Performance and Compensation

Executive Summary

This paper delves into a performance and compensation management issue that occurred at Foster’s, the leading Australian beer producer. The idea behind this paper is to understand how performance and compensation management made an impact at Foster’s. As a matter of fact, it emerged that the organisation didn’t have a proper performance management system in place and the compensation management system that existed was not conducive for the employees. As a result, there was a growing disenchantment amongst employees which led to several of the employees quitting their jobs in search of lucrative placements elsewhere. The issue highlights the fact that appropriate performance management and compensation management is not only intrinsic in ensuring job satisfaction and employee engagement but was also essential for the overall productivity of the organisation. The paper extensively analyses the said issues and suggests strategies for improvements and possible recommendations that Foster’s as a global conglomerate could adopt to enhance job satisfaction and employee engagement while augmenting their overall productivity.

Introduction

There are many aspects of human resource management however, compensation management has emerged as a highly intricate and dynamic aspect (Odunlami & Matthew, 2014). There is a dire need to effectively manage human resources within an organisation with a view to realise organisational objectives. This aspect warrants effective compensation management (Burma, 2014). It can be said that a manager’s capacity to realise the overall organisational objectives largely hinges on strategically implementing compensation packages amongst employees. Strategically implementing compensation packages can have an encouraging impact on the employees which will enable them to perform to the best of their abilities (Cania, 2014) Compensation management plays a vital and practical role as it forms the crux of human resource management. It is intrinsic not just for the employee but holds specific significance for employers too (Goel, 2012). Compensation is vital for employees as their primary objective is to be remunerated for the tasks that they perform and it is supposed to commensurate the quantum of work that is done. At the same time, when employers effectively manage compensation it goes a long way in assuring loyalty from their employees (Ghazanfar et al., 2011).

At the same time, performance management within an organisation typically involves development of the employee through periodic performance appraisals. Performance management is considered as the ‘Achilles heel’ of human resource management as it is often considered as ineffective by managers as well as employees (Pulakos et al., 2012). Nonetheless, effectively managing the performance of an employee is a key element of human resource management. Research conducted in the past has indicated that managers who proactively initiate and execute performance management activities have been able to generate outstanding business results as opposed to managers who didn’t. Hence, it can be construed that compensation as well as performance management is integral to the overall success of the organisation and employee satisfaction (Aguinis, 2005).

This paper focuses on performance and compensation issues faced by ‘Foster’s and outlines strategies for improvement while providing recommendations for future.

Company Background – Foster’s Group

The Foster’s group was founded by two brothers of American descent William and Ralph Foster in the year 1888. Originally from New York, USA they had embarked on their journey with a yearning to establish a prosperous brewery on the other side of the world. The Foster’s Brewing Company was setup in Rokeby Street in Collingwood, Australia (Antoni, 2012).

By the turn of the century, though Foster’s continued to be a comparatively small business they had made in-roads from a futuristic perspective. From supplying beer locally, they had extended the reach of their product to all states within Australia. In addition, they also began exporting their beer to Samoa and South Africa. By 1977, Foster’s Lager had been established as a leading brand within Australia. As of now the company is known to brew and market one of the most popular beers in Australia – Foster’s Lager apart from their other leading beer brands like Victoria’s Bitter and Crown Lager (Griffiths, 2013). From a comparatively small operation, Foster’s has come a long way and now has successful breweries not only in Australia but also in Fiji, India, Vietnam and China. The group has diversified from beer and experimented with new products such as wine with successful operations in Australia, the United States, Chile Republic, Germany, the Netherlands and France .

The company is strategically bifurcated into four key divisions’ namely Carlton & United Breweries (CUB), Beringer Blass Wine Estates, Foster’s Brewing International and the Lensworth Group. Amongst the four divisions’ CUB constitutes the groups Australian beer and leisure wing and has emerged as one of the largest drivers of profit for the group. Foster’s lager, as of today is being marketed and sold in more than 150 nations across the world under the able aegis of Foster’s Brewing International (White, 2009). The Foster’s group has been acquired by SABMiller PLC in 2011 and continues to provide premium quality products to consumers while generating superior returns for stakeholders. (BBC News, 2011).

Key Performance Management Issue at Foster’s

The objective of any performance management program should primarily be directed at achieving employee satisfaction, which can enable employees to be more productive, that further enhances the profit margin of the organisation and establishing a competitive position of the organisation within the market. However in the case of Foster’s, performance management programs were largely undervalued which could be attributed to the fact that the organisation considered performance management as a distinct or rather a ‘stand-alone’ initiative. The group failed to utilize the performance management program as a strategic tool to boost performance and improve the overall productivity of the organisation. The issue here was the perception of Foster’s group towards performance management (Alston & Mujtaba, 2009). In this case, the organisation considered performance management programs as superficial initiatives that hardly had any impact on the organisation and they believed that it did not contribute to adding value to the organisation. Another reason why performance management programs were not considered as intrinsic by the group was that they believed it would add to the existing work pressure as they would be required to periodically monitor and evaluate employee performance which required them to allocate a substantial amount of their time and resources for the said purpose (Haun, 2010). The group also believed that performance management was an aspect of legal requirement by the human resource department. Moreover, there was also an absolute lack of training amongst the human resource staff to completely comprehend the entire process of performance management and its key elements (Seotlela & Miruka, 2014). Hence performance management was largely ignored at Foster’s. All these factors resulted in disenchantment and low productivity amongst the eemployees, which in turn directly impacted the overall productivity of the organisation.

