Human Resource Management
Human Resource Management
Throughout the time of the course, Human Resource Management, we have been able to learn and use HR practices in everyday life. This paper has been put together using two case studies and eight chapters from the book, Managing Human Resources. The two case studies are based on Lincoln Electric Company and Southwest Airlines, the eight chapters include chapters 1 and 3 then chapters 7 through 12. As a group we have worked together to prepare each different chapter and we have used the cases to help develop our own Human Resource skills. This paper will demonstrate how as a group we were able to relate the case studies to different aspects that the Human Resource field covers.
Chapter 1: Managing Human Resources
Read the two cases at the end of this book regarding Lincoln Electric and Southwest Airlines. Then using Exhibit 1.1 as a guide, make an illustration that identifies the stakeholders of each company and shows the relative importance of each stakeholder to each company. To complete this assignment, you can gather your information materials in this chapter, the cases at end of the text, and from other sources, including newspapers, magazines, the internet, and your own experience. If you are unable to obtain information you feel is relevant, make assumptions based on your best judgment. Note any major assumptions you make.
Lets elaborate on each stakeholder in more detail. First is suppliers which are Boeing Aircraft, airport, and the fuel companies. Boeing supplies the airplane that they us which is the Boeing 737, the airport gates provide income for the company, and the fuel company of course supplies fuel. With all the different suppliers Southwest has to keep them in line with what they are trying to accomplish which is offer the best prices to its customers. Competitors are all the airplines at the airport. Southwest has to figure out a way to maintain a profit and still offer lower or same prices at the other airlines. They should always know what the competition is doing or offering.
Customers are stakeholders in that they are the Shante’ Johnson people who are buying the product and without them there is no business. Employees are important because they add value to the company. Employees are resources because they provide labor and help with production. Finally the enivornment/communtiy is a stakeholder because Southwest has plans in motion to help protect the resources they have and give back to the community. Southwest prides itself on being socially responsible and has done so by charity programs, recyling, and going green. They feel that if the community is on their side and supportive of them then they can prosper and be a household name.
The Lincoln Electric Company
Corporations like The Lincoln Electric Company are dependent on their customers. If they do not improve their relationship and offer the best for their guest the businesses might not be as successful. The customer makes it likely to for a company to attain its goals. LEC views it employees as being of importance because they are the heart of the company. They maintain production and their performance Shante’ Johnson affects the company. LEC feels that it will do what is needed to make their employees happy so that they can keep producing results. Lastly I feel that LEC values the environment as a stakeholder in that it wants to come up with practice that will keep the environment safe and clean. They want to maintain a healthy environment for the community. They want to support communities in which they are located.
Chapter 3: Ensuring Fair Treatment and Legal Compliance
A. What evidence exists to demonstrate that each company manages employees fairly and legally?
When reading about Southwest I feel that they treat their employees fairly and follow the legal procedures in obtaining their employees. Southwest like most companies value their employees and the work they do for the company. I found it interesting that Southwest renamed its HR department the People department. By changing the name of the HR department shows that they see the significance in people and the relationships that are involved with that. The article also says that Southwest puts time into hiring and interviewing applicants. I view that as they only want the best for their company and will use the resources needed to get the best. If that means interviewing 100 people for one job then so be it. If I was applying and knew that they only want the best and have measures in place that shows their support and care for employees I would want to work for them.
At first when reading about LEC I thought they value their employees because they know their employees are the main reason they are able to be successful. Lincoln Electric recognizes that money is an incentive to employees and knows that by offering an incentive they can get the workers to be more productive. They understand that there was to be an honest relationship between employees and managers. There has to be a level of respect for each other. Lincoln Electric has HR Objectives that pertain to its employee; I am going to list three out of four of the objectives first is “to maintain and Shante’ Johnson expand the Lincoln Incentive Management Philosophy, to recognize people as the company’s most valuable asset, and to promote training, education, and development that broaden employee skills” (Jackson, Schuler, Werner pg 563).
I do not know many companies that have objectives written down for their employees. Having objectives in place to be followed by HR personnel is reassuring that they Lincoln Electric cares about its employees. As I continued to read about the company I found out they have a low turnover rate, but they keep their workers busy and focused on the task at hand. They also have no leisure time and many do not receive a break. I do not believe that to be fair because if you are working a certain amount of hours a day you need a break. Also not having time to socialize with others I can picture the workplace being full of robots. People clocking in and doing their jobs and then clocking out and going home.
B. Are there company practices at Southwest Airlines and/or Lincoln Electric that you would consider to be unfair? If so, which ones? Why?
