When the Perks Fade 

Sean Neale is CEO of a robotics manufacturing firm located in the Midwestern United States. The company prospered in the 1990s sales revenue nearly tripled and the company’s workforce doubled. The price of the company’s stock rose from under $8 a share to more than $60. And his employees prospered because the firm had a pay-for-performance compensation system. Specifically, every year, 20 percent of the company’s profits were set aside in a bonus pool and used to reward employees. Profit sharing provided the typical employee with an extra $7,800 in 1998 and $9,400 in 1999. Then it dropped to just $2,750 in 2000. The company lost money in 2001 and 2002, so there were no profits to share. Meanwhile, Sean’s executive team was not spared from watching their profit-sharing bonuses disappear. The average executive bonus in 1999 was over $150,000. Like the company’s operating employees, in 2001 and 2002, executives got nothing over and above their basic salaries.

            Sean’s situation seems to be common among many firms. While employees in 2002 and 2003 were often glad to just have a job, the incentives they enjoyed in the 1990s were eroding. For instance, Ford Motor Company suspended contributions to salaried employees 401(k) retirement plans and merit raises for about 2,200 senior executives; Media company Tribune Co. in Chicago froze wages and cut 140 senior managers pay by 5 percent; and Hewlett-Packard eliminated profit sharing in 2001. 

The question is:

What implications can you draw from this case regarding pay-for-performance and what can you offer employees as an alternative to compensation that will not place an undue hardship on your organization’s bottom line? Be specific.

Source: This case is based on S. Jones, “When the Perks Fade”, Wall Street Journal, April 11, 2002, p. B12

Please support answers and refer more to chapter 2,3 and 4. An opinion alone is not enough