Since the organisation operated in a highly volatile environment, it was extremely important that they sustain their competitive edge. In order to sustain their competitive edge it was essential that Foster’s effectively use their non-imitable assets which pertains to human resources. However, human resources can only be effectively managed through appropriate initiatives that motivate them to perform better. This implied that Foster’s needed to adopt a performance management system that suitably rewarded and recognised the efforts of the employees with a view to enhance job satisfaction while engaging their employees.

Key Compensation Management Issue at Foster’s

Attrition is a key issue that is faced by almost all organisations. Amongst the present day workforce, it is estimated that employees shift jobs on an average of every three years. Research conducted in the past has indicated that there are several factors that led to employee attrition which would include factors such as compensation, job tenure, age, job satisfaction (Mccrindle, 2014). Out of these factors, compensation emerges as a key issue that compels employees to change jobs as they are lured by higher pay packets (Sepe & Whitehead, 2015). At Foster’s, the attrition rate shot up substantially. Attrition rate within the organisation was substantially high which was significant. An internal investigation conducted by the organisation revealed that there was disenchantment amongst employees owing to a recently introduced change in compensation policies. The change effected by the compensation policy allowed new inexperienced recruits to be paid at par with existing employees which created a discord. Existing employees believed that it was unfair on the part of the management to place new recruits in the same pay scale as they were receiving. The growing disenchantment amongst employees compelled several of them to quit their positions. Moreover, the group also did not have specific programs in place that would facilitate annual appraisals that increased the compensation packages of senior and dedicated employees. This was also one of the reasons that aggravated the disenchantment amongst existing employees. As a result, many of the employees opted to quit the organisation in search of better opportunities with other organisations that not only rewarded them for their knowledge and experience but also increased their compensation in a planned and calculated manner. Paying the right compensation is intrinsic to talent retention and increasing the productivity of the organisation (Irshad, 2012).

Compensation is directly responsible to enhance the level of performance of employees and underlines employee engagement (Resurreccion, 2012). Several motivational theories emphasize the impact of compensation on employee performance. One such theory is the ‘equity theory’. The equity theory reflects overall rewards with regards to the performance of an employee as a singular measure which is compared to rewards of other employees and their performance. Any insight of equity or inequity leads to the creation of coping mechanisms amongst employees with a view to regularise the insights. The coping mechanisms are evident through the level of employees’ performance and engagement (Hofmans, 2012).

Analysis of Performance and Compensation Issue at Foster’s

Performance and compensation management of employees is a widely acknowledged component of any human resource management system (McKenna et al., 2011). In fact, organisations in the current day accord higher significance on performance management with a view to enhance the level of performance of employees (Gruman & Saks, 2011). The existence of a robust performance management system along with a sound system for compensation management positively impacts the overall organisational results which include job satisfaction, productivity, quality of service and financial performance as well (Odunlami & Matthew, 2014). This aspect warrants the need for a performance and compensation management system that is adaptable and founded on organisational objectives. Apparently, Foster’s either willfully or inadvertently failed to give due importance to the aspects of performance and compensation management. This resulted in the creation of discord and disenchantment amongst their employees’. What Foster’s failed to realise is that the absence of a robust performance and compensation management system not only created discord amongst employees but it also affected the overall productivity of the organisation. Moreover, since the employees at Foster’s were not satisfied with the prevalent scenario, they opted to seek employment with organisations that not only offered compensation according to their experience and qualification but also had appropriate performance management systems in place. Thus, Foster’s not only experienced a drain in talent but they were also faced with the prospect of hiring and training replacements which had financial repercussions.

Though rewards and recognition are intrinsic for motivating employees, it also emerges as a complex process which could be one of the reasons why Foster’s refrained from having a performance management system in place. Moreover, since organisations are made up of diverse employees, the needs and aspirations of employees might vary. Owing to their diversity, employees might have diverse perceptions of what makes an effective performance management system. Hence, encouraging employees and enhancing their job satisfaction requires the organisation to have a deep rooted knowledge of the diversity of employees and their perceptions.

As a global conglomerate, the organisation should have understood the importance of performance and compensation management and initiated steps to ensure that appropriate policies were in place. On the contrary, the organisation completely ignored the issue of performance management while introducing new compensation policies that were not favorable to existing employees. Thus it can be said that the issue of performance and compensation management is directly linked with employee satisfaction, engagement, retention and organisational productivity. The absence of performance management initiatives or the presence of unfavorable compensation policies proved to be detrimental to the overall interests of the organisation.

