HR Restructuring at Nissan Case Solution

2. Problem Evaluation from Different Aspects

i. From Human Resource Perspective

One way to assess the situation at hand is to evaluate the entire human resource management structure at Nissan Motor Corporation. The analysis will tell us two basic aspects; first, whether the compensation package is similar throughout all level of the firm or is it high for the top management personnel and low for other managerial positions. Secondly, what is the criteria for determining the compensation package i.e. what factor contribute towards it? 

When Ghosn joined Nissan in 1999, he immediately restructured the entire organization from top to bottom. From the number of directors in the board to the compensation package, almost every process was redesigned to suit the new culture. It is clearly mentioned within the case that salaries of all new recruits was increased to attract the best talent. New criteria were formed for performance assessment and promotion & bonuses were tied to it, as well, in order to create a performance driven culture within the firm. So, it is evident that the compensation package was high throughout all levels of the firm and tangible performance measuring criteria were present to determine the compensation package for every employee. Assessing the performance of Carl Ghosn on these two factors will make it apparent whether he deserved the high compensation package or not. 

After joining Nissan Motor Corporation in 1999, strategies of Carl Ghosn started showing results within two years. The market share of the firm started increasing, debt level started dropping, receivable turnovers increased dramatically, and above all, the organization was moving forward with a vision, unlike its earlier times. Though the credit for this successful turnaround of Nissan Motor Corporation goes to every employee within the firm, but it would be unfair to not acknowledge the role of Ghosn who primarily gave the vision to all employees and set tough standards for all including himself in order to ensure the success of the firm; therefore, if a formal performance evaluation of the CEO would be carried out, he would have not only met expectations of all stakeholders but must have exceeded them, as well, in several aspects. So, there is absolutely no point in debating whether he deserved the high compensation package or not because his performance is evident from the company’s financial statements.   

ii. From Strategic Perspective

Another evaluation lens is from a strategic point i.e. how are shareholders managed within the firm i.e. the amount of dividends they are paid annually, and what other benefits are they offered, etc. This strategic evaluation will not only allow to determine the upper limit of the compensation package, but will also provide criteria for justifying the current package. For this purpose, a comparison of the compensation packages of CEOs of different firms within the industry, both globally and regionally, will be carried out.

Source: (Dividata LLC, 2014)

The above table shows that as the company started making profits, it shared with its shareholders, which is apparent from the increasing dividends in every year. During the period of March 2008 – Sep 2010, the company did not give out any dividends, but it should be kept in mind that this was the period of global economic recession where many companies, around the world, were under financial distress including Nissan, so it acceptable within the context.  

Source: (Bloomberg, 2014) (Koh, 2010).

The above table shows that Nissan certainly pays slightly higher to its CEO as compared to Toyota, another regional firm, which is also bigger in size and profitability. However, if Ghosn’s compensation package is compared with that of global CEOs of top auto-manufacturing companies such as Ford, Volkswagen, etc., he is certainly paid much less as evident from the table. In addition to this, it should be noted that automobile sector is not the highest paying sector for top management personnel if compared to other sectors such as telecommunication, Information technology, etc. So, it can be established that though Carl Ghosn is compensated considerably well in local terms, but the compensation package is nowhere near in comparison with global auto companies. 

3. Recommended Action Plan

The current disclosure of the compensation package of Nissan’s CEO took place after government decided to modify its policy and made it mandatory for public companies to disclose such details; otherwise, this information would have been hidden from stakeholders for another few years, at least. Moving forward it is recommended for Nissan Motor Corporation that the first step a company should take is to disclose all details of compensation of top management personnel to its shareholders so it doesn’t come as a shock to them, if released from third party.

Secondly, it is recommended that the company should carry out the same formal practice of performance measurement against the set criteria for all top management executives as it does for remaining employees of the firm. This would make the entire compensation and promotion process transparent for all employees of the firm.

Thirdly, while determining the compensation package it is recommended to consider both regional and global package level along with their profitability. Toyota and Ford makes nearly five and three times, respectively as compared to Nissan; therefore, the compensation packages of their CEOs are easier to justify.