Research of Waterway’s compensation system


1.0 Introduction 2

2.0 The applicability of Waterway’s current compensation system 3

3.0 Changes for better fit 3

3.1 Building a rigorous performance evaluation system 4

3.2 Appropriate training and communication for supervisors and employees 4

3.3 Modification the direct cashed payments and indirect payments systems 5

4.0 Data gathering means and compensation system design 5

4.1 Means of information collection 5

4.1.1 Interview 5

4.1.2 Questionnaire 6

4.1.3 Observation 6

4.2 Compensation system design 6

4.2.1 Pay and incentive systems design 6

4.2.2 Indirect compensation system design 7

5.1 The approach for hourly workers 8

5.2 The approach for managers 8

5.2.1 Performance-based pay increases 9

5.2.2 Gain sharing plans 9

5.2.3 Profit sharing plans 9

6.0 Function of nonfinancial incentives towards hourly shop workers and professionals 10

6.1 Nonfinancial incentives towards hourly shop workers 10

5.0 Approaches for hourly workers and managers 8

7.0 Conclusion 11

8.0 Reference …………………………………………………………………………12

1.0 Introduction

The compensation system as an important means for companies to maintain a good relationship with its employees needs much attention by all companies. Lincoln Electric Company of Cleveland, for example, due to the high turnover rate of its employees, it has been making great efforts on developing company and employees’ relationship via modification on its compensation systems. For instance, the innovative management practices of compensation system facilitates Lincoln becoming world famous Multinational Corporation with 9,000 employees in 20 countries and a network of distributors as well as sales offices in 160 countries, which includes these innovations such as guaranteed employment for all full time workers with more than two years’ service, piecework system, high wages including a substantial annual bonus based on the company’s profits and so on (Cascio 2010).

At the same time, because of the strong demand from its workers’ union on enhance employees’ benefits, Nucor Corporation began to invest heavily on employees’ compensation system, which includes both the financial incentives and nonfinancial incentives such as its simplicity plans of quality tons out the door and pay weekly as well as profit sharing plan(Cascio 2010). These approaches help this company have been profitable every quarter and not single employees have been laid off.

As for Waterway Company which faces problems in its compensation systems, it is necessary for it to modify its compensation system from the success of above examples.

2.0 The applicability of Waterway’s current compensation system

As the case mentioned, till the year 2008, there is still a laid-back atmosphere in Waterway, which has been changed due to the implementation of the long-range strategic plan by managers. And now the working atmosphere of Waterway is faster-paced with increased workload.

Although there is a across-the-board pay raise, there are still several complaints from not only the shop floor level but also from manager level towards Waterway’s current compensation system, which even results in the loss of three best workers of Waterway and the threat from CFO of leaving unless his compensation package included profit-sharing and some requirements for change even from Waterway’s professionals such as Lee and Jack.

Generally speaking, the above evidence clearly shows that the current compensation system doesn’t seem to fit the company’s strategy of aggressive growth and product innovation.

3.0 Changes for better fit

As Cascio (2010) describes compensation is a critical component of the employment relationship which includes direct cash payments as well as indirect payments. For Waterway it is really necessary to make some changes in its compensation system to reduce complaints and maintain good employees.

3.1 Building a rigorous performance evaluation system

According to the information obtaining from the case, there is a lack of proper and rigorous performance evaluation system in Waterway, that’s why when Cyrus sees Lee and Jack’s point of view of gaining a share in the profits, he can’t explain and give evidences to other employees. And that’s also why Cyrus has a big headache that he hasnt owned powerful evidence and means to appease the so many calls for pay rise. Based on this dilemma, it is essential to establish a proper and rigorous performance evaluation system which can give proper evidence based on evaluation and at the same time check and balance the fairness in staff’s compensation issues (McPhie 2006).

3.2 Appropriate training and communication for supervisors and employees

Since the case mentioned that the working atmosphere in Waterway is so laid-back before such as leaving by mid-afternoon and getting some canoeing in before dark with easy workload. So when the casual and relaxed atmosphere suddenly changed to faster-paced atmosphere with increasing workload, all of the employees have complaints and ask for pay rising. For Cyrus, it is recommended for him to give proper training programs and conducts appropriate communication with these employees. Just like Palmer, Dunford and Akin (2009) claimed that proper education and commutation can help Cyrus to inform its employees the information of the changes and meanwhile win good impression from the employees that the Waterway Company pays much attention to their feelings which can win more supports from employees and reduce some resistance.

3.3 Modification the direct cashed payments and indirect payments systems

The most importance task for Waterway is to establish a proper compensation system which should include appropriate direct cashed payments and indirect payments systems. And meanwhile, it is essential for Waterway to involve in a reasonable and proper pay structure and level reflecting the fairness such as the internal equity, external equity as well as individual equity (Cascio 2010), which can help Cyrus remove the doubts of employees toward the compensation system such as why CFO can have a pay increase and extra vacation while the suggestion of top hourly performers receiving additional wage increases being refused.

4.0 Data gathering means and compensation system design

4.1 Means of information collection

To gather the proper and useful data to facilitate the compensation system design, the recommendable methods of information collection are as below.

4.1.1 Interview

It recommends Waterway to adopt face to face interview to get information, which

can help Cyrus to gain more direct information and clarify ambiguous answers to these employees who complains the compensation system and then get some suggestions or opinions such as their compensation needs, why complains the current system of compensation and so on (Leedy & Ormrod 2001)

4.1.2 Questionnaire

Questionnaire is also a recommendable means for Cyrus to collect information which handed to managers as well as ordinary workers should be preplanned with a concise set of designed questions to get the information including reasons of complaint, requirements for compensation, proper suggestions and so on (Snell & Bohlander 2007). It can help Waterway get more objective information due to the standardized way of responses gathering fast.