Strategies for Improvement

As it has been clearly established that organisational productivity is directly related to performance and compensation management of employees, it is essential that the organisation develops feasible strategies that can substantially improve the process . With the objective to enhance the overall productivity of the organisation, the group needs to first recognise and acknowledge the need for performance management programs and develop compensation management policies that are appropriate and conforms to existing industry standards (Ude & Coker, 2012). The organisation needs to outline and structure appropriate performance management initiatives and valid compensation policies. The organisation needs to develop an interest in ensuring employee satisfaction and creating engagement that will ensure retention. The organisation can adopt several strategies that can go a long way in enhancing the overall performance and compensation management process (Adewale & Anthonia, 2013). One of the strategies would be to put in place a measurement system that periodically evaluates the performance of individual employees (Roth et al., 1996). On the basis of their performance they can be rewarded. Rewards again can either be tangible or intangible. Tangible rewards in this case would pertain to awards presented to employees for successful completion of a particular task that meets the norms and standards as preset by the organisation for instance; presenting employees with an ‘Employee of the Month’ award with emoluments in cash or kind (gift vouchers). Intangible rewards on the other hand would refer to publicly appreciating the consistent efforts of an employee by virtue of accomplishments largely agreed in relation to organisational culture. It would involve instituting a ‘Hall of Fame’ where pictures of consistent and hardworking employees are displayed within the premises of the organisation and presenting such employees with a certificate of appreciation (Yoon et al., 2015). An effective strategy to improve compensation policies would include identifying the current compensation packages that is being offered within the industry and adopting a compensation policy that is at par with industry standards (Spraggins, 2015). Moreover, a difference should be maintained between the compensation packages of new inexperienced recruits from those of senior experienced staff. In addition, the group can formulate a plan wherein the compensation for each employee is periodically reviewed and augmented (Loyich, 2015).

Conclusion

It has been significantly proven from this paper that performance and compensation management are two critical aspects that are instrumental in creating employee engagement, employee retention, achieving organisational objectives and realising the overall organisational productivity. As is evidenced from the case here that performance and compensation management were key issues that was faced by Foster’s when they were an autonomous group. As a result, the organisation had to face the brunt of poor compensation management and the lack of a performance management program which led to several employees quitting the organisation out of disenchantment and joining other organisations. There were several factors that the organisation overlooked while framing unfavorable compensation policies and ignoring performance management as an integral aspect. The organisation failed to take into account the impact it was going to have on employee satisfaction, retention and engagement. Needless to say, performance and compensation management are intrinsically linked and play an important role in ensuring the competitiveness of any organisation. As a matter of fact, with appropriate performance and compensation management practices in place, Foster’s could’ve not only motivated their employees but it would’ve also helped to keep them engaged thereby, impacting the overall productivity of the organisation.

Recommendations

Performance management comes with its own share of problems and can pose a significant challenge to human resource managers (Cascio, 2014). Problems could relate to monitoring employees, measuring the quantum of quality / productive work (Bersin, 2015). Again performance of an employee maybe dependent on several other factors such as stress free environment, peer pressure, issues with co-workers or simply lack of knowledge. In such cases it is essential that the human resource manager not only monitors the performance but also evaluates the root cause that might be causing a drop in overall employee performance. Some recommendations for effective performance management would include;

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• Once a performance management program has been implemented, Foster’s should ensure that performance of an employee should not be done from the perspective of the manager alone (Gallo, 2011). On the contrary, employees should be given an opportunity to evaluate themselves. Post evaluation by the manager, an evaluation form can be presented to the employee to conduct a self-evaluation. It has been found during previous researches that when employees are presented with an opportunity to evaluate themselves they turn out to be more critical than someone else doing the evaluation. By acquiring the employee’s perception, Foster’s can open new communication channels where the manager will be able to discuss the difference in perception with relative ease.
• Foster’s should collect information pertaining to an employee’s performance from multiple sources and the organisation should not restrict themselves to acquiring feedback from the employee’s immediate supervisor alone. Foster’s should obtain feedback from those who regularly interact with the employee such as; co-workers, executive and departmental level managers or even customers.

Compensation has proved to be a key human resource tool that is effectively utilised by organisations for managing their employees. To ensure that the Foster’s reaps the rewards of its investment while encouraging and retaining employees, it is necessary to make sure that compensation is not an island by itself. As a matter of fact, compensation should be linked with the overall organisational strategies and objectives. Moreover, the compensation system should be in tandem with the human resource strategy (Martocchio, 2011). Recommendation in this direction would include (Trevor, 2008);

• Foster’s should establish a three layered compensation strategy.
• The first level should entail a strategy that is exclusively comprehended and backed by the human resource department.
• The second level should include a strategy that is backed by the human resource department and converted into practical solutions, policies and decisions that direct compensation decisions.
• The third level would comprise of a strategy that backs a pay-for-performance system that converts and pervades within all organisational levels.

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