Reference no: EM133031907
CASE STUDY Executive Compensation Strategy in Fortune Furnitech
Fortune Furnitech is a state-of-art modular furniture manufacturer, started with an initial ' 500 crores investment, by raising a term loan from different financial institution and about 65 percent contributions from the traditional family business. The group has a traditional family history of woodcraft manufacturing. Leveraging the family trend, the present owner Asim singh and his wife Ragini ventured into this business. Asim Singh has toured extensively all over the world with his father, right from his childhood. According to Mr.singh, India has top quality berg woods in its North-eastern states, which are imported by countries such as the USA. However, Indian use them as firewood, because of lack of awareness. The company launched an ambitious plan to manufacture and sell hardwood furniture worldwide, as their study indicated that the Indian market for furniture is still unorganized, and the affluent class used imported furniture made out of concentrated wood dust or waste products.
To achieve this goal, the company recruited the best designers, business heads, and production people worldwide. Many designers were either Italian-born or trained in Italy. The biggest challenge the company faced was in designing managerial compensation.
Management compensation received attention primarily because of its performance implication and strategic fit in Fortune Furnitech. The HR manager claimed that it had a positive effect on the company's financial performance and recommended the appropriateness of different compensation for specific strategic situations. However, he could not convince the top management of the need to formulate an executive compensation package accordingly.
Asim Singh only considered such alignment for executives on the board, arguing that their achievements were traceable. The HR manager argued that compensation cost in the company was the second largest expense category, the first being the cost of raw materials and other implements (excepting labour). Hence, it has to be managed strategically, aligning with the performance of the organization and its fit with overall organizational strategy. He supplied extensive literature to sell his argument. He complained that the organization did not have a well-documented compensation philosophy, despite this evidence. Some incentives were also counter productive. He argued that it is time to develop executive compensation, de-emphasizing the immediate financial gains and tagging it with long range strategy of the organization. After listening to the HR head's argument, the CEO directed him to develop a model that may work in the organization.
Question
- Imagine you are the HR Manager. Design the appropriate pay model for executives of the organization.