The Best-Laid Incentive Plans

By : Group 6 Neha Agarwal Ramyaa Ramesh Ashima Malik Ritesh Pandey

Case Introduction
Hiram Phillips is the CFO and chief admin officer at Rainbarrel Products Rainbarrel is a diversified consumer-durable manufacturer. Hiram is of the opinion that the company has great potential for growth but was held back by lack of discipline. He brings about various changes to throughout the year to get the company on track by working on operational inefficiencies and cost reductions.

Changes Made
Reduction in labor cost : Identified the bottom quartile of performers throughout the company and offered them a generous buyout package. This was not accepted so he imposed a headcount reduction of 10% on all units. Better customer service: Improved number of calls per-day by 50% by reduction of time spent on each call made by retail customers regarding questions and complaints Monitoring : Monitored the calls after announcing newer targets and places names of worst offenders on wall of shame.

Changes made
Shipping: Good were to be shipped on the date promised and they will not be counted as shipped until they left company premise. Commission on sales employees: Sales personnel received commission on goods sold at lowered prices to employees and retired employees on the full retail price, it was changed to commission on actual purch.ase price

Issues arising due to changes

Patents: Creativity is lost due to mindless counting of who gets most patents, copyrights, grant proposals. Salespersons: There were complains by current and retired employee about poor treatment by sales personnel when enquired about the company products. Layoffs: Reduction was based on headcount and not on cost, highest performing departments had been forced to layoff companys best employees

Issues
Shipping : Although the product left the company premises and were hence marked shipped, they were still not delivered to the client on time Call-center : Replies to the emails were late and when calls were made to complain, the employees seemed to always be in a hurry to end the call. Hence reduction of average time for one call resulted in a feeling of unwillingness.

What went wrong

Measuring no of calls is not a good indicator of customer satisfaction, whether the call resolved the issue is important. No inputs were taken from the employees on design of these new measures. The measures were based on the assumption that the company is not working hard enough. By rewarding the short term performance they were missing out on long term success. Uncertainly among employees due to poorly planned layoffs and increments. No involvement of other top level managers into the changes brought about.

Traps of performance management

Measuring against yourself: Phillips just looked at internal comparisons and did not benchmark what other were doing. Looking backwards: The performance system must ensure that the decisions being made are going to help in future. The future scope of the decisions made was not considered. The aim was to cut costs in the present. Putting faith in numbers: the plan looked only at profits and did not consider the fact that more satisfied employees produce more satisfied customers. Gaming the metrics: The metrics could be manipulated as the low performance employees were being paid highest. We could also observe employees gaming with the system of mail responses. Sticking to number for too long : Instead of considering greater number of calls taken as employee satisfaction, each customers individual queries are resolved or not must be considered. Hence Phillips just stuck to the defined number without analyzing its impact on the business.

What could have been done

Use performance metrics that are less employee focused and more customer focused. The criteria for success has to be clearly defined whether it is sales, profits or retained business CEO and HRM must be involved and not leave the rein in hand of CFO alone. The decisions taken in the organization should be taken unanimously by all stakeholders . Take regular feed back from employee while implementing new measures or changes to measure its impact. Hire new employees to decrease workload Require employees to answer emails within 24 hours of receiving them Provide customers with a tracking System

Thank You