Eastern Power plc
Case summary and description. What are the most important elements/topic areas of the case?
With the privatization of Eastern Power plc, the senior management decided that a new pay system will demonstrate the company's new, with a more autonomous market-driven nature, introduced a Performance-related pay system which had no real preparation of the workforce and a minimal training of line managers about either its intended purpose or application. This resulted in complaints of inadequate employee treatment with managers becoming uncomfortable with their increased discretion and pay decisions were frequently viewed as unfair, subjective, and over-dependent on personal managerial preferences.
What are the most important theoretical concepts linked to the case? Explain the concepts and their relevance to the case?
Before the privatization of Eastern Power plc, pay awards were across-the-board, with annual pay increases and personal progression through salary grades until the maximum of the grade was reached, Annual pay awards were based on cost of living indexes nationally negotiated between the employers and trade unions on an industry-wide basis.
Who are the stakeholders involved in the case?
The major stakeholders, in this case, are the employees who have felt the managerial decisions over the past two years have been unfair to them with the new managers' new pay system. The managers are also stakeholders as they have become uncomfortable with their employee's complaints.
Problem definition and analysis.
Management set the new laws to improve the general outlook of the company, but after two years of implementation Employees complained of inequitable treatment grew, many managers were uncomfortable with their increased discretion and pay decisions were frequently viewed as unfair, subjective, and over-dependent on personal managerial preferences.
The company should consider the following before making new changes in their policies:
- Is pay sufficient to attract qualified applicants?
- Is pay sufficient to motivate employees?
- Is pay sufficient to retain employees?
- Is pay administered within legal constraints?
- Does pay facilitate organizational strategic objectives?
- Does the pay system reinforce and define the structure?
Why do you think the individual performance-related pay was viewed as a more appropriate pay system at Eastern Power plc than the 'across the board' pay rises which had applied prior to privatization?
Individual performance related pay was viewed as a more appropriate pay system in Eastern Power plc because management believed money was the best motivator, which helps to develop a performance-oriented culture in the company. They also believed the system was equitable and help define expectations which serve to retain high-quality employees.
At the end of the first two years of experiencing the new performance-related pay system, what would be the main arguments for and against its retention in terms of what it is likely to have achieved from the perspective of?
Senior management- They expected this new system to improve product delivery but realized later that the reported employee and managerial experience was far from positive. Supervisory management- They saw it as an important means of demonstrating the company's new, more autonomous market-driven nature but after the two years they started feeling unclear about what was expected of them in the new organization.
Employees- The employees felt the pay decisions were frequently viewed as unfair, subjective, and over-dependent on personal managerial preferences.
The trade union- Trade unions sat with the employees and the board to negotiate the annual pay awards on an industry-wide basis and needed management to revisit these issues to improve the compensation for the employees whom they represent their interest.
Generating/evaluating/Choosing solutions. What could senior management do to improve the present situation?
They could improve the pay and make it:
- adequate (legally);
- balanced.(composition of different parts);
- cost effective;
- motivating and acceptable for employees.