Text: Compensation
by George T. Milkovich & Jerry M. Newman, 6^th Edition

Cases in Compensation

By Milkovich and Milkovich, 8^th Edition

"People are our most important asset" — for many years this assertion has figured prominently in corporate Annual Reports, senior managers’ speeches, and consultant recommendations. But in reality, only a small fraction of firms have behaved accordingly. In the far greater number of firms, employees are still treated as disposable "variable cost" items. I believe that the pressure of competition in an increasingly globally integrated, technologically sophisticated, and knowledge-intensive economy is gradually turning this homily into an imperative. However, the countervailing pressures are strong, especially those rooted in short-term financial imperatives, vested economic and power interests, and the persistence of ideologies. How firms utilize Performance Appraisal and Compensation practices is therefore, the source of great tension and conflict.

What do these conflicting pressures mean for managers and for employees? What motivates employees to want to work for a company? Are the performance management and the compensation programs that a company has in place effective in meeting its objectives? These are the questions at the heart of the course.

We will begin with a session that provides an introduction and overview of the course. The remainder of the course is divided into the following sections:

• Current state of compensation management
• Strategic Implications of effective compensation systems
• Implications of recent theoretical and research developments in compensation
• Develop skills in making compensation decisions
• The role of leadership with respect to compensation
• Research Project – Analysis of the Compensation and Performance Appraisal systems at your Company

Case studies are a key part of the course. To ensure an exposure to the broad range of compensation situations, we will be using materials from the Milkovich’s textbook and case studies. In addition we will use additional case studies and a section of the text book by Alfie Cohen.

The primary subject matter in this course is not a set of facts or analytic techniques that you can learn by reading and/or doing pencil-and-paper exercises by yourself. What you learn in this course comes primarily in the form of deeper intuition, finer instincts, and better judgment with respect to an important class of relatively ambiguous issues. As a result, the heart of the learning process is our class discussions and your research project, rather than my lectures or the textbook. Moreover, the amount of learning you accomplish in this course is a direct function of your personal contribution to these discussions: you can’t learn to play the piano by watching others play.

We will all endeavor to create a supportive learning environment. My goal is make the class a "learning community," where we can all learn from each other. This requires active participation and respect for each other’s contributions.

The Cases in Compensation manual will serve as the basis for applying the conceptual material found in the textbook to a "real world" example. In addition, we will analyze other Harvard Cases as time permits.

It is for you to identify the specific issues posed by the case and to decide how they can best be addressed. The case questions (see handout) are simply ideas to get you going, not an agenda for your analysis or for our discussion.

Note: The cases present a fairly realistic picture of a business situation. They are not merely illustrations designed to exercise or test your knowledge of a given slice of theory. As a result, the concepts needed to analyze the case and to formulate an appropriate action plan are not narrowly bounded by the assigned background reading. In many cases, you will find it useful to invoke concepts from other courses, or from your own experience.

Therefore, team preparation for each case analysis will be utilized. You will form teams of three or four people by the end of the first class session. You should try to schedule a regular time for your team to meet outside of class to share ideas on the assigned case, and to work together to formulate a deeper analysis of the case issues. Your learning from this course will be doubled if you actively participate in this team preparation. Also, each class member will give me a confidential grade with respect to his or her opinion of your participation on the team. These grades will be considered when factoring your overall participation grade.

Case discussions will begin with a short oral recapitulation of the major issues of the case. You should think of these presentations as if they were presentations by a group of outside consultants (your study team) reporting to the case company’s management team (the class). The "Guidelines for team opening presentations" below will give you a clear idea of my expectations of these presentations.

One or more team members should present the team's analysis to the class, using whatever visual aids the team deems appropriate (overhead transparencies or PowerPoint charts). The presentations may range from 25 to 35 minutes. In order to facilitate grading, each team will give me a paper version of its presentation, annotated with the key points. In addition, each team will have sufficient copies of their overheads (without) annotations for their classmates.

After the opening presentation and a few clarifying questions, the discussion will be opened to the class as a whole. The "consultants" will lead the discussion remembering that the class is acting as the company’s management team. As a group, we will try to build a complete analysis of the situation and address the problems and issues it presents.

Your professional success depends critically on your skill in articulating and defending your ideas and engaging in a productive dialogue with your colleagues. You should consider our classroom as a laboratory in which you can test and improve these skills. If your classmates do not challenge your conclusions, rest assured that I will! I believe that through open and frank debate and discussion, we can uncover a framework for you to use to approach real problems you will face in the future.

