International Rewards at Sunshine Dairy - Case Study Example

INTERNATIONAL REWARDS AT SUNSHINE DAIRY Student’s Name: Code + Course name Professor’s name University City, State Date Introduction The establishment of the Johor Bahru subsidiary of the Sunshine Dairy Corporation (SDC) in Malaysia intended to capitalize on the quality concerns raised by the neighboring markets regarding the New World Dairy’s milk products. The company executives in the headquarters, Auckland, New Zealand, targeted to develop high-quality dairy products so as to win the sensitive market. The poor performance of the General Manager in the subsidiary firm resulted in the appointment of three New Zealand nationals in the capacity of Operations Managers. The individuals would cover the production, packaging and logistics sections of the company by supervising the Production Manager, Packaging Manager and the Logistics Manager. By so doing, they would also supervise the process workers. Despite the substantial training that the company executives had, the firm’s performance deteriorated on a continuous basis. One of the findings revealed that the commitment and motivation of the process workers at the plant was poor as a result of poor strategies of recruiting and rewarding the employees. The report recommends an effective rewards program that would improve the productivity of the plant. The Principles underpinning the new rewards policy Deciding whether the employees will receive variable or fixed pay suffices to be the starting point of the entire compensation strategy. However, it is evident that arriving at the decision requires the firm to determine the actual performance of its managers. Therefore, the inability of a firm to measure the performance of its managers leaves fixed pay as the most viable alternative (Festing et al. 2007). The SDC’s company-wide rewards program recommends the implementation of localized rewards strategies at different production facilities. The use of the localized rewards strategies intended to cater for the liberal workplace regulations and the individualistic cultural attitudes. For instance, the SDC facility in New Zealand utilizes a variable pay rewards strategy that relies on the team performance of the process workers and the individual performance of the managers. However, the Asian subsidiary adopted a fixed pay rewards system as a result of the equity-related concerns that rewarding employees based on their performance have an adverse influence on their commitment and morale in the workplace. Therefore, the Johor Bahru facility has utilized the fixed pay system ever since its opening three years ago. The only element of variableness associated with their rewards entails the annual bonus that the employees of the company receive after having reached a set performance target. It is evident that it is easy to arrive at the target for the employees. The cultural dimension of uncertainty avoidance plays a central role in determining whether employees are comfortable with the performance-based rewards system or the fixed alternative. Therefore, countries that exhibit higher levels of uncertainty avoidance prefer seniority-based rewards system that uses fixed salaries. Therefore, the quest for improved performance using fixed salaries is an improper rewards strategy for the plant since employees in Asia prefer variable rewards that utilize performance as the basis of reference. The employees of the Johor Bahru facility require performance-based incentives to guarantee their motivation and commitment at the workplace. Since workplace morale has been one of the key concerns associated with the low performance of the company, it suffices to state that heightening the motivation of the process workers and senior managers based on their performance will increase their motivation at the workplace thereby improving the performance of the company. The next question entails determining whether the variable pay should be given on a group or individual basis. However, the decision regarding the implementation of the performance-based pay on either the individual or a group depends on the ability of the organization to determine the performance of the individual or group (Festings et al. 2007). Therefore, in situations whereby it is possible to determine the performance of all the individuals of an organization involve in production, adopting the performance based individual rewards system is proper. However, in situations whereby the firm cannot determine the individual performance of the employees such as among the process workers, it is appropriate to utilize the performance-based group rewards policy. In the case of the Johor Bahru facility, it is proper to use the performance-based managerial incentives as a result of the possibility associated with determining the individual performance of the managers. However, performance-based group incentives will be appropriate for the process workers since it is difficult to determine the individual performance of the process workers. Apparently, rewarding a manager based on his/her performance boosts the morale of the manager in the unit thus resulting an increase in the performance of the process workers under the unit. The use of separate rewards policies for managerial and process staff It is evident that the perceived pay unfairness plays a pivotal role in influencing the motivation of employees at the workplace. Pay differentials suffice to be one of the determinants of the perceived