Compensation and Incentive Pay at

Shaver Inc.
About Shaver Inc..

 Started in 1907 as a small family owned business.

 Manufacturers of wood and steel tables for business and

industry

 Shaver was incorporated in 1952 and continued to expand

rapidly throughout 1950’s and 1960’s.

 Today it manufactures and markets more than 40 varieties

of tables and is a business leader in Western US.
Cont..
 Shaver has a reputation for excellent management practice.

 Consistently receives high ratings for product innovation, return

on stockholder investment, product quality and financial
acumen.

 Rated high in its ability to attract, develop and retain talented

employees.

 CEO – Phyllis Johnstone.

 VP of HR – Mike Mercer
Issues faced by Shaver Inc..
 Shaver who always outperformed its competition in terms of
ROI for its shareholders began to face troubles in 2002.

 Their lead over competitors began to deteriorate.

 Causes were thought to be Changes in Organisational structure

or Failure in new product innovation in the marketplace.

 CEO Johnstone was also concerned about the employee

motivation and thought its deterioration could also be one of
the reasons for the trouble.

 She was not satisfied with the Salary and Compensation system.
COMPENSATION POLICY
 Ranked among the top 33 percent of midsize US corporations.

 Very low voluntary turnover rates.

 Salary determination process is by annual performance review.

 Performance review process is developed by Mercer’s salary review task

force in 2000.

 Supervisors rate employees on a scale of 1 to 5 ( 5, 5-, 4+, 4, 4-,etc)

 Salaries were based on job characteristics and merit.

 HAY POINTS

 How is it measured
1. Know-how
2. Problem solving
3. Accountability

 Hay points are converted to Control point using salary line

formula.

 During 2004,
 Control point = $1621 + ( $ 3.23 X )
 On every July 1 revision happens.
 Actual salary ranges from ( 80 – 125 ) % of control
point.

 Compa-ratio = actual salary as a % of control point.

• Always salaries were 10% greater than any companies.

 For eg. , during 2005 :

 Hay point = 550
 Compa ratio = 110 & 80
 Monthly salary = $ 3737 & 2718
MERIT PAY
 Employees with higher performance appraisal ratings deserve larger
pay increases and raises on rating is smaller for higher compa-ratios

 For eg if rating is 4,
For CR=90 Salary increase = 5-7%
For CR=110 Salary increase = 3-5%.

 It was very hard to have a CR greater than 100 in long run.

 Viewed as star performers and is clear candidate to get ?

 CR can be greater than 100 in short run.

 Why no in long run?

 125 is the Maximum CR value.

 Performance Appraisal
• Rewards for excellent performance were
inadequate

• Failed to identify outstanding performers

• Redesigned the appraisal system to a 5-point

scale
 Experienced employees were given good grades
irrespective of their dip in the performance.

 Employees were totally dissatisfied with the existing

performance appraisal.
1. What are the Problems with Shaver’s present
performance appraisal and salary review program?

 Equal but not an equitable pay

 Rating with a cap
 Basis for compa-ratio
 Candidates with compa-ratio above 100 on a consistent basis are star
performers
 More compa-ratio, less is the hike
 Concerns of best performers regarding the appraisal system.
 Lacked an idea on how to restructure the performance appraisal system, mainly
due to an incoherent vision about the restructuring of the existing appraisal
system.
2. What changes in Shaver’s performance appraisal
and salary review system would you recommend?

 Job Evaluation - Point Method

 Performance appraisal - Management by Objectives (MBO)

Job Evaluation - Point Method
 Compensable factors
 Skill
 Experience
 Education
 Ability

 Responsibilities
 Fiscal
 Supervisory

 Effort
 Mental
 Physical

 Working Conditions
 Location
 Hazards
 Extremes in Environment
Performance appraisal - Management by
Objectives (MBO)

 Discuss
 Defining Goals
 Desired results and Expected deadlines
 Monitoring
 Comparison of results
 Training to appraisers to avoid subjectivity in performance evaluation
 Performance appraisal based on merit
3. Discuss the rationale and relative advantages of
each of the changes you recommend

 Compensation factor of effort is included

 Appraisal based on actual performance as agreed upon by the appraiser

and appraisee

 Periodic Reviews , Corrective measures when deviation from established

goals and deadlines

 Plan, organise, communicate, control and debate

 Establish objectivity in judgement