Performance and Bonus Systems

Question: Discuss about SWOT analysis and identification of HRM issues, comparison of incentive schemes and dispute resolution. Answer: Introduction The aim of this paper is to implement human resource practices for resolving disputes in Foundry AB Ltd. The organization is located in Dunedin of New Zealand. The organization has taken a strategic decision of introducing a bonus scheme for the manufacture of a high-quality, high-value product. However, the organization faces negotiation from both management and the Engineers Union. AB Ltd was formed as a merger between Foundry A Ltd and Foundry B Ltd. Both the companies continued manufacturing their own products such as rollers for generators and conveyor belts with iron casting. Both markets experienced recession but there were no redundancies. Both organizations have different working culture due to which Company A was in constant conflict with the unions. White-collar staffs in both plants are not paid bonuses. The management pointed out that the productivity increased by 110 percent, wage increased by 30 percent and no employee lost their job due to changed working practices. T he company introduced two incentive schemes namely, 75/100 Straight Proportional Incentive Scheme for Repair Welders and 50/100 Geared Incentive Scheme for Fabrication welders. However, the management intended that the fabrication welders would be paid only the basic rate for working on rejected castings. There was a conflict in the organization as the welders received a temporary fixed rate of $20 per hour and they wanted a fixed rate of $25 per hour. The employees wanted to negotiate and commented that all incentive schemes in both works should operate on an individual basis. Firstly, this paper conducts internal analysis and identifies human resource management issues. Then, a discussion is made for a comparison between 75/100 Straight Proportional Incentive Scheme and 50/100 Geared Incentive Scheme. Lastly, strategies that could help in resolving disputes are determined. SWOT Analysis and Identification of HRM Issues Strengths Foundry A Ltd and B Ltd merged together to for Foundry AB Ltd. The company went through change management but they did not experience any redundancies from the merger despite poor market structure and recession. It can be inferred that the management structure of the organization is well-managed and stable as it stayed profitable even in recession. Sometimes redundancy leads to reduction in pay, unemployment and various other challenges. But, the management frequently pointed out that productivity had increased by 110 per cent, wages had risen by 30 per cent, and no one lost their job, as a result of the changed working practices. Weaknesses The production-process faced defects and the castings required rectification. The rectification could be achieved through repair welding. All repair welders, in common with the other production operators, are paid a basic rate per hour excluding bonus payments, and cannot be lowered under the existing employment contract. The two companies have different working cultures even though they formed a merger. Foundry A Ltd production employees had operated under bonus incentive conditions for many years, both prior to and since the merger. Bs management ran a family-style of operation, whereas As executives were in constant conflict with the unions. Opportunities A lucrative opportunity has emerged for B in the shape of high-quality fabricated castings. There is a new demand for fabricated products that can only be produced by welding castings together. There is a great demand for their high-quality welding skills in the North Island and Australia. The company can gain competitive advantage by meeting the demands of consumers. The fabrication castings can be exported and excellent profitability can be earned if the rejection rate is below 2 per cent and welders achieve standard performance. With greater profitability, the market share and financial structure of the company can be improved. Threats Due to market fluctuations and recession, the demand in North Island and Australia could decline. The company could go into losses as the purchasing power of the clients in these countries shall be reduced. There is a chance of over-production (Elsby, Hobijn and Ã…Å ¾ahin 2015). There is a threat of strike or lockout by the employees (Lee 2011). The HRM director informed the Engineers Union yesterday that he was giving the fabrication welders four weeks notice of termination of their temporary fixed rate of $20 per hour: they would revert to their basic rate of $15 and not get bonuses until the incentive scheme was up and running. District basic rates for repair welders varied between $12 and $19 per hour. In an immediate reaction, the Engineers Union called a mass meeting of workers in both plants, which intimated to management that industrial action would commence in all production areas, unless the welders demands were met. HRM Issues The organization faces conflict as the Engineers Union and the management want negotiation for incentive scheme. The management introduced incentive schemes into all production areas in B, despite much strife. There is strong support among the workforce for the Union. The Engineers Union proved an able negotiator in the past, particularly in the B plant. Fabrication welders told their union officials they were rejecting the fabrication welding incentive scheme, and instead wanted a fixed rate of $25 per hour. They further commented that all incentive schemes in both works should operate on an individual basis. There is a great demand for their high-quality welding skills in the North Island and Australia. District basic rates for repair welders varied between $12 and $19 per hour. Therefore, the HRM director informed the Engineers Union yesterday that he was giving the fabrication welders four weeks notice of termination of their temporary fixed rate of $20 per hour: they would revert to their basic rate of $15 and not get bonuses until the incentive scheme was up and running. In an immediate reaction, the Engineers Union called a mass meeting of workers in both plants, which intimated to management that industrial action would commence in all production areas, unless the welders demands were met. Comparison of Incentive Schemes According to the case study, Foundry AB Ltd made a strategic decision to introduce a bonus incentive scheme for the manufacture of a high-quality, high-value product. Standard performance is known as the level of performance in which a qualified worker who is suitably trained and motivated, taking appropriate rest would work for a shift of eight hours without over-exertion. The standard time involves an allowance for rest and relaxation. Two