Question

Section C: Establishing Strategic Pay Plans
Case Study: Carter Cleaning Company – The New Pay Plan
Jennifer Carter graduated from State University in June 2011 and, after considering
several job offers, decided to do what she always planned to do—go into business
with her father, Jack Carter. Jack Carter opened his first laundromat in 1999 and his
second in 2001. The main attraction of these coin laundry businesses for him was
that they were capital—rather than labor—intensive. Thus, once the investment in
machinery was made, the stores could be run with just one unskilled attendant and
none of the labor problems people normally expects from being in the retail service
business.
The attractiveness of operating with virtually no skilled labor not-withstanding, Jack
had decided by 2007 to expand the services in each of his stores to include the dry
cleaning and pressing of clothes. He embarked, in other words, on a strategy of
“related diversification” by adding new services that were related to and consistent
with his existing coin laundry activities. He added these for several reasons. He
wanted to better utilize the unused space in the rather large stores he currently had
under lease. Furthermore, he was, as he put it, “tired of sending out the dry cleaning
and pressing work that came in from our coin laundry clients to a dry cleaner 5 miles
away, who then took most of what should have been our profits.” To reflect the new,
expanded line of services, he renamed each of his two stores Carter Cleaning Centers
and was sufficiently satisfied with their performance to open four more of the same
type of stores over the next 5 years. Each store had its own on-site manager and, on
average, about seven employees and annual revenues of about $550,000. It was this
six-store chain that Jennifer joined after graduating.
Her understanding with her father was that she would serve as a troubleshooter or
consultant to the elder Carter with the aim of both learning the business and bringing
to it modern management concepts and techniques for solving the business’s
problems and facilitating its growth.
Carter Cleaning Centers does not have a formal wage structure nor does it have rate
ranges or use compensable factors. Wage rates are based mostly on those prevailing
in the surrounding community and are tempered with an attempt on the part of Jack
Carter to maintain some semblance of equity between what workers with different
responsibilities in the stores are paid. Carter does not make any formal surveys when
determining what his company should pay. He peruses the want ads almost every day
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and conducts informal surveys among his friends in the local chapter of the laundry
and cleaners trade association. While Jack has taken an informal approach to paying
employees, his salary schedule has been guided by several basic pay policies based on
his intuition and experience. Although many of his colleagues adhere to a policy of
paying minimum rates, Jack has always followed a policy of paying his employees
about 10% above what he feels are the prevailing rates, a policy that he believes
reduces turnover while fostering employee loyalty. Of somewhat more concern to
Jennifer is her father’s informal policy of paying men about 20% more than women
for the same job. Her father’s explanation is, “They’re stronger and can work harder
for longer hours, and besides they all have families to support.”
C-1. Is the company at the point where it should be setting up a formal salary
structure based on a complete job evaluation? Why? Describe a job evaluation
method that the company can use.
C-2. Is Jack Carter’s policy of paying 10% more than the prevailing rates a sound one,
and how could that be determined? What type of equity issues is Carter addressing?

C-3. Similarly, is Carter’s male–female differential wise? If not, why not?
C-4. Specifically, what would you suggest Jennifer do now with respect to her
company’s pay plan?

Answer 1

C1. The company has been expanding its business scope and has entered into related diversification. The company had a 6 store-chain, each providing cleaning as well as pressing work. The scope and coverage of the business had widened and the number of employees hired by company had increased. It is the right time to come up with a formal compensation structure for the company. This will help the company in expanding its scope further quite easily. Moreover, with a formal compensation structure, the company will have a fair basis for evaluating and compensating the performance of its employees.

One of the simplest job evaluation method which can be used in this case is Ranking method. Under this method, the different jobs in the organization will get compared with each other and based on the criticality and efforts put in, a ranking will be given to the jobs. Job having Rank 1 will be paid the highest and so on. All employees working in the job ranked No 1 will get the same pay and so on. The pay range can be based on market evaluation and benchmarking studies.

C2. Jack Carter’s policy of paying 10% more than prevailing rates is a good strategy to retain talent with the company. Jack Carter is trying to prevail the best in market rate image for his company. This way, it will be easier to attract talent as well as retain them with the company. Usually a fair and better compensation serves as the primary motivating factor for employees.

By using this 10% above market average compensation method, Jack Carter is paying his employees 10% above the market average. Through this approach, he is solving the external equity issue in compensation. Under this issue, employees usually compare their salary with that paid in similar companies and may get demotivated. However Jack Carter has understood this and to keep his employees motivated, he is paying them 10% above the prevailing market average.

C3. Though Jack Carter’s policy of paying 10% more than the prevailing rates was a wise move, the differential pay policy based on gender is not an ethical and legal move. By doing this, he is differentiating among his employees based on gender. This is a clear violation of the Title VII of Civil Rights act and Equal Pay Act. There is no defined basis or standard that the female employees are working less than the male employees. Hence paying them less for the similar job done is completely unfair and unethical. The female employees have full rights to sue Jack Carter’s company for differential treatment and discrimination.

C4. Recommendations which Jennifer can follow to improve the compensation system of the company are as follows:

· Company has expanded and it is the right time to adapt a formal compensation structure for the company

· Job analysis and evaluation must be conducted. A ranking method can be used to fix the compensation scale for each job

· Descriptive job descriptions can be drafted. This will help in keeping the expectations of the company, from each job role, clear and thereby justifying the allotted compensation scale

· Benchmarking study can be conducted on regular intervals to keep a check on the best compensation practices being followed in the industry

· The company also needs to come up with basket of benefits to keep the employees motivated, to perform their best. The basket of benefits can be based on an employee survey, conducted to identify the motivating factors of the employees.

**Do rate the solution. Thank You.