Introduction
This is a consulting report to General Motors Company, an automobile manufacturing company. The report will discuss findings on the pay for performance effectiveness from economic literature in generating a business outcome that is improved, how evaluation of the performance should be done, and essential concepts of creating incentive pay and related organizations evaluation frameworks. Moreover, the report will report to the managers to better understand why employees leave and recommend at least two programs for reducing the turnover problems. General Motors Company is an American multinational company with headquarters in Detroit, Michigan. The company manufactures, designs, distributes and markets vehicle parts and vehicles in addition to selling financial services (General Motors, n.d). According to General Motors (n.d), General Motors manufactures vehicles in its subsidiary companies under 13 different brands in 37 countries. The company has employed about 212,000 employees and operates in over 120 countries (General Motors, n.d). Pay for performance gives financial incentives to improve its customer service to its clients. The associates or the employees for better output in a company. In her article on why the manufacturer of automobiles are adopting pay for performance, Shelley (2011) elaborates that motor vehicle manufacturing has become an integrated process where several different departments work in collaboration to form a product. The automobile manufacturers wanting to provide incentives to their affecting the rate of premiums. For instance, an insurance firm that operates with many employees for high-quality production of vehicles need a reorganize the work as a collective effort, and this can be achieved through pay for performance program. In 2011, General Motors announced the plans of starting the program of sharing their profits with the workers who work hourly in a bid to honor the agreement they signed with the United Auto Workers (UAW) union (Shelley, 2011). The driving force of General Motors was the need for a clear process of compensation. One of the goals of General Motors was to develop a formula for profit sharing that was transparent and simple and would assist employees in understanding how they can contribute to the business’s success daily (Shelley, 2011).
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The effectiveness of pay for performance programs in generating an improved business outcome
In the tough economy of today, hiring and retaining competitive advantage. It revolves around being hardworking and putting the customer first. employees who are gifted and can drive the results of a business is quite challenging because of increased competition for talents. In these environments, companies are reshaping their incentive programs to retain their employees and improve productivity. Compensation leaders and human resource managers believe that a well-conceived and executed program for pay for performance can improve retention and productivity by ensuring the goals and objectives of employees are aligned directly with the strategic goals of a company (Stephen, 2010).
An effective pay for performance program can be the key to retaining the companies’ top talent and driving the performance of the organization that exceeds all expectations. Pay for performance is central to aligning people with the objectives and goals of the company, motivate and reward the top performers of the company while at the same time develop the underperformers to become the organization’s greater assets. Stephen (2010) indicated that it is significant for an employee to understand that if his or her performance at work exceeds or meets expectations, then they will be rewarded appropriately for their hard work through bonuses and pay raises and other rewards such as recognition, gifts, time-offs or flexible schedule. Pay for performance programs accounts for the individual, working environment, and team performance, and this encourages the employees to work together to realize the common goal of the company.
Best Practices, LLC conducted a study to assist organizations to understand how high performing companies and industries deploy their pay for performance systems. The research involved 47 human resource and talent managers across 17 different sectors and it evaluated the incentive programs to identify their strengths, effectiveness, gaps, and opportunities for improvement (Best Practices, LLC, n.d). According to the study, successful pay for performance implementation is a multi-step process that involves demonstration of need, deploying appropriate technology, being in alignment with the corporate goals, training all and communicating with employees, and lastly measuring and improving the results. Lastly, the study found out that pay for performance systems normally are used for retaining top performers. Moreover, the majority of the respondents indicated that (Best Practices, LLC, n.d).
Hewitt Associates LLC, a consulting firm has been monitoring different pay plans of different companies since 1996. Their study found that about 75% of companies believe that pay on performance plans helped them in improving their business, and only 49% exceeded or met their main objectives.
Generally, manufacturers are primed for pay for performance compensation system because they can apply very specific performance metrics. This produces more units for less money and in less time and this spells business results that are positive (Shelley, 2011). However, lacking the metrics can make the pay for performance model controversial.