I will be honest is was hard finding a practice that was unfair but after much thought I find it unfair that when an applicant is being consider they may be asked to speak in front of a large group of people. If I am interviewing for a basic job that does not involved a lot of interaction with people why should speaking in front of a large group be a part of my applicant process. I also find it strange that Southwest will red flag an applicant that is flying in. I understand the idea of seeing how they behavior around others and handle certain situations, but they should also be notified that they may be watched. I also do not find it fair to judge an applicant before you even get to meet them. You cannot always take the opinion of others when making important decisions that can affect your company. I do like having others opinions and having them way in, but I do not want them to spy on an applicant.
Lincoln Electric included a dialogue of a few interviews they held and it immediately stood out to me that they were asking questions that are unfair and illegal. I do not find it professional to ask how much money did you make last year, what did you do with that money, and how do you feel about joining a union (just to name a few). Employers can get into trouble asking those questions because if someone is rejected they can sue based on the questions they were asked. I also do not think it is fair for management to have the authority to cut hours without any notice. Some employees’ livelihood depends on their job. If their hours are suddenly cut it does not give them time to put other plans into motion. I also feel that it makes the company look bad and can bring down employee morale.
Chapter 7: Selecting Employees to Fit the Job and the Organization Describe, evaluate, and compare the selection procedures used at these two companies. In preparing your answer, consider the following issues: A. The objectives of the selection process.
Each company has a different selection process for job applicants and how the company selects its applicants is unique. Some companies may not have an intricate selection process; instead they just want to fill the absent position. However, this is not the case when Southwest Airlines or Lincoln Electric selects employees. Southwest Airlines believes that investing in recruiting should be a top priority for their company, and so it has become the goal to select applicants who will fit into the culture that Southwest has created instead of just filling a vacant position. Southwest wants to make sure they are hiring people who will be beneficial to the company instead of hiring someone quickly then the new employee not fit into the mold Southwest has created.
In the case of Lincoln Electric, they do their selection process a little differently. Instead of going out and recruiting for all the open positions within the company Lincoln Electric instead only uses external recruitment in cases of entry level positions. Lincoln Electric has decided to fill all other open job positions internally, with those employees who have already been a part of the company. Since Lincoln is filling most job openings with people already employed within the company it shows that the company believes in the employees it has, and wants to help them grow individually as the company grows as well.
B. The criteria used
The criteria used in the selection process of new employees for Southwest Airlines and Lincoln Electric differ greatly between the two companies. The major criterion used for Southwest Airlines is attitude. Southwest’s selection process has strong roots in the attitudes of the job applicants. The company has selected five key predictors to see if the applicant’s attitude would blend well within Southwest. The predictors are: blend of energy, humor, team spirit, and self-confidence. It makes sense that Southwest wants to hire employees who would fit into the company culturethat way they can ensure positive and team work oriented attitude is kept within the company.
The major criterion used for Lincoln Electric for filling positions is based on in house hiring, except for entry level positions. By giving employees notice of the open positions it can help keep the company culture the same, and is beneficial to keep employees and teach them new skills. When the company is able to teach employees new skills it helps build the different competencies they possess; different competencies can help make an employee more attractive to the organization instead of just one specific job title. This employee then becomes multi-functional. C. The techniques used to assess the competencies of job applicants.
Southwest Airlines and Lincoln Electric have specific hiring techniques to assess the competencies of potential employees. Southwest uses three distinctive techniques to help figure out who will best fit the dynamic of the company. The first technique used is the personality test. The personality test helps “The People Department” get to know job applicants values and what type of personality he or she has. There are seven traits used: cheerfulness, optimism, decision making skills, team spirit, communication, self-confidence, and self-starter skills. The person being interviewed needs to receive a three or higher, on a scale from one to five, to move on to the next stage of the interview process. The next technique used would be the actual interview. Southwest looks to find people with great people skills, matching work experience, and people who are team players.
Hiring people without these qualities would be a waste of time, considering that many of the jobs Southwest provides have to do with teamwork, helping people have a pleasant experience, and experience. The last technique is the most interesting, Southwest wants to make sure they hire people with a great attitude so they have managers jot down anything memorable about the applicant, good or bad, they give applicants special tickets on their flights so employees will know to observe them and their behavior, and they are also asked to speak in front of groups of people. However, the audience is also being evaluated along with the speaker; Southwest wants to see if the audience members are attentive and paying attention to who is speaking. Southwest wants to find people whose attitudes fit in with current employees and the culture they’ve built together.
