Sunday, November 16, 2008

Management and family

MCC has recently acquired a small but successful Swedish software company. Its head founded it three years ago with his son Carl, and was joined by his newly graduated daughter Clara and his youngest son Peter 12 months ago. Since the acquisition MCC has injected considerable capital and also given the company its own computer distribution and servicing in Sweden. This has given a real boost to the business.

MCC is now convinced that rewards for sales people must reflect the increasing competition in the market. It has decreed that at least 30% of remuneration must depend on individual performance. At the beginning of this year Carl married a very rich girl. The marriage is happy and this has had an effect on his sales record. He will easily earn 30% bonus, though this will be small in relation to his total income, supplemented by his wife’s and by his share of the acquisition payment.

Peter has a much less happy marriage and much less money. His only average sales will mean that his income will be reduced when he can ill afford it. Clara, who married while still in school, has two children and this year lost her husband in an air crash. This tragic event caused her to have a weak sales year.

At the international sales conference national MCC managers present their salary and bonus ranges. The head of the Swedish company believes that performance should be rewarded and that favouritism should be avoided; he has many non-family members in his company. Yet he knows that unusual circumstance in the lives of his children have made this contest anything but fair. The rewards withheld will hurt more deeply than the rewards bestowed will motivate. He tries to explain the situation to the American HR chief and the British representative, who both look sceptical and talk about excuses. He accedes to their demands.

His colleagues from France, Italy, Spain and the Middle East, who all know the situation, stare in disbelief. They would have backed him on this issue. His family later say that they feel let down. This was not what they joined the company for.

What solution would you suggest?


cecile said...

This case brings a very touchy issue in my opinion, which is the notion of fixed/variable compensation. Fixed compensation permits security and comfort, since each employee is sure of having a regular salary. Variable compensation permits to increase the productivity and efficiency at work, since if one works harder, he will be more paid. In this case, the HQ have decided to implement variable compensation,in order to boost the sales.It is good for those who achieve high sales, bad for those who are less efficient.I do believe that variable compensation is good for the company results, even though it may penalize some people. But one is paid to achieve results, don't you think so? (notion of obligation of mean versus obligation of result...)Besides, they all still have 70% of their wages which is insured. I think that the fact that Carl and Clara are part of the head's family should not influence the decisions...
Struggle for life...

David said...

In this case I think that rule is rule, you couldn't give any exception especially the family members. The purpose of the 30% reward is to encourage the employees with high performance.If the MCC change the rule randomly,which will couse the unreliable feeling to all the emplyees for the company's core policy.So from this point and consider with the long term company performance, I think the 30% reward rule shouldn't be break in this case.

Teresa said...

I think it is interesting that his colleagues would have backed him, which makes me wonder how supportive they are of this rewards/incentive scheme. Perhaps there are other ways of rewarding performance which haven't been explored fully enough and which MCC might accept.
I think Carl and his colleagues realise that it could be anyone in the company who could experience unusual circumstances (thereby affecting their performance)- it happens to everyone at some point in their lives. I believe he accedes to the demands of MCC precisely because it is his family involved.

Bee-Bee said...

From my point of view, the incentive reward based on performance seems to be a two-edged sword. The employees are motivated to work harder, then the sales revenue would be increased accordingly. On the other hand, some staff probably disencourage to work on this tool and it might creat stress and intense competition among them.
I think company can use this tool to promote high performance of staff. However, other factors should be considered by management to avoid staff discouragement.
Insentive reward based on teamwork performance should be adopted in some situations. And the evaluation must be done fairly.

Weiping said...

It is necessary for a company to set up some reward and appraisal system in order to motivate the employees work hard and increase their profits. In this case, MCC carried out the policy which decreed that at least 30% of remuneration should depend on individual performance. Obviously, it is a good method to encourage the employees to try their best to increase the sale.

However, the problem is that Peter and Clara had bad performance due to some reasons, which meant that they may lose 30% bonus. Facing such situation, on the one hand, MCC was afraid that carrying out the policy would hurt the relationship with his family. On the other hand, if the policy could not be implemented, it would be unfair to other employees.

In my opinion, MCC should enforce the policy seriously. In China there is an old saying says that nothing can be accomplished without norms. So the rules which are set up should be abided by. To make everyone feel that the competition is fair, MCC’s family should not have the privilege or go beyond the rules. Of course, being a rich father, MCC can privately give some economic help to his daughter Clara who suffered such terrible things in her life but not in the company. He should tell the difference between the family and the business.

In fact, there are many family firms in China, indeed, this type of firms always develops fast at the beginning because of the excellent cooperations between the members of famly, but they often can not become really strong firms. The main reason is that the leaders usually meet the dilemma when they deal with the relation between the policies and the family. The interests of family often become the stumbling block to the company’s development. My view is that setting up many effective rules and strictly implementing them in the practice and personal feelings should not come into play when the leaders make business decisions, thus a family firm can develop well.

Dr. Paurav Shukla said...

I am enjoying this insightful comments. It is really interesting to note that all you future managers from different cultures and countries are favouring the standardization of policy.

Cecile and David make a congruent point with regard to importance of policy decisions. Teresa brought about an interesting point as to what exactly is the agreement level within the team with regard to the incentive scheme, which is further argued by Bee-Bee.

Weiping has extended the debate now into the realm of family firms on which I am waiting to hear others' views.

Bee-Bee has stated other factors to be considered in the development and execution of the incentive scheme and I am waiting for those other factors to emerge too.