Case Study: Harwood Widget Co. Compensation Policies Assessment and Improvement Recommendations

Background of Harwood Widgets Co. and International Widgets Ltd.

Case Study: Harwood Widgets Co.

The family-owned Harwood Widgets Co. in Fredericton, New Brunswick, was recently purchased by a much larger company, International Widgets Ltd. whose mission is to be a recognized leader in producing and supplying the best widgets on the market. Well-designed pay-for-performance plans have always been a critical component of International Widgets’ performance management systems.

When the human resource director of International Widgets, William MacWilliams, looked at Harwood Widgets’ compensation policies, he became concerned that some of these policies were questionable and, in some cases, actually seemed to violate the law. When he asked the plant manager, an engineer, who also acted as an HR Manager, how he determined pay rates, the manager explained that he would ask applicants what they earned in their previous job and just add 10 or 20 cents to this amount, depending on job experiences they had. To make matters worse, two recently hired female machinists complained that they were paid less than their male
colleagues for the same work. The machine shop supervisor disputed their claim, asserting that the male employees were just more productive and deserved higher pay, though he could not produce any performance appraisals to support these claims. MacWilliams also discovered that productivity in the subsidiary was lower than in other plants of International Widgets.

A consultant was hired to assess the operations and compensation system of the Harwood Widgets subsidiary. The key points in her report are summarized below:

• Executives in the past have received very large annual cash bonuses determined by the owner at his discretion.
• The base wage rates for different workers vary widely, even on the same job, and are decided at the discretion of supervisors of the departments; those employees who are ‘heads of households’ receive approximately 18 per cent more than those workers who are not heads of households. Most of the workers identified as ‘heads of households’ are men.
• Female employees are paid 10 to 20 percent less in all job categories.
• On highly technical jobs, the firm pays a rate that is 20 percent above the prevailing wage rate for these jobs. All other jobs are paid an average of 15 percent below the prevailing rate.
• Production workers are all paid on the basis of an hourly rate regardless of the number of widgets produced. But if they produce a certain quota of widgets each day, they get to leave an hour early. They are also eligible for a $100 draw each month if there is no accident during the month.
• Inventory reports indicated a high number of widgets being returned for reasons of manufacturing defects.
• Sales personnel are paid a commission and receive a $50 bonus for every new customer.
It was noted that many $50 customer acquisition bonuses were paid out, but the number of customers has been decreasing. Additionally, the customer service department records indicate a high number of customer complaints.
• Every time sales go up 10 percent, all the hourly employees receive a day off with pay or can work one day at double-time rate.

Assignment instructions:

Drawing from the content covered in Chapter 10 (and in the lecture materials), prepare a report which provides a detailed assessment of the ‘concerns’ and ‘pitfalls’ in Harwood Widget’s payfor-performance systems. What are the specific problems you see with the current compensation system? What are the legal risks? What actions, or changes, would you recommend to improve compensation practices at Harwood Widgets to ensure employee performance is properly motivated and rewarded?