Therefore their selection techniques are quite focused on the job applicant’s attitude and values. Lincoln Electric has kept a constant theme throughout their selection process. During the selection process, Lincoln Electric uses current employees to fill open positions; and they are able to find out if employees can take on a new position through the interview process. Lincoln does not use aptitude or psychological interviews; instead they focus on the personal aspects of the employees. There is a committee that is made up of supervisors and different vice presidents whom interview the different job applicants. Since the interviews are on a more personal level, the committee is looking for the correctperson who can perform the specified tasks and fit in with the new department. Although Lincoln Electric uses the committee to perform the interview process, the final selection is left up to the supervisor who is in charge of the department where the job opening is. D. The apparent effectiveness of the selection process.
The effectiveness of both companies selection process has been extremely effective. In the case of Southwest Airlines because of the friendly culture close to 90,000 people applied in the past few years. This many applicants can be overwhelming, but since the HR department is committed to only hiring those applicants who can fit into the company culture, they only hired 831 people. Due to the specific selection process and the use of different employees from the HR department, managers, and employees the turnover rate for Southwest is less than five percent.
The employees of the company enjoy their jobs and the culture that they are involved with on a daily basis that the employees continue to work for Southwest for the long-term. Lincoln Electric’s selection process is as similarly successful as that of Southwest Airlines. Since Lincoln Electric fills openings in-house the company doesn’t experience a high turnover rate. Employees average around 18 years working with the company, and due to the in-house hiring process employees become more satisfied with their work because they are able to develop and move up in their career path.
Putting faith in current employees to help build the company from the ground level to top level, put trust in employees and thus employees trust Lincoln more and want to stay with the company longer. E. The roles and responsibilities of line managers, HR professionals, and other employees in each company. Each company has their own unique way of selecting the perfect job applicants to fill the needs of the company, and each company has proven to be successful in the selection process. But without the helpof HR professionals, line managers, and other employees the companies may not have had such smooth sailing. Southwest Airlines makes sure to include every level of employees to help choose new employees through their selection process. The HR professionals, or the “People Department”, work to set up and organize the different interviews and where they will be held, the HR professionals also distinguish what qualities are important to the company culture for job applicants to be able to fit in. Line managers and employees are also involved, they are able to interact and speak with job applicants.
By Southwest involving line managers and employees in the selection process, it shows how important the company culture is to the company. Having the line managers and employees involves also allows them to help select future employees that they will have to interact with on a daily basis. Lincoln Electric also involves HR professionals, line managers, and employees in the selection process. The HR professionals post the job openings on an internal job board and set up the interviews that will be conducted to find the right applicant. Line managers are involved in the selection process through interviews, and they ultimately have the final decision in who is hired to work in their department.
Employee involvement is probably the most important part of the selection process. Employees are important because if they are not actively involved in applying for the open positions Lincoln Electric would not be able to fill the open job positions. Having the employees involved with filling the job positions is crucial to keeping the company on task and not having a lot of turnover. Chapter 8 – Training and Developing a Competitive Workforce A. For which company is training and development more important? In the case of Lincoln Electric and Southwest Airlines there is one company who puts more emphasis on training than the other. Southwest deeply involves new employees into the training process much more than Lincoln Electric. In the production area of Lincoln Electric the employees are given on-the-job training that is over a short time period, and they are then expected to perform their duties correctly. When it comes to sales jobs they receive on-the-job training at a plant, then they go to a regional sales office and receive more training while they are working. Lincoln Electric does not provide or pay for outside training, unless there is a specific need for the outside training.
Even though Lincoln Electric does not spend a great deal of time with training, Southwest does. Southwest places a large emphasis on employees fitting in to their work culture so the company provides ample training in all aspects the employees will be involved in. There are seven different areas that new employees are trained in when entering the Southwest team. The areas include: Freedom-LUV-and You, Leadership 101, Leadership Southwest Style, Next Level Leadership, Power Speak, Successful Performance Appraisals, and Every Customer Matters. Unlike Lincoln, Southwest encourages employees to take full advantage of outside training whenever they can. Not only does Southwest train employees in their own respective fields, but they also train employees on the jobs of other employees who they will be working closely with.
This type of training helps employees understand and better relate to those who they will be working with on a regular basis. Southwest provides an enormous amount of training for new employees, but they also continue development and training for existing employees as well. Once a year all employees are required to attend training programs that help reiterate the shared values throughout the company. B. Describe how the training and development activities in both companies are related to other HR activities. The training and development activities at Lincoln Electric also relate to other Human Resource activities that are involved within the company. The main human resource policy that fits well with the training and development of Lincoln Electric employees are the work assignments. The management teams at Lincoln Electric have the power to change or transfer the work assignments of current employees. In order to keep up with the changing of work assignments the training process cannot be lengthy.
