COMPENSATION STRATEGY REPORT

INTRODUCTION

Increase in competition for talent among industries have led to drastic changes in the business
environment. These changes have made it necessary for organization in recognizing the key
role that compensation play in attracting, retaining and motivating employees in giving their
optimal performance to achieve organizational goal.

Compensation is a management function that is based on relationship exchange, whereby

employees receive rewards in return for performing organizational duties. Compensation can
be an intrinsic or extrinsic pay that is used to reward employees for their contribution and it
can include: benefits, profit sharing, overtime pay, commission, awards, perks, vacation pay
and so on.

It is paramount that organizations develop an effective compensation strategy that will help in
determining the best compensation mix to implement based on the organizational pay
philosophy which should be aligned to the business strategy to meet the need of their employees
and achieve firm objectives.

ZENITH MEDICAL SYSTEMS INCORPORATED

Zenith is a joint venture business of a major computer firm and a leading supplier of hospital
products. The healthcare organization have become more complex whereby there is an increase
in demand for computer system to help in effective transmission of information in the health
system. Zenith product is an information management system for health care institutions, they
handle everything from system design, installation, training, and to maintenance for their
clients.

ANALYSIS OF ORGANIZATIONAL PROBLEM

After proper analysis of Zenith’s organizational problem, the structural elements, contextual
elements, and managerial style that fosters the issues faced by the organization, the following
were identified:

Structural and Contextual Elements

 Communication: In terms of communication, Zenith uses formal and vertical form of

communication, where managers give rules and there is a flow of information from the
 top-management to the lower employees whereby employees contributions are ignored,
which is a problem faced by the organization.
 Job Design: There are six main departments in Zenith, where each department perform
similar tasks. The job design in the firm is disorganized and this is one of the key issues
faced by the organization.
 Coordination and Departmentation: In Zenith, the jobs are coordinated in a
hierarchical and formalized way, whereby, each department have little to do with the
role of other departments and account for their own departmental contribution to the
business which does not encourage teamwork in attaining organizational goal.
 Control Structure: Zenith uses only extrinsic rewards (commissions) to motivate their
sales staff, who are the driver of their products. As the company profit decreases, so do
the commission decrease which brings about undesirable behaviour like job
dissatisfaction and high turnover rate.
 Decision Making and Leadership Structure: Decisions are made at high level and
employees are not allowed to use their discretion to perform their duties, which is
having a negative impact on the organization.
 Environment: They operate in a complex environment where changes constantly
occurs thereby leading to the instability in the business environment for the company.
 Business Strategy: Zenith uses the Prospector business strategy of Miles and Snow
theory, which involves identifying new products and opportunities as they did in the
health care industry.
 Technology: Zenith uses two main types of technology under the Thompson’s
Typology of Technology, which are: Long-linked technology, where tasks are divided
into sequential steps and, Intensive technology, where individual employees dealt with
the needs of the clients.
 Size: The firm has about 600 employees with majority of them at the headquarter, and
the remaining at 5 branches across Canada.
 Workforce: Zenith staff are high skilled employees, because of the nature of their
business.

MANAGERIAL STYLE
Zenith incorporated is using the Classical managerial style, which assumes that the employee
dislike work but can be induced to work in other to satisfy their economic needs. In Zenith,
employees are only provided intrinsic rewards for their performance, policies and rules are
enforced by top management, example is the commissions paid to employees based on their
sales performance.

All these are the issues faced by Zenith Incorporated, which is affecting the firm’s reward
system in them getting the required behaviour needed to achieve organizational goals.

RECOMMENDATIONS

The recommended managerial style for Zenith Incorporated, should be the High Involvement
managerial style, which assumes that if an organization is properly structured, work can be
intrinsically motivating. This proposed managerial style is important because it will motivate
the employees and provide them the opportunity to satisfy their higher needs, such as
autonomy, personal growth, whereby bringing about desirable organizational behaviour.

The recommended compensation strategy will be the use of intrinsic and extrinsic rewards,
such as awards, special park lots and so on, which will help to motivate our employees towards
better performance.

