Pay System Of Alliston Medical Company In Canada

Problems at Alliston

Discuss about the Pay System of Alliston Medical Company in Canada.

Alliston Instruments is a company in southern Ontario that manufactures medical instruments. It involves two kinds of processes. There are individual workers who manufacture the products using different machinery, tools and equipments which are of various sizes. Other workers then collect the components into the finished product after it goes through various processes at five to six workstations. The essential of a product is its quality and it depends on the quality of the components as well as the assembly process. 

In January 2014, when the financial statements of 2013 had already been published, everyone was gloomy. This was because in the fifty year history of the company, it was the first time that they had faced a loss. The CEO of the company took it as a problem of the production. The production report of 2013 showed that the number of defective units were more in that year, although there was an increase in production. Moreover, the amount of raw materials and other supplies wasted was also more in that year compared to other years. The labor costs were high but the total sales were down than previous years. It caused an overall increase in costs per unit. It takes time to do the work in two sets. A group of workers produce the medical components whereas the others start assembling those components. This might hamper the quality of the product as it depends on both the manufacturing and assembling process. With the increase in competition and onset of better instruments Alliston has slightly taken a backseat. The entry of two Asian firms with low- priced products in the Canadian market has increased the competition (McCollum, 2014).

The structural variables in an organization are coordination and departmentation, communication and information, control system, decision making and leadership and job design and reward sstem.  Previously the company Alliston Instruments used to have increase in sales every year along with increase in profit. It had created record in 2010 with a profit of over $3 million. But as the medical industry has become more competitive therefore many medical firms have started producing high- quality medical equipments. Previously the Canadian market had two competitors, US and Europe but with the advent of two Asian firms in 2011, the competition increased. The advantage of Asian firms is that the labor cost is low which makes them put attractive prices on their products. But that causes a problem because buyers might have doubt about the potential quality of the products. For the time being, it seemed that Alliston’s customers would remain loyal because they were under pressure to reduce cost as a result of budget cuts. In 2011, due to the entry of an Asian competitor and its major increase in sales, Alliston’s sale was tremendously cut in 2012. This resulted in terminating fifty employees which was a large number in the history of Alliston (Hofmann, 2015).

Structural and contextual variables

To make up for this loss in sales, Alliston started including a number of new products. But a good sale of these new products did not really bring in a lot of money. This was because of the high production costs as a result of new equipments and the training of the employees. Some employees preferred not to work with the new equipments so the manager had to pressurize them not to use old equipments. The company was forced to increase the wage of the laborers in 2011- 12 because they were on strike which hampered the production of the company the peak season. The management and the labors in Alliston share a very bitter relationship, one always complaining about the other.

To support the position of the HR, the management has been able to lower the turnover rate of employees. To increase the efficiency of the employees, the firm had to convince the union to accept the extra bonus in addition to their wages based on the individual output. A standard production rate of each of the items was established on the basis of the 2012 production report.

According to reports, the production bonus system at Alliston Instruments is not working. As a result, the management needs to implement specific and individual performance pay system. The management needs to implement individual performance pay scale based on piece rates, commissions, merit pay and special purpose incentives. If the management of Alliston Instruments implements merit pay, the individual employees will be encouraged to work hard. This will help in increasing the production level of the company. Moreover, individual performance pay will also increase the employees to increase the sales of the medical equipment, as they will be lured due to extra pay. The management of the Alliston Instruments can enhance the performance of the employees by implementing monetary benefits (Stone & Deadrick, 2015).

However, there seemed to be various problems with the new pay system. If a supervisor sets the production standard very high the employees have a low chance to earn their extra bonus. Therefore, almost every employee tries not to work on a product that reduces the level of production. On the contrary, employees prefer working on products due to extra pay thereby, increasing the production level. Overall, it was seen that the scenario of net result has not changed at all. In a year, ten employees have resigned, or retired leading to a reduction in workforce, which further lead to a drop in production sale. This reduction in workforce was not replaced and productivity was not increased. This was partially counterbalanced by hiring two supervisors to control the needs for inspection, supervision and administering the bonus system. Another clerk was also appointed to handle the new pay system and its calculations (Xavier, 2014).