The training that employees receive is on-the-job, so if a work assignment changes they are able to be taught quickly on what their new responsibilities will be. In a company like Lincoln Electric the needs of consumers may change and having the ability to move workers assignments and provide sufficient on the job training helps the company keep up with the changing external factors the company faces. The training and development activities at Southwest Airlines are in direct correlation with their hiring and selection process. Southwest works particularly hard to find employees who exhibit the right attitude, who will fit in, and demonstrate the qualities that are important to the company culture.
Since the time is spent to find the best employees to fit in, the company wants to invest into training them properly to become part of the Southwest team. The training Southwest provides its new employees is an extension of their selection process. Southwest does not hire employees just to fill positions accordingly the company wants to invest in the new hires to expand their abilities and qualities. Not only does Southwest want to connect the selection process to training and development for new employees, but training continues for existing employees too. Existing employees are encouraged to do outside training to improve their skills and knowledge. The company also requires a yearly training session to make sure that everyone is still operating with the same shared values throughout the company. The values in the training are the same values that the employees shared with Southwest Airlines from the time of their selection.
Chapter 9 – Conducting Performance Management
A. Compare Lincoln Electric and Southwest Airlines with respect to the major purposes of performance measurement and feedback. Which organization seems to be more concerned with traits? With behavior? With results? What uses does performance measurement serve in these two companies?
Performance measurements and feedback are vital to the success and knowledge of Lincoln Electric and Southwest Airlines. Each company uses performance measurement tools to help gage the employees’ performance and where there is room for improvement. The performance measurement Lincoln Electric uses is based on a great deal of results and how the employees are performing their jobs and designated tasks. Employees and managers are evaluated on different terms. Employees are evaluated twice a year, and their performance principles include: quality, dependability, ideas and cooperation, and output. Managers are evaluated on six different competencies: leadership/ownership, decision making and judgment, results orientation, teamwork/commitment, quality and customer focus, and creativity/innovation.
When it comes to feedback managers at Lincoln Electric discuss the performance scores with employees and if necessary will provide recommendations. Once a year the company provides feedback based on performance and will also assist in performance improvement and development. Southwest Airlines focuses on results, but their main concern for employees is based on their traits and behavior. Southwest strives to have excellent customer service, as a result employees performance is measured on how well they are performing their jobs and handling the customer service aspect. The performance measures used help with building team cooperation instead of enticing competition between different departments.
When managers evaluate employees, especially regarding customer service, they have to provide documentation of the events and how the employee performed. The manager cannot just give an outstanding score without regarding actual events that took place. Southwest Airlines contributes feedback to what they call “loving feedback”. “It celebrates successes, it lets people know how they’re doing, but it’s also honest”(Jackson, Schuler, and Werner, 2012). The feedback system for Southwest has two different objectives; first is the metrics level and second is the conversation, people to people level.
The performance measurements used for both companies reflect the performance of employees and management. However, Lincoln Electric focuses more on the results that employees receive from their evaluations. Lincoln Electric does use the performance measurements to influence, whether it is an increase or reduction, in merit pay and the decisions of bonuses for employees. Not only do the results of the performance measurement affect if an employee receives merit pay or a bonus, the company uses the evaluations to fix warranty claim problems. In the case of a warrant claim the manager can trace the claim to the exact employee error made. When this happens the employee’s performance score may be reduced, or the worker may be required to repay the cost of servicing the warranty claim by working without pay (Jackson, Schuler, and Werner, 2012).
Southwest Airlines truly uses their performance measurement and feedback system to focus on the traits and behaviors of the employees. They want to show employees they value their work, and give them feedback that helps. Due to how concerned Southwest is to give employees a meaningful experience, employees would rather hear negative feedback and performance ratings than hearing nothing at all. At least by hearing the negative feedback they have something to work towards and improve on to make themselves better. B. For Lincoln Electric, how well do the performance criteria fit the company’s strategic objectives? Identify any potential sources of deficiency and contamination in the company’s performance measures.
For the most part Lincoln Electric fulfills two out of the four HR Objectives that the company has deemed to be important. Those two are: to maintain and expand the Lincoln Incentive Management Philosophy and To maintain an affirmative action program, and provide employees with opportunities for advancement commensurate with their abilities and performance regardless of race, religion, national origin, sex, age, or disability (Jackson, Schuler, and Werner, 2012). There are two other objectives that I do not believe Lincoln Electric is taking enough advantage of when using their performance criteria. Two objectives include: recognizing people as the company’s most valuable asset and promoting the training, education, and development to broaden the employee skills. Lincoln Electric only provides on-the-job training and they do not pay for or encourage outside training, unless the need is absolutely necessary.