schemes were introduced known as the 75/100 Straight Proportional Incentive Scheme and 50/100 Geared Incentive Scheme. The bonus in both the schemes shall be supplemented above the basic rate. In the 75/100 Straight Proportional Incentive Scheme, the minimum wage is paid to the workers up to 75 percent of the standard performance. They are also paid for the unmeasured portion of the time. The incentive increases on a linear basis or proportionate to the performance for more than 75 per cent performance level (Singh 2016). The incentive payment is directly proportional to the performance. There is no ceiling limit on the bonus earning potential of employees. For instance, if basic rate is paid at 75 percent performance, then the earnings shall be calculated on a pro-rata basis for other levels of performance. The minimum earning level is considered as a fall- back at performance (Acas.org.uk 2016). According to the human resources, this scheme is beneficial for the employees (Singh 2016). Foundry AB Ltd provisionally agreed with the Engineers Union that fabrication welding would carry a temporary fixed-rate pay rate of $20 per hour, irrespective of output, pending work measurement times becoming available for use in the introduction of a 50/100 Geared Incentive Scheme. This scheme is different from the 75/100 Straight Proportional Incentive Scheme as this arrangement is not directly related to the results achieved (Singh 2016). A proportionate increase in performance shall give a less than a proportionate increase in pay, subject to a bonus starting performance of above 50. The basic rate is paid up to performance and standard performance gives 33.33 per cent increase in pay (Singh 2016). As seen in the 75/100 Straight Proportional Incentive Scheme, in this arrangement too there is no ceiling limit on the bonus earnings potential of employees. This scheme may give relief to low performance worker but the high performance workers would receive less incentive (Acas.org. uk 2016). Dispute Resolution As stated in the case study, the organization has reached impasse. Impasse is a stage in which the situation to progress is impossible. An impasse occurs when it is impossible to reach an agreement on all of some of the bargaining proposals because the parties are so far apart in their expectations and requests. There is resistance between the Union and management as the Engineers Union called a mass meeting of workers in both plants, which intimated to management that industrial action would commence in all production areas, unless the welders demands were met (Hrcouncil.ca 2016). As a human resource manager, I would look things from a different perspective. Firstly, I shall ask the parties to set the issue aside and focus on work. As the employees are not ready to commence production, they shall be convinced to not stop production. Both the parties must be asked to explain their perspective (Hrcouncil.ca 2016). Collective bargaining can be used as a strategy to resolve dispute. The employer must respect the statutory freeze period and cannot change the terms and conditions of employment for its employees until an agreement has been reached voluntarily, until there is a lockout or strike, or pursuant to the arbitration provisions in the legislation (Hrcouncil.ca 2016). As soon as a union represents the employee, the employee and the employer cannot negotiate with each other over individual terms and conditions of employment. The union is the sole and exclusive bargaining agent for the employees it represents. The employer must deal with the appointed union rep resentatives. The parties should be aware that, even though the collective agreement is silent about a legal right or obligation, that right or obligation is not eliminated (Hrcouncil.ca 2016). Respect is the key to successful relationship between the union and employer. The management must understand the needs of employees. Both the parties must acknowledge the rights and obligations. The management must understand that the employees have the right to call out for strikes without getting influenced by the employer. The management must treat all employees fairly (Hrcouncil.ca 2016). As the matter has reached an impasse, then third parties can be used for help. Both parties should work toward establishing and fostering a two-way communication system. They should not only come together to resolve a dispute (Hrcouncil.ca 2016). Conclusion The above report implements human resource practices for resolving disputes in Foundry AB Ltd. Both organizations have different working culture due to which Company A was in constant conflict with the unions. The production-process faced defects and the castings required rectification. The rectification could be achieved through repair welding. Bs management ran a family-style of operation, whereas As executives were in constant conflict with the unions. A lucrative opportunity has emerged for B in the shape of high-quality fabricated castings. Standard performance is known as the level of performance in which a qualified worker who is suitably trained and motivated, taking appropriate rest would work for a shift of eight hours without over-exertion. There is a great demand for their high-quality welding skills in the North Island and Australia. The company can gain competitive advantage by meeting the demands of consumers. As seen in the 75/100 Straight Proportional Incentive Schem e, in this arrangement too there is no ceiling limit on the bonus earnings potential of employees. A proportionate increase in performance shall give a less than a proportionate increase in pay, subject to a bonus starting performance of above 50. This scheme may give relief to low performance worker but the high performance workers would receive less incentive. There is resistance between the Union and management as the Engineers Union called a mass meeting of workers in both plants, which intimated to management that industrial action would commence in all production areas, unless the welders demands were met. References Acas.org.uk, 2016.Pay systems - Appendix: Examples of some commonly used schemes | Acas. [online] Acas.org.uk. Available at: https://www.acas.org.uk/index.aspx?articleid=740 [Accessed 23 May 2016]. Elsby, M., Hobijn, B. and Ã…Å ¾ahin, A., 2015. On the importance of the participation margin for labor market fluctuations.Journal of Monetary Economics, 72, pp.64-82. Hrcouncil.ca, 2016.HR in a Unionized Workplace | HR Policies Employment Legislation | HR Toolkit | hrcouncil.ca. [online] Hrcouncil.ca. Available at: https://hrcouncil.ca/hr-toolkit/policies-unionized-environment.cfm [Accessed 23 May 2016]. Lee, G., 2011.Labor relations. New York: Avalon Books. Singh, L., 2016.Work study and ergonomics. Delhi: Cambridge University Press.