Page 653 - Business Principles and Management

Chapter
24 Rewarding and Developing

Employees

24.1 Compensation Planning
24.2 Employee Benefits

24.3 Improving Employee Performance

RE ALITY CHECK

Changing an Employee Reward System

he HR planning board of Petro Services, Inc., was meeting to review a
proposed change in the compensation plan the company used for all its
Temployees. For 25 years, the company had had a bonus system. The
board of directors approved a specific amount of money to be used at the
end of the year for employee bonuses. The bonuses were determined by
division managers based on their review of each employee’s performance.
Bonus amounts varied considerably across the business. Some managers
awarded large bonuses—several thousand dollars—to a very few employees.
Other managers awarded smaller bonuses—only a couple of hundred
dollars—to a large number of employees. A growing number of complaints
were heard by HR and the board about the seeming unfairness of the bonus
system. Also, the board wasn’t sure that the bonuses actually improved the
company’s performance.
The new plan being proposed took a different approach than the bonus
system. Money to reward employees at the end of the year would be allo-
cated as a small percentage of the profits Petro Services earned for the year.
If the company was not profitable, money would not be available for the
reward program. If there was a profit, every company employee would
receive a monetary reward in the form of profit sharing. The amount of the
reward would be based on employees’ job classifications and the number
of years they had worked for the company. It was expected that in a typical
year when the company made a profit, the reward for each employee would
range between $250 and $1,000. In very profitable years, those amounts
could triple.
The goal of the program was to encourage all employees to take
responsibility for the profitability of the company. The more profitable
the company, the higher the end-of-year reward. The process would
also seem fairer to employees. However, people who had earned large
bonuses in the past might be upset, and all employees would be unhappy
if there was no profit.

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