Not only do they only offer on-the-job training, when performance results are released twice a year, the employees only receive coaching and performance improvement development once a year. Lincoln Electric should at least offer the coach and performance improvement directly after each performance evaluation and feedback term. By not investing in the training and education of employees they are not fulfilling that particular objective. Also, when an employee’s performance is bad, management punishes the employee instead of taking the time to find out what went wrong in the making of an item. There might have been something the employee didn’t understand. Not taking the time to discuss and figure the source of the issues doesn’t show that Lincoln sees people as the company’s most valuable asset. Especially, when a mistake happens, their performance score is reduced and they have to fix the problem without receiving pay.
C. Compare the sources of performance information used at Lincoln Electric and Southwest Airlines. Would you recommend that these organizations use 360-degree appraisals? Why or why not? Each company has a different way of evaluating their employees to find out how they performing and if they need any help or training. When looking at the sources of how Southwest evaluates their employees’ performance I do not think they need to use 360-degree appraisals. The company focuses different aspects that affect the employees individually and what teams they are a part of collectively. Southwest’s “performance management also reflects how we value our employees”(Jackson, Schuler, and Werner, 2012). Southwest effectively measures the performance of employees and the teams they are on, this type of performance measurement promotes cooperation between employees instead of employees trying to compete to be the best.
Southwest prides itself on teamwork, so when something goes wrong it isn’t just one individual’s fault, the company examines what different departments were effected to make this problem, and as a team they fix the problem. When examining the performance measurements of Lincoln Electric, I do believe that the company could benefit from implementing 360-degree appraisal performance measurement. Lincoln Electric employees are evaluated by their department manager, and employees help establish the goals that the managers are performance evaluations are based on. 360-degree appraisals would be able to give employees and managers more evaluations to work with. This type of appraisals uses supervisors, subordinates, peers, and employees to evaluate performance. The people chosen to evaluate the employee or manager are not random either, they are people who work with the employee on a regular basis and who know how well this individual does with his or her job.
When Lincoln Electric is only using a manager to evaluate the employees, the manager may be bias and not give each employee a fair evaluation. However, when using 360-degree appraisals it is hard for one individual to sway the evaluation when there are multiple people working to evaluate the employee properly. “Multiple-source evaluations are perceived as being more fair, reliable, and valid than single-source approaches”(Jackson, Schuler, and Werner, 2012). The 360-degree appraisal process may benefit Lincoln Electric when fulfilling their HR objective of recognizing people as the company’s most important asset as well. By having more than one person involved with the performance measurements, employees may gain a better since of how important they are to the company overall.
Chapter 10: Developing an Approach to Total Compensation
The purpose of an organization’s total compensation is to provide sufficient incentive and recognition to attract and retain the right people for the right positions within the organization and for those hired, to remain engaged within the organization and perform at their best ability. It has been proven that by having the right “employee fit” will improve motivation and productivity, resulting ultimately in a more content workforce and increased retention and tenure. Establishing a solid and competitive total compensation package contributes to employee retention, which happens to be one of the greatest “concerns of employers today, with 59 percent of those surveyed worried about losing their best employees to competitors and 67 percent concerned about the difficulty of finding skilled labor.” (Taylor, 2013)
Total compensation not only refers to an employee’s salary, benefits, and other monetary rewards, it also factors in non-monetary rewards as well. There are four strategic objectives, tied directly to total compensation that should be considered when establishing an organization’s total compensation. These include: 1) Attracting, motivating, and retaining the talent required for a sustainable competitive advantage; 2) Focusing the energy of employees on implementing the organization’s particular competitive strategy; 3) Improving productivity; and 4) Cost containment. (Jackson, Schuler, & Werner, 2012) 1. Compare and contrast the two companies on the following:
a. The objectives of their total compensation practices
As communicated in Lincoln Electrics Employees’ Handbook (Lincoln Electric Company), as well as in the text case study (Jackson, Schuler, & Werner, 2012), Lincoln Electric’s compensation practice is premium total compensation for premium overall performance. “The key elements of premium total compensation are base pay and bonus. Premium performance is your individual performance as well as Lincoln Electric’s performance. When you meet or exceed your goals and the Company meets or exceeds its business goals, the result is premium total compensation for premium overall performance.” (Lincoln Electric Company) The company’s objective is to “reward employees through recognition, pay for performance, and by sharing profits with incentive bonus compensation based on extraordinary achievement as a means of motivation.” (Jackson, Schuler, & Werner, 2012) Base pay for Lincoln’s employees is determined by salary surveys comparable to the salaries of similar jobs in the Cleveland area, comparing externally as well as internally, through job evaluation and adjusting quarterly to ensure the salaries remain aligned accordingly.