Managerial strategy

There was complaint on the part of the supervisors about the new pay system because it had put them under extra pressure. This has given rise to conflict between the supervisors and the employees.  The relationship which was bitter beforehand, worsened after this new system was introduced because no employee would want a poorly paid job. It was found out that employees are not bothered about the quality but the quantity should meet the minimum standard. They do not even pay heed to the wastage of raw materials. Supervisors need to look out more into these problems to keep the quality and quantity both up to the mark even though the pay is less. It sometimes happen that the supervisors are earning less than the employees as they do not fall under the category of the bonus system. The employees who are not in the union are not receiving any increase in their pay and three supervisors have quit too. It did not happen before in Alliston that one or two supervisors have left in a single year (Eccles, Jacob & Jacobsen, 2015).

The union was not ready to accept the individual performance plan but they had accepted the new system of the one in return for a clause in the collective agreement. This ensures job security for the contemporary workforce of the union. Reduction in workforce had to be achieved through weakening production. The introduction of new products in new line by Alliston, or increasing the wage in 2011- 12 or by proper supervision has not been of much help to improve their condition. Normal standards were based on the estimates of the supervisors of the company which showed that the compensation strategies and the practices had affected the production of the company. Management of the company had accepted the condition because they did not want to have a lay off on their employees. They had an expectation that the new performance pay system will reduce the costs per unit so that the price of Alliston will be lowered and they will be able to regain back their lost business and reputation. Customers have started complaining about the quality and price of the product. The financial data of the previous year’s showed that the sale had gone to the peak as well as fallen to its lowest. But the company cannot decrease the prices because the unit costs are very high. But the management has not been able to decide that what they have to do (Nazir, Shah & Zaman, 2014). 

Individual performance pay system

Pay for performance- Pros: The best approach is pay for performance. The employees are rewarded on the basis of their productivity. It ties the compensation directly to the specific target of the company. Companies have to deliver competitive pay in order to do this for competitive levels of performance. They should match measurable and controllable performance aims to the objectives of the company.

Cons: It causes contention among the employees. Jealousy and disagreements creates hostility in the workplace. They are afraid to give inputs regarding any changes. Employees become resistant to company changes. Changes in operating process decrease the productivity.

Goal sharing and Gain sharing- Pros: Gives flexibility to the manager. The manager can decide how many hours can be paid for. It is not needed to pay for overtime work. Employees will be happy with their income. Payment of bonus encourages employees to increase production.

Cons: Pay extra for over time or work on holidays. Extra perks for interesting salary and position. It requires proper planning by the manager. It is difficult to decide about bonus in a team work. A low commission rate will not attract the employees.

Performance appraisal and group bonus plan- Pros: Provide a document of employee performance. Provide a structure for meeting between the managers and employees. Allow a manager an opportunity to provide the employee with feedback. Employees can clarify doubts and issues. Motivate employees by a good merit increase.

Cons: Can create a negative impression. Very time consuming. It is based on human assessment so not valid totally. It can be overwhelming to managers with the employees. Create a stressful work environment.

Out of these approaches, performance appraisal and group bonus plan can be considered as the best because it motivates the employees to perform better by telling him the demerits of his poor performance. A common scale of rating indicates that they are tied to the employee’s bonus. The narrative technique gives more details about job analysis. The comparison method compare an employee with another influence his performance. The 360 feedback lets the employee being evaluated by his colleagues, juniors, customers, and supervisors. Performance appraisal will motivate the employees as they will be rewarded based on their performance. The employees will thereby, feel that their contribution and effort towards the organization are valued. This will encourage the employees to perform better and even take initiatives for completing certain tasks. Enhancement in the employee performance will also improve the organizational performance thereby, increasing the production level.  

Conclusion

Alliston, a special medical equipment manufacturing company have introduced the new system of pay for performance to motivate the employees to perform better. The supervisors had to face the employee strikes, as they were not ready to do low paying jobs. So a system of extra pay had to be introduced to satisfy the employees as well as increase the productivity and sale.

References

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