Business investigation and analysis

¶ … Business

Investigation of Final Touch Inc.'s Remuneration System

The modern business community is marked by numerous changes on all features of operations and existence. Some of the most relevant such modifications include the metamorphosis of the organizational employee from the force operating the machines into the company's most valuable asset or the switched focus from production to customer satisfaction. The forces of globalization and market liberalization, combined with technological advancements and mutations in the socio-economic backgrounds have, amongst other things, generated increased levels of competition between economic agents. And this competition refers not only to satisfying and maintaining customers, but also to satisfying and retaining the best employees.

The focus on retaining organizational staff members has primarily materialized in developing and implementing the most suitable and stimulating reward systems. The emphasis on this organizational element has gained increased notoriety throughout the past years and proof in this direction stands the large number of academic researches conducted or the intensified efforts of the organizational managers. A discrepancy can however be observed in that large corporations seem to strive harder in implementing more adequate human resource strategies than smaller entities. The aim of this paper is to look at the remuneration system of a small size economic agent and propose some changes that would improve it.

2. Company Description

Final Touch Inc. was founded four years ago with the aim of offering specialized consultancy to the American importers and exporters. The organization employs 75 staff members, out of whom 25 are administrative (such as managers and secretaries), 2 are cleaning employees and the remaining 48 are consultants. The organization offers specialized assistance and its employees are key experts in their positions. Their services include market analyses of the kind of responses the imported or exported products would generate upon the designated markets, the cultural and economic barriers that could be encountered or the measures that could be taken in order to minimize these barriers and maximize the chances for a successful outcome.

Throughout the past two years, the company has been faced with growing matters in terms of its human resource, materialized primarily in low levels of commitment and increasing employee turnover rates. Final Touch Inc. has registered an employee turnover rate of 7.8%, in the conditions in which the average turnover rate in the American organizations throughout 2000 up to 2008 has been of 3.8% (Bureau of Labor Statistics, 2009). This figure is an indicator of severe internal problems. Most of them are pegged to the inadequate remuneration system, as pointed out by the surveys and interviews taken by the employees leaving the organization. In addition, the working environment is extremely dynamic and challenging, creating increased levels of stress and several hours that have to be put in, in the detriment of the employees' social life interactions.

3. Current Compensation System

At this point, the remuneration system is based on personal negotiations between organizational employees and the managerial team. Each employee is analyzed individually and this approach is somewhat understandable as each employee is specialized on a niche segment and as they possess diverse skills, educational backgrounds and levels of expertise. The wages of the staff members are undisclosed and the consultants are asked to sign confidentiality agreements that prevent them from discussing salary related issues with their co-workers. The extra hours are paid in the minimum amount requested by the United States legislation and premiums and bonuses are extremely rare. The Final Touch employees may receive a premium at the end of the fiscal year if they registered high levels of successful contracts throughout the period that has just been closed. In addition, there is no clear plan as to the offering of bonuses or the mile stones that have to be crossed in order to receive a bonus.

In terms of wage negotiation, this is mostly one-sided with the organizational management making an offer for raise and the employee having to accept or deny it. Relative to other benefits, the economic entity only offers the minimum health coverage requested by the U.S. legislation. A new feature that has been introduced refers to the social interaction of employees outside the working environment. The managerial team has organized events such as trips or nights out with the ultimate goal of establishing and consolidating better working relations within the workforce.

4. Limitations of the Current Compensation System

The fact that employee wages are not offered based on a salary grid and that the staff members are forbidden from discussing their salaries leaves room for much speculation. This in turn generates internal frustrations and tensed working relations. Otherwise put, the lack of transparency gives birth to a lack of trust and diminished working efforts from the employees in sustaining the organization reach its overall objectives.

Another problem with the current compensation system is that there are no actual negotiations in the process. The employees' efforts are not evaluated and, while in the board room, the staff member is unable to advance his efforts as a reason for getting a bigger raise. He is simply offered the raise considered suitable by the management (who is focused on maximized profitability and cost reduction; ergo, they will offer the minimum possible raise) and he has no ability to make a demand, and justify this demand, for more money. Otherwise put, the process is simply called negotiation, but in fact negotiations do not occur.

A third problem is that the wage raises and the premiums and bonuses offered to the Final Touch employees are based exclusively on their performance. However, in some cases, the final closing of the contract fails due to forces independent of the consultant. In this case then, the efforts of the staff member are not recognized. This once again leads to frustrations and reduced desire to work, culminating with the employees' leaving of the organization.

All these generate high levels of employee turnover rates, which translate into reduced trust in the organization, not only from the employees, but also from other categories of stakeholders, such as organizational customers or business partners who might perceive the organization as weak. Additionally, high employee turnover rates generate supplementary expenditures, which mean that the organization will benefit from less money to invest in its development. The replacement of ten consultants per year would generate the following estimated costs:

separation costs - $5,000 recruiting costs - $75,000 selection costs - $75,000 training and acculturation costs - $50,000 lower productivity throughout acculturation process - $100,000 lower productivity on the long run - $250,000 total - $555,000 (Becker, Huselid and Ulrich, 2001)

Overall, it can be concluded that the most notable limitation of the current remuneration system is that the management is not willing to go an extra mile in order to increased employee-on -- the job satisfaction. They offer the minimum required by the law, but other than that, they only expect the employees to perform at their highest possible levels of commitment in the extremely challenging and dynamic working environment. This leads to the conclusion that modifications in the compensation system will not suffice to creating a more pleasant working atmosphere, but that the remuneration strategies will have to be combined with other endeavors in order to register a successful outcome.

5. Proposed Changes to the Compensation System and the Adherent Benefits

The first issue to be addressed refers to the lack of transparency in the remuneration system. This ought to be resolved by developing a clear-and-cut pay grid, stating the wage limits (both superior and inferior) for each position, in accordance with the skills required by the job and the abilities possessed by each individual employee. Additionally, it is compulsory that the grid be made public and available to all organizational staff members. An important specification to be hereby made refers to the maintained confidentiality of the salaries received by different consultants.

The endeavor will be beneficial from various standpoints. First of all, it will reduce speculations and internal tensions as all pay and premium conditions will be previously known by the Final Touch employees. Foremost, the increased transparency will show signs of correct assessments, leaving no room (or reduced room) for arbitrary wage decisions. All these will materialize in an increased trust in the entity, with positive consequences on employee morale, the creation of a more open and transparent working environment, increased employee morale and sustained efforts to supporting the organization reach its overall objectives.

Changes should also be brought to the negotiation process, in the meaning that it should be transformed into an actual conversation between employee and leadership, rather than a managerial monologue. The staff members should be able to bring in evidence of their efforts and compound a rationale as to why they deserve a higher wage. The managers should also compound their own justification and a compromise solution should be reached through open discussion. A most important specification relative to this process is that it should also consider other features aside actual performance, such as new skills developed or efforts made by the employee. Questions to be answered throughout this process include "What is the salary range for the position? What is the hiring salary range for the position? Do you (the company) ever pay higher that that range? If so, for what reason? What is the average increase being given? After one year?... How often is the employee reviewed? For performance? Salary" (Krueger, 2008).