According to Shelley (2011), many companies and government entities alike are adopting pay for performance models because it is cash-strapped. Particularly in times that are challenging economically, companies need to ensure that they reward employees that are top-performing and consequently spur their workforce to make profits.
How performance should be evaluated
Performance evaluations provide the employees with an excellent opportunity of assessing the contributions of their employees to the organization (Judy, 2003). Generally, there are two approaches to performance evaluation; quantitative and subjective.
Quantitative evaluation
In quantitative performance measures, it deals with numeric factors such as accounting numbers. The quantitative factors that can be used in the evaluation include hours worked, employees’ contribution, or satisfaction of the customer (Lee, 2015). In determining incentives good measure, the following performance measure properties are looked at by the manager:
a) Risk profile
The risk profile is important in distinguishing uncontrollable and controllable risks. Uncontrollable risks are random events that cannot be foreseen, reacted to, or prevented by an employee (Lee, 2015). they include things like a sudden change in the behaviors of the competitors, technological change, inflation, and macroeconomic conditions. The controllable risks are events that to some extent can be foreseen by an employee. For instance, the anticipation of competitors’ actions by the manager. Both kinds of risks have different incentives implications, for instance exposing a worker to more uncontrollable risks will raise incentive plan costs. On the uncontrollable risks, the managers should use arising information when they are doing their jobs to enable them to foresee, react, or prevent the events where possible.
b) Distortion
The goal of a company is to motivate the workers to maximize the value of the firm such as an increase in profits and stock prices. Therefore, any measure apart from the value of the business will distort incentives. Distortion can take place in two ways are by measuring what does not match the job design, and focusing on something easy to measure. The more measure can be distorted, the weakly it can be tied to the rewards (Lee, 2015).
c) Potential for manipulation
If the manager can manipulate the performance, then it poses a problem, such as taking actions to improve a measure and not the value of the business. The more measure can be manipulated, the weakly it can be tied to the rewards
d) Scope
When performing the measurement, the scope can be narrower or broader. Narrow measures tend to reduce risks and distort more the incentives. The broader measures tend to capture more risks hence high risks and reduced distortion (Lee, 2015).
e) Match to job design
An ideal performance measure matches the responsibilities of the job
Subjective evaluation
This does not use metrics and is often significant in termination, promotion, and hiring. It is often necessary when evaluating the performance of the CEO and salesperson. However, the problems with subjective evaluation include its reluctance of giving negative feedback, favoritism, appraisal systems half-life of approximately five years, compression and inflation of ratings, and Low trust in the evaluator (Lee, 2015).
Subjective evaluations can be used as an alternative to quantitative evaluation since judgment is required in good evaluation, and metrics are also imperfect. If done well, subjective evaluation can improve incentives in many ways:
- Improve risktaking on incentive
- Reduce distortion, uncontrollable risks, and manipulation
- Give flexibility to the incentive system
- Improve decision-making
- Expandthecommunication between employee and manager to be a form of training (Lee, 2015).
The evaluation frameworks of an organization on incentive pay must be based on measurable outcomes. For instance, in the sales job, the outcomes can be the number of sales, total revenue realized, or the number of new customers. Even though there can discretion among the managers when determining the performance pay, the existence of the objective outcomes that are measurable evens the playing field between the program participants or the employees under the program and further motivates them to focus on the most important data to the organization (Courtney, n.d).
Why employees leave and recommended programs for reducing turnover problems.
(1) The workplace or job was not expected
Cording to Leigh (2005), about 35% of workers in America quit in the United States in the first six months because most of the workers have expectations about the workplace or job that are unrealistic, or in some situations, the workers are misled deliberately during the process of interviewing. More than 60% of turnovers begin with post-hire shock (Leigh, 2005). That is; the employees realize that he or she will not be advancing to the next position sooner as they expected or has to report to another different boss. Most of the new employees will quit after discovering the undiscussed realities.
