University of Chicago
Type of paper: Thesis/Dissertation Chapter
An effective compensation system
Marshal and Gordon is a leading public relations firm that has been expanding its services to include Executive Positioning. This requires a lot of team work as opposed to individualistic approach. It also requires high level interaction with clients and consultants who are more open minded than the firm’s traditional Public relations work. The chief executive officer is under pressure to design a compensation system that will help in the retaining and motivating the already existing and very valued PR consultants, get all the professionals to back the new strategy and also to retain the current clients and keep attracting new ones. This essay is aimed at analyzing the firm’s current with the main view of designing a compensation system that would be the most effective for the company.
Before proceeding to propose any compensation system for Marshal and Gordon, it is important to have an overview of the existing system so as to understand the way to proceed without having negative impacts on the firm. From the onset, it can be admitted that Marshal and Gordon are faced with a very complex situation. It appears as though the proposed change is opposed from every side. The first thing that is notable is that the firm has expanded o almost all the regions of the world; Asia, South America, and Europe (page 3). However, in its numerous offices scattered in the world, there are diverse specialty services and the firm has maintained an individualistic culture in the process of acquiring new PR firms, and in the integration of new principals, partners and associates onto Marshal and Gordon (Page 4). This means that the current compensation program is also individualistic and based on the individual’s performance. The firm’s projects are also individualistic and led by partners of principals who assemble the team to work on that project. The fees that are paid for each project are double counted for origination and execution. The partner who originates the project is rewarded 100% for origination while the one who leads the execution is awarded 100% for execution. Controversies emerged where the projects originated and where executed by more than one partner or principal. These controversies always arise in the sharing of the rewards and especially where the parties have not agreed on the formula to use in the sharing. In instances where one partner has found out that he or she cannot carry out a project to completion or where they need assistance of another to carry it out successfully, they always seek the assistance that is so required.
The firm is in a bid to change its compensation program and adopt a new one. It has already introduced a tiered system where the consultant earns bonuses according to the percentage of credits he or she generates. This tiered system enables the consultant to calculate the bonuses he or she expects. This was based on the individual reports at any point in the course of the year (page 9). However, it faces a challenge from the HR as the people have a negative perception of the ultimate consequences. They perceive that it will end up taking money from their pockets (page 8). From this description of the firm, it can be identified than the firm faces inherent challenges in its bid to build a compensation system that can meet the needs of all the sides of the business. The system has to be changed in a way that will motivates individualistic efforts as well as sustaining the firm’s strategic shift and without the risk of alienating the top performers. This is because the legitimate expectation of the firm’s consultants is that when they deliver revenues, they should get revenues and if not so, there is a likelihood of many of them deciding to walk out. Walking out is also very risky for the business of the firm as most of the consultants are very influential and will definitely walk away with the client. This means, a bad move could occasion great losses for the firm and ultimately a threat to its business.
Before proceeding to address the question of designing an effective compensation system for the firm, it is also important to address the tenets or principles of an effective compensation system and see how they can be incorporated into the firm’s system with its new strategy still in mind. The British Columbia School Employer’ Association (page 4) outlined some key principles that should be followed when designing an effective compensation system. The first principle that should be observed is philosophy. There should be a philosophy that is clearly communicated and principles that guide how the development, maintenance and decisions are made. The philosophy should also be aligned with the overall business plan. In this philosophy, all the components of the reward model should be considered. Differentiation in the compensation practices should be put into consideration. This is concerned with the manner in which different people in different levels in the business are compensated. Such a differentiation should be clearly articulated and communicated. There should also be established means for measuring individuals contribution and if any bonus, they should be clearly communicated to the employees. An ideal compensation model can be described as an exchange program. This is because it seeks to compensate the services of the employees in monetary form.
The second key principle of an effective compensation system is rational structure. In the implementation and maintenance of any compensation system, the organization must understand the baseline which is the legal and regulatory requirements that are in place. The strategic workforce plan of the organization should be included in the system. The compensation criteria and decisions should also be closely monitored. The labor market forces should be well understood and incorporated in the compensation system (Page 7). The organization should not just invent a compensation system without being realistic to the existing external forces. This is because it does not only seek to compensate the employees but also to maintain their talent. In other words, it seeks to maintain a zero per cent turnout rate if possible. The system should identify and solve issues such as potential fairness especially when considering levels in compensation and also the review of the placement of individuals within the compensation system. The system should include a process for ensuring that there is consultation between the employer and the employees. Communication is very important and both sides should not only be willing to air their views but to also listen to what others say. Such consultations should not be for the sake of formality but the opinions so collected should be reflected in the decision making.