These recommended strategies will be implemented by involving subordinates during decision-

making, using intrinsic rewards to motivate employees, open communication, restructuring the
job design to involve teamwork.

SWOT ANALYSIS

STRENGHTS

 They have 5 regional branches across Canada.

 They offer fair prices for their products.
 They have a highly skilled workforce.

WEAKNESSES

 Low sales and profits

 High employee turnover.
  Due to constant system crashing, which has increased clients complain, damaged the
company’s brand

OPPORTUNITIES

 Zenith incorporated is the first to market in Canada.

 Increasing demand in the health care system for their products.
 No major competitors.

THREATS

 The competitive environment is intense.

 Recall of products due to product’s missing features.
 Lag in delivery time.

REWARD AND COMPENSATION STRATEGY

BEHAVIOUR TYPE

Using the recommended managerial strategy of High-involvement for Zenith Incorporated, it

assumes that a work can be intrinsically motivating if the organization is structured properly
(Textbook). This managerial style will result in the three following behaviours in an
employee:

Task Behaviour: It occurs when an employee performs assigned organizational duties.

Membership Behaviour: It occurs when employees see themselves as part of the

organization, and remains with them.

Organizational Citizenship Behaviour: It occurs when employees perform duties that goes
beyond what is expected of them and benefits the organization.

ROLE OF COMPENSATION (INTRINSIC AND EXTRINSIC)

 Personal fulfilment and job satisfaction for the employees.

 Higher quality products and services that meets customer’s needs.
 Exceeding customer’s expectation.
 Skill advancement through pay for knowledge system.
 Job security that leads to membership and citizenship behaviour.
  Timely attainment of project deadline through group and organizational performance
pay.

COMPENSATION STRATEGY BENEFITS TO ZENITH

The implementation of the new compensation strategy will have the following positive impact
on the organization business objectives and staffing:

 Attracting top talents.

 Reduction of employee turnover rates and absenteeism.
 Retention of top talents.
 Increase in customer satisfaction.
 Increase in sales and profit of the organization.
 Increase in customer base.
 Enhancement of brand image and organization’s reputation.
 Increase in skills and the career growth of the employees which leads to employee’s
satisfaction and attainment of organizational goals.

PAY FOR KNOWLEDGE COMPENSATION STRATEGY

This is a strategy whereby employees are paid based on their capabilities. This strategy is
grouped into two types, but for Zenith Incorporated, we will be using the Skill-based pay.

Skill-based pay is a type of pay whereby employees are paid based on their skills and
capabilities rather than their job responsibilities. We recommend that Zenith Incorporated use
this compensation strategy because of the decrease in employee morale, this will be applied
to the following employees: Systems Development, Systems Installation and Systems
Maintenance. Zenith should compensate these employees based on the new skills and
knowledge acquired, which will encourage the employees to enhance their skills and thereby
increase in productivity of the organization. The pay can be formulated where an individual
at the entry level have the basic knowledge needed for the job (Level 1), level 2 will be
dependent on the employee performing higher tasks than that of the entry level, which after,
the employee will proceed to the final level, where the employee is fully trained and have the
full skills and competency needed to perform all the job functions. A sample can be:

System System installation System maintenance

Development
 Level 3 Expert in Expert in plan Expert in trouble
scheduling, hardware layout, shooting and system
programming and analyse system and maintance and
recording.$1400 modification to hardware changes.
systems.$1400 $1400
Level 2 Ability to perform Ability to install Ability to fix system
recording, systems and problems and
programming and software application. maintain system
system scheduling. $1200 operations
$ 1,200 $1200
Level 1 Basic knowledge of Basic knowledge of Basic knowledge of
computer system installation system installation.
applications. $1000 and training.$1000 $1000
Competency cluster #1 #2 #3

Based on the pay scale for the job using pay scale Canada at the first level the basic salary
will apply which after once acquiring the required skill will lead to 20% increase in the salary
of the employee.