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2. How might performance-related pay be an effective way of 'trimming' the labour costs - relation to overall company performance?

2. How might performance-related pay be an effective way of 'trimming' the labour costs - relation to overall company performance?

Understanding Business
Understanding Business
12th Edition
ISBN:9781259929434
Author:William Nickels
Publisher:William Nickels
Chapter1: Taking Risks And Making Profits Within The Dynamic Business Environment
Section: Chapter Questions
Problem 1CE
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kindly solve question number 2. 

Shearwater Ltd.: Designing a Reward Strategy Shearwater Ltd designs and manufactures a range of electronic and electro- mechanical subsystems for the aerospace and defence industry. It is located in the south-west of England, an area with a strong defence tradition. Shearwater is a manufacturing division of the Wilco Group, an American conglomerate mainly involved in the manufacturing of automobile components, which acquired the company in 2003. Shearwater employs 120 staff, of which approximately half are skilled and semi-skilled staff directly involved in the manufacturing process, 20 engineers and the remainder are spread across various business functions including sales, finance and procurement. Since the company was acquired by Wilco it has reduced its workforce by approximately 40 per cent - mainly through voluntary redundancy and the non-renewal of fixed-term contracts - in response to perceived overcapacity and reduced demand for its products due to increasing overseas competition. Shearwater has also responded to these pressures by explicitly pursuing a 'high-quality business strategy as a means of market positioning, in contrast to many of its competitors that tend to focus on cost, and has rationalised its product range to focus on core technologies and areas of expertise. Despite the success of these changes and relatively 'healthy company performance over the last two financial years, Wilco continues to exert pressure on Shearwater for greater cost savings and efficiency. These demands have partly been blamed for high levels of labour turnover among senior management at Shearwater. In particular, in the last six years the company has had three managing directors. The current managing director has been in the post for only three months and was transferred from another Wilco company in the USA. In contrast, may workers, particularly on the manufacturing side of the business, have been with the company for some time. The average length of service is eight years but many employees have been with the company considerably longer. A recent staff attitude survey found that whilst many employees remain committed to the firm (and, importantly, the work they do and the sector they work in) and are proud to tell people they work for Shearwater, employee morale was low and intention to quit unusually high. The turnover of senior management, further threat of redundancy and what is seen as 1
Transcribed Image Text:Shearwater Ltd.: Designing a Reward Strategy Shearwater Ltd designs and manufactures a range of electronic and electro- mechanical subsystems for the aerospace and defence industry. It is located in the south-west of England, an area with a strong defence tradition. Shearwater is a manufacturing division of the Wilco Group, an American conglomerate mainly involved in the manufacturing of automobile components, which acquired the company in 2003. Shearwater employs 120 staff, of which approximately half are skilled and semi-skilled staff directly involved in the manufacturing process, 20 engineers and the remainder are spread across various business functions including sales, finance and procurement. Since the company was acquired by Wilco it has reduced its workforce by approximately 40 per cent - mainly through voluntary redundancy and the non-renewal of fixed-term contracts - in response to perceived overcapacity and reduced demand for its products due to increasing overseas competition. Shearwater has also responded to these pressures by explicitly pursuing a 'high-quality business strategy as a means of market positioning, in contrast to many of its competitors that tend to focus on cost, and has rationalised its product range to focus on core technologies and areas of expertise. Despite the success of these changes and relatively 'healthy company performance over the last two financial years, Wilco continues to exert pressure on Shearwater for greater cost savings and efficiency. These demands have partly been blamed for high levels of labour turnover among senior management at Shearwater. In particular, in the last six years the company has had three managing directors. The current managing director has been in the post for only three months and was transferred from another Wilco company in the USA. In contrast, may workers, particularly on the manufacturing side of the business, have been with the company for some time. The average length of service is eight years but many employees have been with the company considerably longer. A recent staff attitude survey found that whilst many employees remain committed to the firm (and, importantly, the work they do and the sector they work in) and are proud to tell people they work for Shearwater, employee morale was low and intention to quit unusually high. The turnover of senior management, further threat of redundancy and what is seen as 1
'meddling' from its parent company were all cited as reasons why employees reported having limited faith in the long-term viability of the firm. The new MD has, however, spent the first few months considering how the firm might make further cost-savings and having reviewed the business and production processes decided that the labour costs is an area that required trimming'. He has however reassured staff that, given the relatively healthy order book over the short to medium term, redundancies are not on the table. Currently, pay arrangements for al staff are established via a periodic management review following brief consultation with the company council that is made up of union and non-union representatives from across the workforce, Ultimately, it is management who decide on pay arrangements. Current arrangements reflect long-existing traditions in the company. Manufacturing staff are paid a basic rate, periodically upgraded to reflect inflation (although this is not done by automatic review and tends to be done at the whim of management) alongside shift premiums and modest overtime payments, which staff view as a means by which to 'top-up' their basic pay. You have been tasked with advising the new Managing Director of Shearwater Ltd. on how to dovelop a new reward strategy for the firm. In order to provide comprehensive ideas, the MD has asked you to consider the following questions 1. What are the business objectives that need to be reflected in the new reward strategy? What desirable behaviours should the strategy seek to reinforce? Are there any undesirable behaviours that the strategy might seek to eradicate? 2. How might performance-related pay be an effective way of trimming' the labour costs - relation to overall company performance? 3. What might be the bonofits of consulting staff over ways in which to reduce labour costs? 2
Transcribed Image Text:'meddling' from its parent company were all cited as reasons why employees reported having limited faith in the long-term viability of the firm. The new MD has, however, spent the first few months considering how the firm might make further cost-savings and having reviewed the business and production processes decided that the labour costs is an area that required trimming'. He has however reassured staff that, given the relatively healthy order book over the short to medium term, redundancies are not on the table. Currently, pay arrangements for al staff are established via a periodic management review following brief consultation with the company council that is made up of union and non-union representatives from across the workforce, Ultimately, it is management who decide on pay arrangements. Current arrangements reflect long-existing traditions in the company. Manufacturing staff are paid a basic rate, periodically upgraded to reflect inflation (although this is not done by automatic review and tends to be done at the whim of management) alongside shift premiums and modest overtime payments, which staff view as a means by which to 'top-up' their basic pay. You have been tasked with advising the new Managing Director of Shearwater Ltd. on how to dovelop a new reward strategy for the firm. In order to provide comprehensive ideas, the MD has asked you to consider the following questions 1. What are the business objectives that need to be reflected in the new reward strategy? What desirable behaviours should the strategy seek to reinforce? Are there any undesirable behaviours that the strategy might seek to eradicate? 2. How might performance-related pay be an effective way of trimming' the labour costs - relation to overall company performance? 3. What might be the bonofits of consulting staff over ways in which to reduce labour costs? 2
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