Job evaluation and continuous/comparative review is important to the organization’s position alignment and the employees’ total compensation. Base pay can be earned by either piecework pay, hourly pay or salary pay dependent on the type of position and classification of the job within the organization. In addition to the base pay received, Lincoln’s eligible employees have the opportunity to receive a portion of the company’s annual profits as incentive bonuses. These year-end profit sharing bonuses are proportional to the individual’s merit scores. The Board of Directors determines if there will be a bonus payout and dictates the amount to be distributed. It will only be paid out if the company was able to earn a profit for the year. The individual pay outs and employee shares are based on the individuals’ pay and performance during the year.
A successful year for the company results in a shared portion of its success with the employees, rewarding them for their part in earning the profit. Southwest Airlines overall objective of their compensation program is “to promote and reward productivity and dedication to the overall success of the Company and to thereby also support the company’s overarching objective of attaining reasonable profits on a consistent basis and preserving job security. The development of a more performance-oriented compensation structure is intended to support and reinforce the factors management believes are most relevant to the company’s success.” (Commission, 2011) Southwest’s employees’ total compensation is relatively equivalent to other airlines, given the nature of the type of labor required of the industry. Labor costs account for 35% of Southwest’s overall expenses, with 83% of these positions falling into, and controlled by, collective bargaining agreements (union positions).
Although Southwest’s base pay structure has been at or below the market and operates in an industry where other entities dominate the bargaining power, this low-fare/no-frills airline has maintained a productive workforce through its total compensation offerings of “numerous opportunities to share in company success through variable pay programs, including profit sharing and a stock purchase plan.” (Jackson, Schuler, & Werner, 2012, p. 579) Given Southwest’s continuous success over the years, these offerings of lucrative buyout plans to highly compensated employees and different variable pay programs, such as profit sharing and stock purchase plans have been extremely attractive to its workforce. Allowing and encouraging their employees to do what is necessary to satisfy the customer, empowers and motivates them, resulting in a greater level of job satisfaction and retention, therefore, increased customer satisfaction and company profits.
The profit sharing plan offered by Southwest was the first of its kind in the airline industry and is directly tied to a defined contribution plan, encouraging a long-term employment relationship with its employees. Owning approximately 80% of the company’s stock, employees also recognize the advantages of Southwest’s stock purchase plan, offered to them only at a discounted stock share rate. “Their monetary gains are closely tied to the company’s financial future.” (Jackson, Schuler, & Werner, 2012, p. 587) In addition to the above stated company’s total compensation offerings, Southwest Airlines also uses recognitions to reward their employees. “The awards in these programs and others are given to employees who perform at a high level consistent with Southwest’s strategy and culture, and they can come in the form of plaques, monetary payments, photos taken during the awards ceremony, photos of the award winner with the CEO, and mentioned in the company newsletter.” (Jackson, Schuler, & Werner, 2012, p. 587)
b. The role of total compensation in achieving a competitive advantage
Lincoln achieves a competitive advantage through its piecework pay, shared profits incentive bonuses, as well as job security and guaranteed employment. These elements gave Lincoln employees a sense of ownership in the company. The company’s goal was fulfilling the customer’s needs and therefore, recognized that “employee performance and productivity are the means by which this goal can best be achieved”. This belief led to the company’s commitment that “the earnings of each must be in accordance with accomplishment. If money is to be used as an incentive, the program must provide that what is paid to the worker is what he has earned.” (Jackson, Schuler, & Werner, 2012, p. 562) This company attitude and total compensation plan empowered its workforce to work harder and smarter; resulting in little to no employee turnover, employee compensation that is almost twice that of other comparable job families in the same Cleveland area, and a workforce that sees themselves as part of an organization with executives and leadership that takes care of its employees.
In some ways similar to Lincoln, Southwest Airlines maintains its competitive advantage through its compensation of base salary, profit sharing and stock purchase plans, as well as, short/long term incentives and annual incentive bonuses. As promoted by Southwest’s website “Our people are our single greatest strength and most enduring long-term competitive advantage.” (Kelly, 2014) In order to have a competitive advantage over its competitors, a firm must have the ability to obtain/sustain profits/benefits that exceed the average for others within its industry. As stated earlier, Southwest was “the first to introduce a profit sharing plan in the airline industry.” (Jackson, Schuler, & Werner, 2012, p. 586) Another strategic business initiative and example that contributed to the company’s competitive advantage was through the introduction of the 10-year pilot contract agreement of 1995. Specifically, during the first five years, the pilot wages would not change, then five years following, the pilots got the stock option of the company and annual salary would increase by 3 %. “This kind of salary strategy combined economic interests of the pilot with the interests of the shareholders of the company (if share prices rise, both sides would profit), so the company added value.