pay unfairness at the workplace. According to Equity Theory, the existing pay differentials between the HCNs and the expatriates originating from the HQ has a substantial influence on the perception of the local employees towards pay unfairness. Therefore, the adoption of a polycentric approach to reward parent country national (PCN) managers does not appeal to the expatriates since better rewards packages is the most common motivation that ensures the continued availability of the individuals in the host nation (Warneke & Schneider 2011; May et al. 2007). However, the approach is appropriate in situations where the expatriate prefers to work in the host country for personal interests (Bonache et al. 2009). Therefore, based on the contribution of the three managers that would oversee the Production, Output and Logistics Managers, it is proper to adopt the contribution rule to justify their higher remuneration packages (Bloom et al. 2003). Prior to the justification, it is also proper to offer the managers attractive remuneration packages so as to guarantee their motivation at the workplace. The failure of the company to reward the expatriates appropriately may compel them to vacate their overseas positions thus impacting adversely on the dissemination of expert knowledge and experience to the inexperienced HCN managers (Suutari & Tornikoski 2001). The contribution rule advocates for rewarding individuals based on their contributions to the processes of the firm (Johnston et al. 2015). Therefore, the main challenge may entail determining the exact contributions of the three expert professionals and the HCN managers of the corresponding departments. As mentioned above, the Johor Bahru facility should implement a performance-based rewards program for individual managers and group process workers. By so doing, the firm would acknowledge the department that has had the greatest input to the overall performance of the company by allocating the highest remuneration packages to its manager and process workers in comparison to the managers and process workers of the other departments. The Specific Performance Indicators The ratio of the productive staff to the non-productive staff is the first key performance indicator that a company utilizes to determine its performance and the associated rewards to managers and process workers (Velimirović et al. 2011). In the above case, all the managers of the firm fall under the non-productive workers category. The composite ratio for the performance indicator is 3:1 implying that for every three workers hired in an organization, one is non-productive since she/he assumes a managerial position. Consequently, taking the correct action is imperative if the ratio is less than 3:1. In the case of the Johor Bahru facility, there are 200 employees including the managers. Therefore, despite the existence of the General Manager, the three expatriate managers, the managers for the logistics, operations and production and the supervisors of the departments, it is proper to say that the existing productivity ratio is appropriate. However, the company failed on the technical efficiency performance indicator. The low production levels of the company reveal its failure in the indicator despite the fact that it had state-of-the-art equipment and the required training and expertise. For instance, the production of UHT milk does not exceed 50,000 liters as compared to the Philippines facility that exceeds the 80,000 benchmark. The failure of the firm to implement the recommended production and quality control procedures is responsible for the poor results of the company regarding technical efficiency. Labor utilization is the other indicator of performance that finds the proportion of the hours worked and the attended hours (Velimirović et al. 2011). The ratio enables one to determine the actual number of hours that an employee engages in productive work as compared to the total number of hours that the employee is present at the workplace. Based on the fact that the hiring of the process workers relied upon the existing connections between the workers and the local managers, it is proper to opine that an assessment of the labor utilization indicator would reveal dismal results. Low commitment and motivation of the workers as a result of the current rewards system also explains the low productivity output exhibited by the company. The institutional and cultural arrangements in Malaysia and New Zealand National culture impacts significantly on the compensation strategy adopted by a firm. Consequently, it is imperative that firms should implement compensation strategies that conform to the national culture. Malaysia is one of the countries that exhibit the highest power distance index (PDI). The characteristics of such countries encompass top-down communications, dependence on superiors and authoritarianism. Therefore, the compensation strategies should also be hierarchical in nature, with the managers receiving more rewards than the workers and subordinates. Malaysia also ranks low on individualism, average on masculinity and low on the Uncertainty Avoidance Index. However, Australia has a low PDI characterized by high levels of participation and joint decision-making. It also ranks high on both individualism and masculinity and average on UAI (Gomez-Mejia 1991). Such a national culture requires compensation strategies that do not emphasize the differences between high-level and low-level ranks. Therefore, it is imperative