company did not introduce any ‘gain sharing pay strategy’ for the workers, they were only concerned to make as many pieces as they could only by keeping the product to a minimum acceptable standard. Moreover, supervisors were highly dissatisfied as they were not able to make any extra money as they were excluded from the bonus plan. In spite of being a member of production team, supervisors’ income was lower than the production workers. To address the issue, Alliston Instruments can introduce the ‘gain sharing pay strategy’ that shares cost saving or productivity gains generated by a work group or team with all members of that group. This pay strategy is self-funded and increases productivity, employee involvement and commitment (Long, 2010).

This strategy will enable the workers to concern about quality while minimizing cost and wastage since they will be able to earn a percentage of total gain on cost saving and productivity. This will also reduce the pay dissatisfaction and turnover of supervisors as, being a member of the team, they will be covered by this plan. Additionally, for increasing productivity and minimizing production cost, both production workers and supervisors should be given training on a regular interval so they become experts in their particular area. Some kind of vestibule or simulation training programs may be conducted so employees become able to face the real job challenges. A ‘special-purpose incentive’ may be introduced for the top employees whom performance would be outstanding in terms of productivity and quality. This ‘special-purpose incentive’ may be linked with waste minimization effort so that employees are motivated to minimize the material waste. These initiatives help workers to reduce the production cost of each unit by minimizing defective product and material wastage.

Alliston may introduce sales commission for the marketing and sales people for each unit of sale they make. This will attract and motivate sales and marketing people to put more effort in product selling. Additionally, a comprehensive sales strategy may be developed for the customers of Alliston Instruments. This may be done by making a reduction in price for a particular time for a particular number of purchases. This will attract buyers to take advantage of reduce price offer, thus, will increase the total sales.

The above mentioned strategies need to be implemented by Alliston Instruments to come back in the market strongly. These strategies will motivate the employees for achieving the goals of the company as these strategies cover most of the aspects of an effective and ideal compensation package.

Section-B

Alliston Instruments Case Study

Pay-for-Knowledge Plan

Pay for knowledge plan is a strategy for verifying the base pay. It includes essential pay on the competencies of the people instead of on the characterises of the work. It is frequently called an individual based pay rather than work based pay. There are different routines incorporating skilled based pay and competency based pay. Competency based pay is as a rule connected at managerial levels and skilled based pay is normally connected at operational levels.

In regards to Alliston Company all the problems are related to operational level i.e. supervisors, production workers and line workers, so we will apply skilled-based pay.

Steps of Skilled based Pay:-

1. To whom should Skill – Based Pay Apply?

Because of the high capital intensity, high labour cost, high unit price, low quality standards, high turnover of supervisors and high wastage of Raw Material Alliston Company should adopt Skill-Based pay method because currently the company is not providing any benefits to learn new skills to its employees. Moreover employees do not want to learn new skills because they are not rewarded and hence the production of new products are getting affected, hence is Skill Based Pay if introduced employee would learn the new skills in order to enhance pay and there would be high involvement of employees and as a results the problems like high wastage of raw material faced by alliston would be resolved and high quality products would be produced. Alliston Company should include supervisors, production workers and assembly line workers to learn new skills according to the requirements of the company to face tough competition.

2. Designing Skill Blocks

Following choosing where to execute SBP, the following step is to recognize the work aptitudes that are needed for viable exhibition of the work framework and afterward to “bundle” them into proper expertise “”units” or squares. Aptitude could be differentiated along two measurements-horizontal and vertical. The flat measurement fronts distinctive sorts of abilities, while vertical dimension spreads he profundity of every ability. As representatives complete every ability piece, they get an increment in pay. In Alliston company designing of skill blocks should be horizontally in production, assembling, testing and maintenance. Skill grid for Alliston Company is follows:

Production

Assembling

Testing

Maintenance

Level 4

Able to operate all the new and basic productions equipments.

$1200

Able to assemble the old and new medical equipments.

$1200

Able to test both the old and new medical equipments.

$1200

Able to maintain and fix the breakdown of all the new and basic production equipments.

$1200

Level 3

Able to operate new production equipments producing new products.

$1000

Able to assemble the new medical equipments.

$1000

Able to new the new medical equipments

$1000

Able to maintain and fix the breakdown of all new production equipments

$1000

Level 2

Able to operate basic and advanced production equipments.

$750

Able to assemble the basic medical equipments.

$750

Able to test the old medical equipments.

$750

Able to fix the breakdown and fix all the old medical production equipments.

$750

Level 1

Able to use the basic production equipments.

$500

Unloading the raw material

$500

Able to check the raw materials.

$500

Ready to make minor support.

$500

Above system of skilled block is ranged from simple to complexity of work and the pay raise are designed according to complexity of work because currently company is not considering the difficulty of work, pay is based on the production.

3. Linking these skill blocks to pay:

Next step is to settle the cost for every ability unit. It is exceptionally urgent to go the cost on the support of aptitudes. Organization may as well choose the cost for aptitude units following exploring the outside and interior nature of organisation, labour market and the challenge noticing a specific work. In spite of the fact that the Alliston group don’t have any certain motivator arrangements so the group might as well settle the cost on aptitudes. For the purpose that representatives might not feel any sort of inequity in the dissemination of salary.

4. Providing Learning Opportunities:

Organization may as well furnish picking up and teaching sessions to it workers to advance new aptitudes to expand gainfulness and high calibre of work. Workers can therefore fit to get authority specifically aptitudes and procure more wages. Alliston should also provide good training to its workers on the new products that are introduced so that the workers develop an aptitude to work on them in the same manner as they prefer working on old products so that they can also focus on the quality of products instead on the number of products.

5. Certifying skill achievement:

A Key issue for any firm utilizing expertise based pay is to have a good system for verifying when an employee has faced a specific ability obstruct that is both substantial and received as reasonable by representatives. A worker must invest at least a minimum particular time working at a specific expertise before confirmation is allowed. The motivation behind this principle is to guarantee capability in the ability and to give enough support in that expertise to verify that worker is properly trained. Alliston Company should certify the skills of its employees by adopting the straight forward skill certification method, by using detailed checklist and peer evaluation.

References

Long, Richard J. (2010). Strategic Compensation in Canada, 4th Edition. Nelson Thomson Learning.