Italso helped southwest airlines to provide tourists frequently and economic flight to tourist, and won the competition advantage. This kind of salary strategy is hard to be imitated by competitors.” (Zheng, 2012) c. The pay mix and employee’s reactions to the pay mix
As stated earlier, the pay mix for Lincoln Electric consists of base wages (piecework pay, hourly pay and salary pay) and bonuses. The piecework system adopted by Lincoln Electric is based on some fundamental principles including: 1) Rewards employee for what is done rather than for how much time is spent on the job (more productive employees who meet quality standards = greater compensation than those who are less productive); 2) Changes in piecework prices will be made as changes in equipment, method, layout, procedure, tooling, design or materials are made; 3) Group piecework is interdependent, and the cost of the job is limited by the bottleneck or the slowest operation in the line; 4) All Lincoln employees guarantee their quality and workmanship; 5) Pieceworkers are paid only for production that meets Lincoln’s quality standards. Production of scrap or defective parts will be taken into account during merit rating.
Hourly and salaried employees’ base pay is determined by means of “benchmarking”, comparing the base pay for a sampling of jobs at Lincoln to the base pay of similar jobs in other companies of the same industry. “The bonus plan has been the cornerstone of the Lincoln management system, and recent bonuses have approximated annual wages. Bonuses have averaged about 90 percent of annual wages and the individual bonuses are proportionate to merit rating scores.” (Jackson, Schuler, & Werner, 2012, p. 560 & 570) Lincoln Electric’s employees’ reaction to the pay mix of the company is very supportive and positive. Based on five employee interviews, all five expressed their satisfaction with the compensation received. Each of the employee’s interviewed acknowledged that their salaries exceeded those of employees in similar jobs within the Cleveland area, considering themselves fortunate and better off financially due to their positions with Lincoln Electronic.
Most also stated that the greatest advantage of working for Lincoln was the compensation or the amount of money they can make (base, incentives/bonuses, stock dividends). They mentioned that they “didn’t believe they could make this type of money anywhere else”. As mentioned previously, most of the employees in the airline industry are union employees, controlled by bargaining units and union contracts. In addition to the hourly base pay employees (typically at or below market), Southwest’s pay mix also offers opportunities to share in the company through variable pay programs (profit sharing and stock purchase plans). Mentioned previously, this mix has proven attractive by employees, as well as competitors, with attempts of mimicking in the airline industry. Unlike many of its competitors, however, Southwest is a low-fare, no-frill airline. Rewards and/or perks such as cars, club memberships, etc., are not awarded to the company officers at Southwest, maintaining lower costs to the company and ultimately higher profits to be shared.
Although this pay mix has maintained attractive for many years, its future is questionable due to the acquisition and future integration of AirTran. I am not certain that this lean airline machine will be able to continue to remain as “lean” and profitable as they have been given the competitiveness and external threats of this industry. 2. Which approach to compensating employees would you prefer? Why? The compensation structure I find more desirable would be that similar to the pay mix exercised by Lincoln Electronic. Although I believe it is dependent on the type of industry you are in, I prefer a compensation plan or structure with more internal controls. I find the Lincoln pay mix to be one of which there are more “internal controls” over. As a manager, I believe it also encourages a more team-centric approach to the workforce and empowers employees at all levels to push themselves and to be accountable for the compensation they receive. The Lincoln Electrics plan allows its employees to be part of the big picture, a more wholesome contribution approach and one of which is always looking at improving the process and making a better product overall.
Given the employees level of contribution and sense of ownership, there seems to also be a higher level of dedication and pride, pushing their capabilities to the limit…benefiting everyone in the end. Chapter 11: Using Performance-Based Pay to Achieve Strategic Objectives 1. Compare and contrast the approaches to performance-based pay used by Lincoln Electric and Southwest Airlines. Overall, which plan do you think is more effective? Why? Lincoln Electric’s compensation approach is predominantly based on employees’ performance. Employees’ rewards are heavily monetary in nature (i.e., annual bonuses/incentives based on piecework). As expressed by many interviewed, the harder and more efficient you work, the greater the pay and/or incentives awarded. Employees’ salaries are directly impacted by their level of performance. Although Southwest Airlines does reward their employees based on their performance, most of the rewards received are non-monetary and company culture driven. Some of non-monetary rewards identified include luncheons, plaques, photos taken with VPs, making mention of success in the company newsletter, etc.
The ultimate objective of Southwest’s performance-based recognition is to “create a sense of family and mission”. (Jackson, Schuler, & Werner, 2012, p. 582) Based on my review of the successes from each of these companies in their respective industries, I would conclude that each plan is effective, relative to their performance in their industry. To determine which performance-based plan is more effective, I believe consideration needs to be given to the type of industry and employee it is supporting. The effectiveness determined is also affected by how their employees perceive and/or measure their level of job satisfaction. Obviously, Lincoln attracts a compensation-driven workforce (i.e., sales), while Southwest attracts more cohesive and cooperative relationships between employee groups that seek to be recognized publicly and through other means than only monetary sources.