Some of the criteria that I will use to assess class participation include:

• Involvement: Is the student following the discussion attentively? Is the student actively contributing ideas? Is the student respectful of others in how he or she formulates his or her contributions?

• Listening: Is the student a good listener? Are the points made relevant to the flow of the discussion? Are they linked to the comments made by others?

• Adding value: Do the comments show evidence of insightful analysis of the case data? Do they make use of relevant practical experience? Are they formulated in a succinct, effective manner? Do comments clarify and highlight the important aspects of earlier ideas and lead to a clearer statement of the relevant concepts and issues?

• Risk-taking: Is there a willingness to test new ideas, or are all the comments safe? (For example, repetition of case facts without analyses and conclusions or simply generic statements that would be true in almost any setting would be considered "safe" and not very useful.) Do comments raise "difficult" questions that challenge us to think more deeply?

Note: EVERYONE in the class is expected to prepare for every case — not just the ones he or she is responsible for presenting as a team presentation. Doing the readings and attending class are not enough. Since during class I may call on students at any time, it would be advisable to be prepared.

The second part of each class session will be a discussion of the relevant theory. The main reference here will be the assigned chapters of our textbook by Milkovich and Newman, but students are also encouraged to bring in relevant concepts from other courses or from their industry experience.

This part of the session will provide an opportunity to review the key ideas from the background reading and to raise any questions or issues that may occur. The format will be that of an interactive lecture. Preparation for this part requires that you read the relevant chapter(s) and think about its/their relevance to the case and more generally to your own work situation.

Each student will prepare an 8 - 10 page double spaced (12 point Arial type) research paper entitled, "Performance Appraisal and Compensation Practices at (Name of Your Current Company)."

The paper should describe the performance appraisal and compensation systems in place at your current company. If you are currently not employed, you may select a company where you have worked in the past 5 years. You should follow the format described below:

• Introduction. Give a 3 or 4 paragraph description of the company. Most of this material can be taken from a recent annual report or 10K filing. What is the company’s mission? Who are the major competitors? What has the financial picture looked like during the past 3 years?
• Describe the Compensation Strategy. What is the compensation strategy? What have been the major compensation initiatives during the past 3-5 years? What performance appraisal process is used within the organization? Are the performance management and compensation systems effectively motivating employees to achieve the stated corporate objectives? Are their and compensation and/or performance management policies in the company? Describe how the policies are or are not aligned with the stated business objectives.
• Interview a minimum of 5 employees at the company from various levels. Ask all employees you interview the same set of questions. An example of some questions you might ask are: How would you describe the effectiveness of the compensation and performance management systems? What new compensation and/or performance management strategies would you like to see the HR department deploying throughout the company? Do you feel that the current compensation systems and policies motivate the employees of the company? Why? Etc. Once you have completed the interviews, summarize the results in your report.
• What are the Challenges Facing Your Company that might be aided by changing or enhancing the compensation and/or performance management systems? Look at each section of the compensation system: Base Pay, Bonus, Long-term, sales incentives, etc. What needs to change? What actions should be taken both short term and long term to better align the compensation and performance management strategy with the company’s strategy?
• Conclusion: If you were acting as a consultant to the HR department, what recommendations would you make? Present both the positive and the negative arguments for making your recommendations.

All papers will be due to me electronically by December 7, 2000. No late papers will be accepted. Since this is a condensed course, you will need to begin your research for you paper immediately.

You will be asked to make a presentation to the entire class during one of our last class sessions. The presentation should be a combination of your paper (please make enough copies of your overheads for all class members to receive one) and a PowerPoint presentation lasting no more than 25 minutes (15 minutes for the presentation and 10 minutes for group participation where the group may challenge your recommendations).

The grade you earn will be based on your team’s opening presentation(s), your individual participation in class discussions, and your research project. These will be weighted as follows:

• Phase I team presentation 15%
• Phase II team presentation 15%
• Phase III team presentation 15%
• Individual class participation 10%
• Grades from fellow team mates 5% (These will be kept confidential)
• Research Project Paper 15%
• Research Project Presentation 10%
• Final Exam based on the Textbook – 15%

Since we have so few class sessions, your participation in every session is very important. If you know your schedule will force you to miss more than one session, it would be advisable not to take the course at this time. If you do miss class, your absence will naturally affect your class participation grade. It will be lowered by as much as one full letter grade.