The Best-Laid Incentive Plans

Kerr, S. (2003). The best-laid incentive plans. Harvard Business Review.

1. Consider the 10% headcount reduction on all units that Hiram implemented. Jack Welch and Al Dunlap (one famous and one infamous CEO) both had aggressive personnel strategies that involved a considerable number of layoffs. Do some research on these two CEOs and explain:

1. The personnel strategy of Welch (1 point)

• Welch believed in generous leader, have rational explanation to every decision a leader makes and give employees reason to choose.

1. The short-term implications of the strategy (½ point)
2. The long-term implications of the strategy (½ point)

1. The personnel strategy of Dunlap (1 point)

• Best known for his strategy called “bill and hold”. He would suggest salesepeople to sale now and ship later.

1. The short-term implications of the strategy (½ point)

• Sold numerous products during a certain period than throughout the year

1. The long-term implications of the strategy (½ point)

• Sold far more product to retailer than they can handle

1. Consider the 10% headcount reduction on all units that Hiram implemented. Why did Hiram implement the 10% headcount reduction? The answer to this question is not easy to find in the case. (1 point)

• Initially, Hiram offered a generous buyout package to poor performing employees to reduce labor cost. When very few employees agreed to leave the firm, he decided to implement the 10% headcount reduction with no financial assistance beyond the normal severance.

1. Describe how the layoffs at Rainbarrel were realized. Be specific. Evaluate how effective the layoffs were for Rainbarrel using information from the case to support your answer. (1 point)

• Customer Service: Calls were closely monitored and if employees were not meeting the new target, then they would be placed on wall of shame. To avoid the embarrassment, employees started to meet the quota and overall reduced the call time employees stayed on phone.
• Shipment: Due to the lack of metric in place, Hiram took upon himself to threaten the employees by assuring them that their numbers will be collected if the product has not been shipped by the promise date. This clicked for Hiram as the 92% of the goods were shipped by the promise date.

1. Hiram is excited about the improvements to Rainbarrel’s objective performance, but later he discovers that the performance numbers are misleading and that Rainbarrel’s performance is not as good as the numbers might suggest. Explain the discrepancies between the performance numbers and Rainbarrel’s actual performance. Your answers should address each of the functional areas below and should describe what employees are doing to meet Hiram’s new performance standards. (2 points)

1. Customer service: Employees were getting off the phones without resolving the issue to meet the SLA. Each employee was required to be on the phone less than four minute. It created more issues than resolving it.

1. R&D: Lew Hart discussed about the frustration that R&D department was dealing with. Hiram performance plan only enhance to perform utmost but greatly lack creativity. It was making employees more miserable than actually enjoy their work.

1. Sales: Before Hiram placed his performance standard to the sales team, many aspects were calculated to employee’s performance and commission. Such as prospecting new clients and account maintenance. He strictly wanted to focus on sales and who is conducting the most sales. Commission were sorely based on that. This change brought 50% cost reduction. More complaints came from sales department, as the salespeople thought there were no structure or mentorship. The sales department were declining.

1. Shipping: Hiram created a metrics that entail the product to mark as shipped once it left the companies property. This created a lot of confusion as the customer enquired about the product, employees would hesitate to inform the customer regarding the status of the order until it left the property which also did not confirm that the customer actually received the product.

At the end of the article, Hiram realizes that his efforts to improve Rainbarrel’s performance have, in reality, decreased Rainbarrel’s performance. What Hiram has instead accomplished is an increase in what are called “counterproductive work behaviors” or “workplace deviance.” Workplace deviance is described by behaviors that are not necessarily illegal or meant to intentionally harm others (though sometimes they are and they do). Instead, workplace deviance involves any behavior that is detrimental to the organization and/or is against organizational policies. One problem in this article is that Hiram has created performance metrics that (unintentionally) encourage workplace deviance.