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Performance Pay at Safelite Auto Glass (A) Case Solution
Satellite Company always had a fair share of the market in the glass industry ever since its establishment. Initially, the main focus of the company was on expansion, and a large number of stores were opened across the country. These stores were opened irrespective of the vicinity, and at times two stores even had there retail area overlapped. The company also introduced a mobile van service in order to increase productivity. However, lately because for numerous reasons the productivity of employees was decreasing. Seeing the overall growth of the glass industry and the reduced employee productivity, Satellite decided to change its compensation system from the wage rate to pay per piece basis. The case particularly discusses the consequences this change of the compensation system will have on productivity, employee turnover, quality of work and pay of the employee.
Following questions are answered in this case study solution
What are the pros and cons of switching from wage rates to piece-rate pay?
Is Safelite a good candidate for switching from wage rates to piece rates?
Should there be a guaranteed wage? If so, how should it be set?
What are the likely consequences of a switch from wage to piece rates for turnover, recruitment, productivity, and product quality?
Case Analysis for Performance Pay at Safelite Auto Glass (A)
1. What are the pros and cons of switching from wage rates to piece-rate pay?
Satellite Company has always functioned under wage rate. While the CEO of the company believes per piece rate to be best for this industry, this compensation package has its own pros and cons when applied to the glass industry. Following are the cons of switching from wage rate to per piece rate:
Pay per performance compensation system requires basic pay or the guaranteed pay to be decreased. This might result in a high turnover rate of employees. Because of the high demand for technicians and high pay scales offered in the glass industry, employees might switch to other companies.
The glass industry already has a well-established compensation system. Introducing a totally new system well has its own challenges.
The guaranteed rate is set for the first twelve weeks after which it is decreased in order to further motivate employees. However, this decrease in basic pay after a particular level might signal employees that the company wants to set a ceiling to wages. This will lower the productivity and employees might not be willing to complete twelve weeks.
There is a number of factors upon which the productivity of the technicians depends. Many of these factors like customers demand weather and miscommunication are out of technicians to own control. If basic pay is decreased, employees might have to lose commissions because of factors that are beyond their control.
While yes this system has its cons, there are many pros associated with it too. Following are the major benefited of this compensation system:
Many managers and technicians were slacking off their duties and were not providing quality service to the customers. Through this system, Satellite aims to restore the quality service to customers.
Since this system makes sure pay is aligned with productivity; this is apparently the most effective way to motivate employees to work. This system will also ensure that people putting in an effort to get their fair share.
The glass industry is highly competitive. Such a system is essential to introduce as it will motivate technicians to use their time effectively. This will not only increase their compensation but also the company’s profits. This will also help Satellite become a strong company and provide employees with more opportunities.
2. Is Satellite a good candidate for switching from wage rates to piece rates?
Initially, the main aim of the satellite is to increase the number of stores in the country irrespective of the vicinity. Stores were opened at almost every location without keeping an appropriate check of the retail area. This resulted in cannibalization of sales. As a result, many technicians and managers started slacking off their duties, which resulted in further decreased sales. At this point in time, switching from wage rate to per piece rate is the best strategy for Satellite. This compensation strategy will make sure that the pay output is aligned with the input or productivity of the employee. Through this, the company can motivate its employees to start putting in their best effort again. Furthermore, Staglin and Barlow already had their experience of working with this system. They can best execute it among employees and can motivate them to install more pieces to earn more. Pay per piece should be implemented not only at the technician level but also at the managerial level. As already mentioned in the case, the best strategy for the managerial level is to make its output based on managers of small stores and keep it fixed for managers of large stores. Large stores already have an established customer base and require to be managed effectively in order to function smoothly. Therefore, large stores manager already have to work properly in order to manage them. Smaller stores don’t require effective management all the time; therefore, making them commission-based will help best to motivate the small store managers.
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