The third principle to consider in the formulation of an effective compensatory system is the principle of ongoing administration. The compensation system should be administered in a continuous and consistent manner. The initial structure should not be operated as though it is rigid and no changes can be adopted. The system should be sensitive to changing market forces and should respond appropriately to ensure that the employees’ interests are ever taken care of. Reality should be matched with the philosophy of the organization and equity or fairness should be maintained. The system should not only be worked on paper but rather should be incorporated with the real demands of the employees. Evaluation metrics should be considered when compensating employees. These are aspects such as job duties, time, geographic regions, and such others. Where compensation is to be based on performance, then the performance measures should be made clear and communicated well to the employees. The parties should set clear standards and goals before the cycle begins. They should also agree on how the performance should be measured.
The forth principle for designing an effective compensation system for an institution is consistent communication. This aspect has been repeated in the other principles as discussed above. When a compensation system is well communicated, instances of confusion, suspicion, cynicism, are reduced and understanding, transparency and buy-in from the employees are achieved (page 10). Thus communication is very important in the adopting and running of an effective compensation system. The system should have measurement benchmarks that are already clearly defined. The communication channel from the top to the bottom should also be well defined and should be one that can sustain a good dialogue. The process for employees to express concerns over the compensation system should also be provided and made clear. The employees must be made to understand the system, the processes, decisions and their outcomes.
With all this knowledge on designing an effective compensation system, we can now proceed to recommend a system that could work for Marshal and Gordon. However, it must be appreciated from the onset that this firm has a peculiar case. It is peculiar in the sense that, while advocating for change, there are adverse consequences that the firm fears to meet. Once again, the already existing culture is so much into the employees to the extent that a change would impact the business badly. The system that is to be adopted should be in the manner it promotes individualistic efforts while at the same time advocating for the new strategy that is suggested by the chief executive officer. It should as well be in the nature that will encourage the junior employees and the new recruits in particular to strive to achieve their full potential. First of all, the compensation system should adopt fixed wages for the new recruits and the junior employees. These fixed wages may vary according to geographical locations and with time and circumstances as well. For instance, the wages should reflect the standards of living of the region where the employee works. The compensations should also increase according to the length of time he or she stays with the firm. So as to encourage the junior employees to work hard, the system should also adopt a system for rewarding bonuses for individual works. Since the idea is not only to encourage individualism but also encourage team work, the system should place bonuses for the top performers in the firm. This is made specifically for the junior employees. For instance, the system can be formulated in a manner such that the top ten performers in every region are rewarded with bonuses. This will encourage them to work hard in the projects and achieve the desired goals. As indicated earlier on, the formula for these ratings should be clearly set out and communicated to the employees. It should only be based on performance.
After dealing with the junior employees and the new recruits, the compensation system should focus on the more senior employees like partners and consultants. This is where the real issue is. With the new strategy in mind, the system should be designed in a manner that promotes individualistic efforts as well as team work. However complicated this may appear and however difficult it may seem to achieve, it is very possible to achieve it. The existing culture focuses on encouraging individualistic efforts by granting big rewards on the projects that an employee brings and those that he or she works on. Such a system need not to be altered completely. Only some few changes need to be included so as to promote collaboration as well. It needs to encourage collaboration as it slowly discourages. For this level of employee, it is recommended that the firm adopt fixed salaries or wages for all the senior employees. This is made to ensure that the employees are at one level and none can be discouraged. Teamwork can be encouraged in the area of bonuses. The recommended compensation system should have two levels of bonuses for the senior employees of the firm. The first level is for individual effort of the employees to encourage them to work hard and attain higher heights. The second level of the bonuses should focus on the group efforts. This is to encourage the units or various consultants to accept collaboration in working on the projects. In order to effectively encourage collaboration of consultants, the bonuses made for projects done by several teams should be relatively higher than those made for individualistic efforts. This ensures that the employees do not loathe the whole idea of working together on projects they bring as there are more benefits on working on it that way when comparing to pursuing it as an individual. Thus, while the new design has maintained the efforts of individuals, it has prudently encouraged the working as a team in the firm. This strategy can ensure that the employees are not discouraged to the extent of walking out of the firm. At the same time, it does not encourage laziness among the employees.
The new strategy that the company is proposing to implement and the new compensation system designed above can amount to a change in the organizational culture of the company. This is because, it’s a system that had been implemented for a long time and had already become part of the organization and the employees. Therefore, any alterations amount t a change in the firm’s organizational culture and for it to be implemented effectively and without adverse consequences on the firm, then it has to be done in the proper manner and by following the proper steps.