2.Lincoln Electric is gradually moving toward using a more traditional approach to pay, putting less emphasis on earnings at risk. What strategic objectives would lead the company to conclude that a more traditional approach to pay may be more effective than their present practices? A more traditional approach to pay would be more effective for Lincoln Electronic as they continue to become more global and publically owned. As Lincoln’s interest in globalization continues to grow, so does the need for additional funding and profits to support this expansion. This reallocation requirement of profits, currently used to pay bonuses and incentives to employees, therefore supports the changed focus toward global expansion. As the public ownership of Lincoln continues to grow, their focus needs to expand beyond that of just the employees and begin to include all stakeholders, of which are contributing to the successful expansion of the organization.
Chapter 12: Providing Benefits and Services
1. What are the objectives of each company’s approach to benefits and services? Lincoln Electric’s benefit program includes several components to include a retirement annuity program, 401(k) plan, stock purchase plan, flexible benefits program, medical, dental, life & disability programs, as well as flexible spending and health savings accounts. An additional benefit offered by the company includes a paid vacation during the company’s seasonal shutdown, regardless of the employees’ tenure with the company. Based on no layoffs since WWII, as well as comments noted by the interviews in the case study, employees feel a sense of job security, loyalty and satisfaction to Lincoln Electric and the benefits and services the company offers. The objective of their benefits and services is to offer an attractive and beneficial plan to their employees, maintaining competitive advantage and employee retention, resulting in a more experienced and tenured staff.
More challenging to that of Lincoln’s approach to benefits and services is the benefits and services offered by Southwest Airlines. Due to their focus to provide a more employee-centric benefits package, continually surveying their employees to determine what their employees value, they have implemented a flexible plan that allows the company to change as frequently as needed to maintain its attractiveness to top applicants in a competitive industry, as well as retain their valuable employees, “their most valuable asset”. Southwest’s objective in “hiring the best people and knowing how to find…and treat them” (Jackson, Schuler, & Werner, 2012, p. 577) requires a solid, attractive and competitive benefits package, including job security, in an industry that is not typically known to be competitive in this area.
2. How well do the benefits and services packages serve the business objectives and the needs of the employees? Which package would you prefer? Explain why. Although the benefits and services package offered to Lincoln Electric’s employees is satisfactory and competitive to other similar companies, the interviews held expressed the employees’ main reason for job satisfaction rests with the compensation package, with minimal comments regarding the benefits offered. Southwest employees, however, have experienced and expressed a greater level of satisfaction with the benefits and services offered by their employer. Having a broader, more wide-range of offerings in their benefits package to full-time and part-time employees, it allows the company to meet its objective in attracting the best applicants and caring for their most valuable asset…its people.
Although both benefits and services packages offered by Lincoln and Southwest provide excellent job security, I would personally prefer the package offered by Lincoln, as opposed to Southwest. Southwest may offer a more employee friendly and focused benefits package, however, its flexibility and potential for change seems more appropriate for a younger workforce that has not yet established loyalty to their employer, with the intention of long-term employment. Therefore, as a middle aged employee myself, my benefits focus and interest lies with a package that can offer more long-term and stable incentives such as employee stock purchase and pension plans, as well as a promising and reliable retirement plan.
3. Could Southwest Airlines adopt the approach to benefits and services used at Lincoln Electric? If so, what would be the advantages and disadvantages for Southwest Airlines of adopting this approach? Be sure to consider how various stakeholders would be affected by such a change. I would not suggest nor support Southwest Airlines adopting the benefits and services packages used by Lincoln Electric. Southwest gains their competitive advantage in their industry through their benefits package, whereas Lincoln does so through their compensation package. Therefore, my reasons supporting the lack of confidence in Southwest’s adoption of like benefits and services to Lincoln’s is because I don’t feel that Southwest’s compensation package is as strong as Lincoln’s in their respective industries.
By adopting a similar benefits and services package as Lincoln’s, Southwest may lose their competitive advantage for attracting top talent. Additionally and as stated earlier, Lincoln’s benefit package is geared toward retention and catered to a tenured workforce, which is not the objective of Southwest Airlines. The need to continually bring young, energetic and new talent into the firm requires an employee friendly and flexible plan that is focused more on short term advantages and offerings, as opposed to long-term. “Southwest seeks to reduce labor costs” (Jackson, Schuler, & Werner, 2012, p. 579) and by doing so, implementing a strong, attractive, but flexible benefits and services plan allows them to meet this reduced labor cost objective, while continuing to bring in new talent and maintain their company’s goal to remain a low-fare, no-frill airline.
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