Reference no: EM133044494

Case #1: Health and Safety Meets Incentive Design, Compensation, and Performance Management

Pittiulak looked over the latest accident report and sighed to himself. One of his most junior workers had slipped off a ladder and broken his arm. Pittiulak felt terrible for the worker and his family and he was also worried about his ability to staff up-coming jobs. The injured worker would be away for weeks, if not months. This was the third significant accident in four months and it was simply unacceptable. Something was going very wrong with his painting and renovation work teams. He would need to fix it before more people got hurt, but how?

Pittiulak owned and managed a small renovation and dry-walling firm in Yellowknife, Northwest Territories. He had 19 fulltime workers, each with different areas of expertise. Four of them were licensed, highly skilled tradespeople (two carpenters, one plumber, and one electrician), while five others had formal training and extensive experience in framing and dry wall installation. The remaining ten were less experienced general labourers who took instructions from the senior members of the team on each project. When he received a new job Pittiulak would select the employees with the right skills for the job and then he would create a self-managed project team. The team would work together until the project was complete and then they would move on to the next one. Authority was not formally assigned but the teams generally deferred to the most senior non-tradesperson. The tradespeople would not generally take on the role of informal team leader because they might be on several teams simultaneously since they weren't necessarily needed at the job site every day. 

Four months previously Pittiulak had noticed that many of the projects were taking longer than expected and senior workers seemed poorly motivated, often goofing off and wasting time. The junior workers were picking up on the attitude and becoming less productive too. This created scheduling problems as jobs got backlogged. Customers got upset, in particular those whose renovations involved breaching walls of their home. Such repairs needed to happen during the brief summer months and with their harsh climate there was not a lot of room for error. Pittiulak decided to create a new team incentive to go along with the hourly wages he paid. His hourly wages were as follows: 

• tradespeople earned $60 an hour
• workers with formal drywall/framing training earned between $19-$28 an hour depending on the amount of experience they had (they got an extra $1.50 per hour for every year of experience topping out at $28)
• general labourers earned between $13-$18 an hour depending on the amount of experience they had (they got an extra $1.50 per hour for every year of experience topping out at $18)
• in addition Pittiulak provided all legally required benefits but he did not offer any optional benefits. Prior to implementing the plan described below he had no formal employee recognition or incentive plans.

Pittiulak decided that he would provide each project team with a target completion date (as usual), but now if they met that deadline the entire team would get a cash bonus. The bonus depended on the project but ranged from $35.00 to $75.00 per person per project. It was expected to cost roughly $48,000 per year. While expensive Pittiulak made sufficient profit to afford that amount in performance incentives (although little more), plus he hoped to make the money back in increased efficiency. 

The bonus was well received and seemed to accomplish its goals. The percentage of projects completed on time increased from 63% to 88% over a four month period. Pittiulak could understand why. Last time he had visited a job site he had noticed the senior drywall installers hurrying up the labourers who were painting to make sure the job got done in time. The painters had looked tired and harried but they had gotten it done! Unfortunately they'd had to replace a few tiles since in their haste the painters hadn't moved a drop sheet over and paint had gotten on the floor, but it was still done on time.

Initially Pittiulak had been thrilled with the success of his team incentive. He couldn't help but notice, however, that in the same four month period three workers had been injured. One had fallen off a ladder while trying to get a tool that was just out of reach, one had cut off two fingers after failing to install the safety guard on a cutting tool, and the third had slipped on spilled coffee that nobody had cleaned up, hitting his head and getting a mild concussion. It was strange since in the three years before that they had only had one significant accident. Furthermore he noticed that work sites were getting tense, with more interpersonal conflicts between team members than he had experienced previously. Sometimes he was being called and asked to mediate disputes about work processes, which was frustrating when he just wanted the team to figure out those mundane details themselves and leave him to his management tasks. Pittiulak wondered if there could be any connection between his incentive program and their poor safety record and deteriorating social environment. After consideration he realized that he needed to...

Assignment Questions

1. What are the strengths and weaknesses of the current compensation package that Pittiulak offers his workers? Consider base pay, incentive pay, and benefits when answering and explain your reasoning.
2. What type of bonus, incentive, and/or recognition program would maximize both efficiency and safety while maintaining a respectful workplace? Develop a detailed bonus/incentive/recognition strategy for all employees that clearly explains what behaviours and outcomes you will compensate, including what specific criteria are you will use to decide who gets a bonus/award, how you will measure it (performance assessment techniques), and what the bonus/award will consist of. Explain why your strategy would be effective.
3. Is there a potential for unintended consequences related to the incentive plan that you proposed in question two? If so, what could happen and how could you prevent it?
4. Should Pittiulak introduce any optional benefits? If so, which ones and why? Remember to consider profit margins, employee motivation, and productivity when answering.