Recommendation
To prevent this turnover, a company should start a program whereby the hiring manager can find a way of giving the job candidates a true ad realistic preview. This can be done by ensuring that everybody they interview understands their organization’s culture and being frank. An example of such a program is where all job applicants are oriented about the company in a conference, they ask all the questions they have before making decisions whether to proceed with their applications (Vance, 2013). For instance, when interviewing recruits, in General Motors, they should be told their immediate supervisors, and the number of years required for promotion in a conference set up.
(2) Mismatch between the person and the job
Every CEO of a company should know how to get the right persons for the right jobs for the business to be successful (Vance, 2013). However, Leigh (2005) indicated that about 60% of the employees in the United States are not using their talents to best. Some of how managers let the process of matching go wrong include the following as pointed out by Leigh (2005):
- The need to quickly hire leads to hire of the wrong person just to fill the available slots
- Managers believe that the skills of making people qualified for a job are very important than the talents making them suitable for these jobs
- Most managers believe that any person can do well the low-level jobs, and by do that way they disrespect the needed excellence that is needed in keeping the customers to comeback
- Most managers wrongly believe that training workers will transform the wrong people and make them the right people. They think that by training, they put on the skills that were left For instance, instead of employing an accountant, they will employ any other graduate.
Recommendations
Employers should make the process of hiring very seriously. A company can establish a strict criterion program for the hiring of new employees. If they are not in a position to find the right candidate for the job based on the program’s criteria, then they should postpone the hiring. They should also analyze the personality factors and talent that distinguish the average workers from the best workers (Leigh, 2005).
Leigh (2005) stated that great employers tend to use multiple interviewers and behavior-based interviewing. In General Motors, the hiring panel should check reference with persistence and skills of the job candidates and cross-check with the qualifications they desire from the job candidates. Moreover, they should emphasize hiring quality over cost per hire or time to fill. Essentially, they should be interested in building a talent pool that is superior and understand that it begins with selecting the right persons for the jobs in the first place.
Conclusion
In conclusion, the consulting report was made on General Motors Company, an automotive manufacturing company. The report provided detailed findings from the economic literature on the pay for performance effectiveness in order t generate increased business outcomes. Moreover, the report also discussed how performance should be evaluated and highlighted the five key ideas on establishing incentive pay and other evaluation frameworks that are related to the organization. The key ideas discussed in the report include; risk profile, the potential for manipulation, distortion, and match to job design and scope. Lastly, the report elaborated to the managers why employees leave a company and recommended two programs for reducing the problem of turnover.
References
Best Practices, LLC. (n.d.). Driving Growth & Talent Retention through Pay for Performance. Retrieved March 10, 2015, from http://www.best-in-class.com/bestp/domrep.nsf/products/6C7EB0324D9C8E2685257A2200626DAD!OpenDocument
Courtney R. (n.d).Components of Pay for Performance Programs. Retrieved March 10, 2015, from http://smallbusiness.chron.com/components-pay-performance-programs-74823.html
General Motors. (n.d).
Judy, C. (2003). 5 Steps to a Performance Evaluation System. (n.d.). Retrieved March 11, 2015, from http://www.aafp.org/fpm/2003/0300/p43.html
Lee, L, S. (2015). Paying for performance. Murdoch University
Leigh, B. (2005). The Seven Hidden Reasons Employees Leave – Executive Update Magazine. ASAE ® The Center for Association Leadership.Retrieved March 15, 2015, from http://www.asaecenter.org/Resources/EUArticle.cfm?ItemNumber=11514
Milton, Z. (2015). Workplace Perspectives: Pluses and minuses of variable pay. (n.d.). Retrieved March 10, 2015, from http://pubs.acs.org/subscribe/archive/tcaw/10/i09/html/09work.html
Shelley, D. (2011, October 7). Why automakers are adopting pay for performance. Retrieved March 10, 2015, from http://fortune.com/2011/10/07/why-automakers-are-adopting-pay-for-performance/
Stephen M. (2010).Study: Keys to Effective Performance Pay Programs ineffective when managers avoid confronting mediocre performers with low salary increases. (n.d.).
Vance, M. D. (2013). Broad-based equity compensation, employee turnover, and unit performance.
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