Still, the study, which examines perks for CEOs of the 95 largest public companies by revenue, did show two increases that ran counter to the overall trend. Tax pay-ments on perks and benefits—extra cash to make up for taxes assessed for the imputed income of fringe bene-fits for CEOs—actually rose in value this year by 43.6%, from a median of $23,951 in 2006 to $34,396 in 2007. [These payments are separate from the tax
“gross-ups,” as they’re often called, that some CEOs receive for their severance packages.] That’s surprising,”
Chapter 4 Organizational Context: Reward Systems 115
says Cwirko-Godycki, especially given how much attention has been paid to this issue. “Perks have always been a controversial issue; paying the taxes on top of the perks has been even more so.”
Meanwhile, the median value of personal and home security benefits for CEOs also increased by 14.4%, from $25,609 to $29,291. But Cwirko-Godycki is quick to point out that the value would have actually fallen this year had it not been for one significant outlier: Michael Dell, who received $l,034,750 in security benefits. [The amount was similar to what Dell earned as chairman the year before, but he was included in Equilar’s study only after returning as CEO in early 2007.] In a statement to BusinessWeek, a spokesman for Round Rock, Texas–
based Dell (DELL) says the company does not consider the security payments a perk, but a business-related expense mandated by the board. The company also says the amount of security Michael Dell receives is determined
with consideration that he is a recognizable industry leader and public figure worldwide.
Most perks, however, declined in value or preva-lence. The median value of club memberships dropped most significantly, falling 64% from $11,070 in 2006 to
$3,996 in 2007. Financial planning fees were down 9.2%, from $17,156 to $15,575. And personal use of aircraft, the perk that most “seems to get under share-holders’ skin,” says Hay Group’s Wise, also fell. In 2007, the median outlay for CEOs flying on corporate jets was $109,743, down 9.8% from $121,676 in 2006.
1. Make a case both for and against executive perks. Do you agree that such perks should be cut? Why?
2. Do you think paying the taxes on top of the perks is ethical?
3. Would you turn down the perks if you ever become a CEO?
Real Case: Rewarding Teamwork in the Plains
In the past, most reward systems have been geared to the individual employee. However, with the emergence of teams in most of today’s organizations, systems are being revamped to reward teamwork. A good example is Behlen Manufacturing Company in Columbus, Nebraska. The 1,100 mostly production employees are organized into 32 teams. Some of these teams have only a handful of members, whereas others have as many as 60. Although each individual receives a relatively low base-pay component, the rest of the compensation is variable and is determined in a number of different ways, including how one’s team is performing.
The centerpiece of the manufacturing company’s variable-reward plan is gain sharing, an increasingly pop-ular form of compensation whereby all members share a usually fixed percentage of the documented savings or performance gain accomplished by the team. Behlen employees can earn monthly gain sharing of up to $1 an hour when their teams meet productivity goals. The CEO explained this team reward system as follows: “If you’re in a group that makes stock tanks, for example, from the start of the process to the end of the process, over all shifts, all month long, if the team achieves certain levels of productivity, each of its members is rewarded any-where from 0 cents to $1 an hour for every hour worked
in that area.” Documentation of the gains is based on actual pounds of products, so that everyone on the team knows exactly how well their team is doing.
Another part of the company’s variable-reward sys-tem involves profit sharing. Employees receive 20 per-cent of the profits. In reper-cent years this has resulted in everyone’s getting a profit-sharing bonus equivalent to three weeks’ salary. Still another part of the reward package is the employee stock ownership plan. Each employee receives company stock equal in value to 2 percent of his or her base salary each year. Senior managers in the company participate in the same reward system as the workers, receiving the same pro-portional benefits. However, in the case of managers, performance is calculated on the gross margin of their business unit before selling and administrative costs are deducted.
How well has this company in the middle of the Great Plains performed with this organizational reward system? In each of the eight years this pay plan has been in place, performance has exceeded top management’s expectations. In addition to the $5 million the firm saved because of safety, quality, and efficiency ideas that were submitted through the teams, the company has exceeded its profit goals each year. In fact, in the most recent
116 Part One Environmental and Organizational Context
reported year profits were $1 million greater than expec-tations. The CEO explained it this way, “As people focused in on their gain-sharing opportunities—and they’ve understood their profit-sharing opportunities—
we’re seeing positive productivity improvements in every corner of the plant.”
1. Explain the organizational reward system this firm uses.
2. Although this reward system has obviously been very effective, what more can be done? What specific recommendations would you make?
3. What if the agricultural economy goes bad and the sales of this agribusiness company greatly decreases? What will be the impact on the reward system this company uses, and what would you now recommend?
Real Case: Different Strokes for Different Folks
Organizations are finding that the best reward system entails a combination of money, recognition, and bene-fits. Money is important, of course, but if a person earns
$50 in incentive pay every month, after a while this monetary reward may begin to lose some of its power.
So financial rewards have to be altered and different ones offered. The same is true for recognition awards;
although people never suffer from too much recogni-tion, organizations have to be sure awards are fair, and highly creative organizations often ensure that change is built into the recognition system. The important thing that many firms have found is that what is truly reward-ing for one person may not have the same impact for another. In short, there are individual differences when it comes to reward systems, and there have to be differ-ent strokes for differdiffer-ent folks. Here are some represen-tative innovative monetary and recognition rewards that have been offered by a variety of different enterprises.