4.1.3 Observation

As for the current situation of Waterway, it is appropriate to adopt the participant observation to gather information by Cyrus, which has the advantage that as one participant of the compensation system, for instance the supervisor or Cyrus can act as the ordinary workers under the current compensation system and obtain a much more closer view of what happens and have more data as well as gain better insights into the aspects of what is going on to the compensation system in the informal and undocumented aspects(Duignan 2009).

4.2 Compensation system design

4.2.1 Pay and incentive systems design Organizational culture and training

It is important for Waterway to foster an organizational culture which is in favour of the concept of pay for performance, which means Cyrus and other top managers should try every means to build trust between themselves and employees on the basis of open, two-way communication (McPhie 2006). And meanwhile, the Human resources management systems including selection, training and performance evaluation should also be integrated with pay for performance system. Further more, the proper education programs based on both the mechanics of the system and its underlying philosophy should be given to both supervisors and employees properly (McPhie 2006). Pay for performance system and fairness evaluation building

Cyrus and supervisors are recommendable to give transparent evaluations to all of the employees. And meanwhile for different levels of jobs it is recommendable to establish different means of measure. And at the same time jobs of the same general value should be clustered into the same pay grade and jobs that clearly differ in value should be in different pay grades (Cascio 2010).

4.2.2 Indirect compensation system design

To maintain these fantastic talents, Waterway can also depend on some employees’ benefit plans. For instance, it can offer employees with a complete series of security and health benefits such as life insurance, disability insurance, hospitalization, surgical and maternity coverage, sick leave, pension plans, social security, unemployment insurance and so on (Cascio 2010) to show its attention to these employees and enhance their sense of belonging to Waterway.

5.0 Approaches for hourly workers and managers

As the above discussed, jobs of different level can be offered different structure of pay. Due to this, it is recommended adopting different approaches as below for hourly workers and managers in Waterway.

5.1 The approach for hourly workers

To avoid the same dispute that top hourly performers should be given additional wage increases, the piece work salary system for hourly workers is a proper choice, which means they earn more when they work more and also put the responsibility on individual’s performance and can save cost and motivate workers at some extent (Cascio 2010). This approach can solve the problem that working more but earn the same. And the more pay for more work principle is also fit for the current situation of these hourly workers in Waterway.

5.2 The approach for managers

Due to the different level of management in Waterway, there should also be different approaches for them. Although the approach for different level of managers would be different, they should be built on the equity and rational level.

5.2.1 Performance-based pay increases

And for the ordinary manager level employees, the performance-based pay increases on total salary system is recommended, that is to say the continual increases of salary or at least a plateau salary level would be received by them (McPhie 2006).

5.2.2 Gain sharing plans

For ordinary level of managers in Waterway, the gaining sharing means can enhance these ordinary managers’ understanding of the philosophy of cooperation and more actively involve in business activities to gain much benefits, which focuses on achieving savings in the areas managers can control such as reduced scrap or utility costs.

5.2.3 Profit sharing plans

Since some of the employees such as Lee and Jack has come put with the idea of sharing the profit or else they will leave. Under such circumstance, it is necessary for Cyrus to consider about implement the profit sharing plan. So for employees of top management in Waterway, it is recommended to share profit with them, which not only can maintain these professionals such as Lee and Jack, but also can enhance these managers’ work morale and productivity (Cascio 2010). Several multinational companies such as Ford, General Motors (GM) and Toyota all adopt such approach. For instance, at Toyota, the same types of workers at Toyota enjoy an average $ 8,860 profit sharing (Cascio 2010).

6.0 Function of nonfinancial incentives towards hourly shop workers and professionals

Although the financial incentives such as piece work salary system performance-based pay increases, gain sharing plans as well as profit sharing plans are good approaches for Waterway to keep and incent employees, the nonfinancial incentives mentioned as below are also effective.

6.1 Nonfinancial incentives towards hourly shop workers

For hourly workers, the nonfinancial incentives can also enhance their productivity even better enhance their sense of belonging to Waterway. For instance, Waterway can offer several benefits packages for its hourly employees such as child care, food services, elder care, and the company matching funds for college tuition for their children just as Nike does, which can successful shows Waterway’s attention to these hourly workers and incent them to have better performance(Cascio 2010).

6.2 Nonfinancial incentives towards professionals

For professionals, the nonfinancial means of incentives are also important and useful. It is recommendable that Cyrus can enlist some of the professionals to help enrich Waterways’ benefits offerings on the basis of probing these professionals’ fears, needs and desires (Cascio 2010). For example, giving them incentives to make health benefits tradeoffs, such as pledging to stop smoking or using company, chosen physician network (Cascio 2010) and other considerate nonfinancial incentives can really help Cyrus keep more professionals.

7.0 Conclusion

Depending on the information from the case study, this paper gives proper analysis and suggestions for it to modify its compensation system both in financial and nonfinancial incentive means, which can help it to maintain its talent employees and meanwhile largely enhance the work morale of its hourly workers and professionals.

8.0 Reference


Cascio, W.F. 2010, Managing human resources: Productivity, quality of work life, profits, 8th edn, McGraw Hill,

Duignan, P. 2009, Methods and analysis techniques for information collection,, viewed 24 June 2010,

Leedy, P. & Ormrod, J. 2001, Practical research: Planning and design, 7th edn, Merrill Prentice Hall, Thousand Oaks,

Palmer, I., Dunford, R. & Akin, G. 2009, Managing Organizational Change, 2nd edn, Mc Graw Hill, New York,

McPhie, NAG. 2006, Designing an effective pay for performance compensation system, electronic version, U.S. Merit Systems Protection Board, viewed 27 July 2010,

Snell, S. & Bohlander, G. 2007, Human resource management, Thomson South-Western, USA,

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