Compensation System Analysis and Implementation of Performance Appraisal System: A Case Study of Sim

Assessment of the existing compensation system at Simply Literature Production

Read Case Study One, - Simply Literature Production- Attached .

Prepare a report using the following as guidelines – bullet points are acceptable. 

1. Read Case Study One, - Simply Literature Production. What is your assessment of the compensation system in place? Do you think it meets the criteria for an effective compensation system as set out in Compensation Notebook 1.1? Which criteria does it meet, and which does it violate? Approx. 200 words 

2. Analyze the “Case Study One, - Simply Literature Production. Why do you think there is a high turnover of new employees? What concepts may help explain employee reactions to the compensation system? Do you think the compensation system is fair? Is it effective? What principles for effective reward systems does it violate? What changes should be made? Approx. 600 words

3. Simply Literature Production currently has no formal performance appraisal system. The CEO, Georgette Henderson, thinks that a performance appraisal system might be useful, and she has hired you to assess the company and recommend whether to implement one. She also wants to know whether she should link pay to the appraisals. She expects your report to include the pros and cons of each idea, along with a detailed justification for your recommendations. Approx. 200 words 

The owner and CEO Ravi Prosper, is proud to make a high-quality product that will stand up to many years of use. He uses only high-grade paper, cover stock, and binding materials. Of course, this has led to high production costs and high prices. He also believes in ensuring 100% customer service and will always strive to meet the customers' special specifications whenever requested. However, resetting the equipment for relatively short production runs of customized products takes considerable extra time and, of course, also drives up costs.

The firm employs about 120 people, most of whom work in production. The firm has a few supervisors to oversee production, but their responsibilities are not clearly spelled out, so the supervisors often contradict one another. There is no system for scheduling production; in fact, there are few systems of any kind. Whenever there is a problem, everyone knows that you must go to Ravi if you expect a definite answer. This means all decisions are made at the top of the company chain of command. 

The company also has several salespeople who are relatives of Ravi or his wife and these salespeople must travel throughout Canada.  This can be very tiring for these employees. 

Analysis of the factors causing high turnover rates at Simply Literature Production

The company has one bookkeeper to keep records and issue the pay-cheques, and several office employees to handle routine administrative chores. 

The firm has no specialists in accounting, marketing, human resources, or production.  Ravi handles these areas himself, although he has no real training and little interest in any of them except production.  Instead, Ravi focuses most of his attention on ensuring product quality and on dealing with the countless problems that everyone brings to him every day. 

Ravi thinks he is a caring and generous employer. Although he feels the organization cannot afford any formal employee benefits, he does have an absence policy which he seldom follows often allowing workers to stay on payroll for a considerable time, even if they can not work due to family obligations, sickness or any other reason Ravi will accept.  He is well liked by most employees, who have shown little interest in unionization during the few approaches made by union organizers.

Ravi has no formal methods of managing pay.  He tends to make all pay decisions on the spur of the moment, so almost everybody has a different pay rate. He has never given annual raises, so any employee who wants a raise has to ask Ravi.   He gives raises to most people who approach him, but the amount depends on his mood at the time and on how well he knows the employee. 

For example, if the firm has just lost a major customer, raises are lower, and if the firm has just booked a large order, they are higher. They are also higher if he knows the employee is a male, has a family to support, or if the employee's spouse has been laid off, or if the employee has added a new member to the family.

Ravi believes that a good employer should recognize the contributions made by employees during the year. So, every Christmas, if profits allow, he gives merit bonuses to employees, which he says are based on their contributions to the firm. One day in early December, he sits down with his employee list, in alphabetical order, and pencils in an amount next to each name.

Everybody gets something, but the amounts vary greatly. If he can put a name to a face (which is difficult sometimes, because new employees seem to turn over a lot), he tends to give larger bonuses to the employees he can remember.  If he can remember something such as a cheerful attitude, the bonuses are higher still. But if he remembers anyone complaining about that employee for some reason or another (he usually can't recall the exact reasons), the employee gets a smaller bonus. 

Not surprisingly, longer term employees tend to receive much higher bonuses than new employees. He has noticed this tendency but assumes that if an employee has been with the firm longer, that person must be more productive, so this is fair. He personally distributes the bonus cheques on the last working day before Christmas.

Ravi has decided to retire early and enjoy travelling for a while. He will still own the business however he has appointed his daughter as the New CEO.  Ironically, it was on the first day of her daughter’s new role, the bookkeeper informed her that there wasn't enough money in the bank account to meet payroll.