• At Busch Gardens in Tampa, the company gives a Pat on the Back Award to employees who do an out-standing job and also has a copy of the notice of the award put in the employee’s file.
• At Metro Motors in Montclair, California, the name of the Employee of the Month is put up on an elec-tronic billboard over the dealership.
• At Colin Service Systems, a janitorial service in White Plains, New York, coworkers vote for the employees that they feel should be given awards as the Most Helpful Employee and the Nicest Employee, and executives make the presentations.
• At the Amway Corporation, on days when some workloads are light, the department’s employees help
out in other departments, and after accumulating eight hours of such work, employees get a personal thank-you note from the manager of programs and services.
• At South Carolina Federal financial services in Columbia, the president and other top managers serve employees lunch or dinner as a reward for a job well done.
• At the Gunneson Group International, a total-quality consulting firm in Landing, New Jersey, when an employee refers business that results in a sale, the individual receives a cash award of 1 to 5 percent of the gross sale, depending on the value of the new business to the company.
• At QuadGraphics printing company in Pewaukee, Wisconsin, employees are paid $30 to attend a semi-nar devoted to quitting smoking, and the company gives $200 to anyone who quits for a year.
• At the Taylor Corporation, a printing company in North Mankato, Minnesota, in lieu of year-end bonuses, employees are allowed to make selections from a merchandise catalog.
1. Why are more and more companies complementing their monetary incentives with recognition awards in their organizational reward system?
2. How would you rate each of the examples? What are some strengths and weaknesses of each?
3. If you work for a human resource management con-sulting firm and are given the assignment to head up a project team to develop reward systems that would be appealing to today’s employees, what would you recommend?
Chapter 4 Organizational Context: Reward Systems 117
Organizational Behavior Case: Huge Benefits, Little Understanding or Use
The Velma Company designs and manufactures high-tech communications equipment. The firm is a world-class supplier, and its three largest customers are Fortune 50 firms. Velma also has major clients in China and the European Union. Over the last five years the company’s sales have tripled, and the biggest challenge it faces is hiring and retaining state-of-the-art people. In particular, there are two groups that are critical to the company’s success. One is the design people who are responsible for developing new products that are more efficient and price competitive than those currently on the market. The other is the manufacturing people who build the equipment.
In an effort to attract and keep outstanding design people, Velma has a very attractive benefit package. All of their health insurance premiums and medical expenses are covered (no copay or deductibles). The company contributes 10 percent of their annual income toward a retirement program, and these funds are vested within 24 months. So a new design person who is earn-ing $75,000 annually will have $7,500 put into a retire-ment fund by the company, and the individual can make additional personal contributions. Each year all design-ers are given 100 shares of stock (the current sales price is $22) and an option to buy another 100 shares (the cur-rent stock price is $25 and this option is good for 10 years or as long as the person works for the firm, whichever comes first).
The manufacturing people are on a pay-for-performance plan. Each individual is paid $7 for each unit he or she produces, and the average worker can turn out three units an hour. There is weekend work for any-one who wants it, but the rate per unit does not change.
In addition, the company gives all of the manufacturing people free health insurance and covers all medical expenses.
Another benefit is that everyone in the company is eligible for five personal days a year, and the company will pay for any unused days. Velma also has a large day care facility that is free for all employees, and there is a state-of-the-art wellness center located on the premises.
Last year the company’s turnover was 9 percent, and the firm would like to reduce it by 50 percent this year.
One proposed strategy is to strengthen the benefits package even more and make it so attractive that no one will want to, or could afford to, leave. Some top managers privately are concerned that the fırm is already doing way too much for these employees and are troubled by the fact that exit interviews with designers who left in the last year indicated that many of them were unaware of the benefits they were receiv-ing. For example, most of the designers who have gone elsewhere reported that they were attracted to the stock offered them, yet they did not exercise the options to buy additional shares of Velma stock because they were not sure what the financial benefits were to them.
The manufacturing people who left reported that $7 per unit was acceptable, although a higher rate would have resulted in their remaining with the fırm. The manufacturing people also liked the stock that the company gave them, but were somewhat confused about the options they held.
Both groups—designers and manufacturing personnel—seemed pleased with the contribution that the company made to their retirement program, but most of them did not put any additional personal contri-butions into their retirement fund. When asked why, the majority of them were unaware that this could be done on a before-tax basis, thus temporarily shielding the contributions from taxes and making it easier to build a nest egg for the future. Finally, all of those who left said that they liked the child care benefit, although most of them did not have young children so they did not use it, and they thought the wellness center was also a good idea but they were so busy working that they admitted to never using the facilities.
1. Which benefits did the employees who were leaving seem to best understand and like?
2. Which benefits did they find confusing or of little value?
3. Based on your answers and other relevant considera-tions, what recommendations would you make to Velma’s management regarding how they can do a better job of using the benefits package in their orga-nizational reward system?
118 Part One Environmental and Organizational Context