that the HQ executives should recommend a hierarchical compensation structure in the Johor Bahru plant located in Malaysia. Potential risks and benefits of imposing a new reward strategy The ‘free-rider’ phenomenon is the main issue that will impact negatively on the group rewards strategy. Reduced morale and commitment of the employees will be prevalent in situations whereby the employees feel that the group rewards packages do not consider their individual contributions. It is evident that dissatisfaction will be prevalent among high performers as compared to the average performers. However, since the managers would receive the performance-based individual rewards packages, they would strive on an individual basis to ascertain that their departments meet the set targets. Inter-team rivalries may also arise following the grouping of a best-performing individual in a worst performing group (Trevor & Brown 2014). For instance, even though an individual may be performing to his/her best, the other members of the group may still underperform thereby preventing the individual from receiving the group bonuses (Lowe et al. 2002). To solve the problem, the facility should strive to utilize standard recruiting measures to ensure that the employees deliver their best in their departments. The limited life of bonus payments also threatens the motivation of the employees at the workplace. In most cases, bonus payments reach their maximum between two and three years following the establishment of the firm. Therefore, it is the responsibility of the HQ and host nation executives to ensure the continued existence of the group rewards packages so as to guarantee the motivation of the employees. When the target is too remote, employees do not have control over the outcome. For instance, the employees do not have control over a potential decline in the market demand for milk and its products. However, it is evident that such a decline may impact adversely on their group bonus packages thereby reducing their motivation. However, the major benefits associated with the new rewards strategy is an enhancement of employee motivation and commitment that would increase quality and output aspects of the organization. Alternative HRM practices to improve the performance of the facility Rather than changing the rewards system, staffing practices also play a pivotal role in enhancing the performance of an organization. The mixture of HRM practices adopted by the organization should target to enhance the proficiency of its staff. There are two approaches to increasing employee proficiency. Firstly, the SNQ HQ can increase the capabilities and expertise of the existing workers or improve the quality of the hired personnel. To achieve the best results, the firm can implement both approaches. For instance, the HQ executives can introduce refined recruitment and selection methods to select employees that have the best capabilities in the market. Consequently, it should ensure that the managers employed in the subsidiary firm have the best capabilities in the market to ascertain their effective performance in supervising the Operations, Production, and Logistics Department. Moreover, the firm should adopt a neutral approach of recruiting its process workers. The approach should not consider the existing relationship between the worker and the managers of the enterprise. The alternative HRM strategy that would improve the performance of the organization entails implementing appropriate training programs to impart relevant skills to the employees of the subsidiary plant. It is evident that off the job training rather than on the job training improves organizational performance. The main benefits of the training programs include the enhancement of employee satisfaction and output at the workplace. Moreover, employee training can also increase the quality of the products and services delivered by the employees. This would serve as one of the significant strategic milestones for the company since the facility operates in a sensitive market that concentrates on product quality. Conclusion A performance-based variable pay rewards system is proper for the Johor Bahru facility in Malaysia. However, it is appropriate to award the variable pay to the managers on an individual basis and to use a collective basis to award the pay to the process workers. The difference emanates from the fact that it is easy to determine the individual contribution of the managers as opposed to the process workers. It is also proper to establish separate rewards policy for the HCNs and the PCN managers as a result of the existing cultural differences between the New Zealand and Malaysia. Malaysia and Australia exhibit high and low PDI levels respectively. Consequently, a hierarchical compensation structure is proper for the Malaysian facility. On the other hand, the Australian HQ should adopt a compensation structure that does not emphasize on power differences. Reference List Bloom, M, Milkovich, G T & Mitra, A 2003, ‘International compensation: learning from how managers respond to variations in local host contexts’, International Journal of Human Resource Management, vol. 14, no. 8, pp. 1350-1367. Bonache, J, Sanchez, J I & Zárraga-Oberty, C 2009, ‘The interaction of expatriate pay differential and expatriate inputs on host country nationals' pay unfairness’, International Journal of Human Resource Management, vol. 20, no. 10, pp. 2135-2149. 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