The case is given below, this is for Compensation & Benefits class

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The case is given below, this is for Compensation & Benefits class. The professor is stressing on the fact that we are not giving a recommendation. I am looking for different answers or ideas that can spark my completion on this assignment. 

 

Do not make any recommendations anywhere here. You are simply getting the know the organization.

 

 

1. What management style do you think is currently in place? Is it effective? Why or why not? 5 marks

 

2. Where are they in the Life Cycle? Why? 5 marks

 

 

3. Identify the different employee groups. How are they paid? Lead, lag, or match? Salary, hourly, performance pay? 15 marks

Employee Title/Group	Salary OR Hourly	Lead / Lag / Match or Not known	Do they get performance pay (future oriented)? Yes or NO

 

4. Describe the competitive environment? 5 marks

 

5. First, draw an organization chart. Then, draw a line on top of the org chart showing a custom-product's flow through the organization. (This should be done on a blank piece of paper so you can show me exactly how a custom product goes from the customer - back to the customer, then you need to scan this page and add it to your submission as an appendix) 10 marks

 

6. Identify the issues in this case and the causes. 10 marks

 

 

The case is down below. 

 

 

 

 

Canada Chemicals Corporation

Your team has been hired by the president and CEO of Canada Chemicals Corporation, a firm that produces industrial chemicals. Although the firm is profitable, profits have been slipping in recent years, and you see some other disturbing signs. While there could be many causes for these problems, at least part of your problem may be your compensation strategy. But be wary: things are seldom as simple as they seem! Formulating a new compensation strategy (and deciding whether to go ahead with it) is a complex task requiring concentration and teamwork.

The Company

Canada Chemicals Corporation produces two main categories of industrial chemicals. Some of the chemicals are off-the-shelf (OTS) products, while others are custom- developed in conjunction with purchasers. Custom-developed chemicals take much longer to sell, because their specifications must be worked out between the purchaser and your company.

The Sales Process

The chemical sales engineer's job is to interface with customers, assess their needs, and determine whether an off-the-shelf product would suit their needs. If not, she or he must identify the technical requirements for the product and then develop preliminary chemical specifications for a product that meets these requirements. In some cases, a minor modification of an OTS product does the trick. In others, modification of a previous custom product works. In still other cases, a new custom product needs to be developed from scratch.

This custom-product information is then sent to the Chemistry Department, which further refines the product formulation, examines whether there is a cheaper way of producing the product (e.g., modifying a custom product that the sales engineer wasn't aware of), verifies that it will meet customer needs, and then develops the production specifications. These specifications are then sent to the Production Department, which develops a cost estimate for the product, plus a preliminary estimate of how long it will take to produce the product. These estimates go to the Vice President of Sales, who develops a price and delivery date based on these estimates and relays this information to the district sales manager. All this information then goes back to the sales engineer, who prepares a detailed proposal for the customer.

But there may be other steps. Often this proposal is reviewed by the customer's chemists, who may suggest changes to the product formulation. If they do, the whole process needs to be repeated. Sometimes the customer balks at the price or delivery date, and it is up to the sales engineer to discuss this with the district sales manager to see whether any break on price or change in delivery date can be negotiated. If the sales manager recommends a new price, the revised proposal goes back to the Vice President of Sales for approval. If it is a timing problem, the sales manager takes it up with Production, which can either refuse or agree to changes in the delivery date but may impose extra costs for doing so. This all then goes back to the sales engineer, who then goes back to the customer.

Despite the complexity of the custom product process, the company makes a much higher margin of profit on custom products than on off-the-shelf products because there has been increasing competition in OTS products, which has caused prices to be cut to the bone. For OTS products, production costs (including labour and materials) account for 55 percent of the final selling price, resulting in a gross margin of 45 percent. For custom products, production costs amount to 35 percent, leaving a gross margin of 65 percent.

The Production Process

Production for both OTS and custom products is complex, for it uses an array of complex mixing and refracting equipment, much of it computer controlled. Products are made in batches of varying sizes, ranging from 10 litres to 50 000 litres. In addition, a wide array of production processes are used. Production employees require a considerable amount of skill and experience, and many of them have certificates from technical schools.

The production employees unionized about two years ago and are paid an hourly wage which matches the wage levels at other unionized plants but is about 10 percent higher than at two non-union chemical plants that have recently opened. The company has a modest pension plan and some health and life insurance benefits, but total indirect pay is relatively modest for the industry, amounting to about 15 percent of total compensation. Tasks have been subdivided into many different jobs and pay rates for each job are set by job evaluation. Jobs are defined narrowly and are considered boring by most production workers. Turnover among production workers is about 20 percent per year, somewhat high for the industry.

Company Size

Overall, the company has about 360 employees, and total compensation runs at about $27 million per year. There are 100 sales engineers, 160 production employees, 25 chemists and lab technicians, 40 managers and supervisors, and about 15 other administrative staff. Administrative and technical staff are paid a salary that is based on job evaluation and that is intended to match the market. Turnover among these employees is about 15 percent per year.

The company does about $60 million of business a year and earned a before-tax profit of about $7.5 million last year. The company is capitalized at $45 million and is listed on the Toronto Stock Exchange.

The Problems

Although the company's financial performance was good in the past, you see several disturbing signs. Total sales revenue has stagnated over the past three or four years, and profits have been declining steadily. (They peaked at $12 million three years ago.)

The reduced profits are occurring for two reasons. First, additional competitors have entered the field for OTS products, driving prices down. Second, the proportion of custom product sales has declined from about 40 percent to about 25 percent over the past three years. Customers are complaining about slow service and mis formulated products. They can now go to alternative suppliers, whereas several years ago there were virtually no other suppliers. (A product's failure to meet customer requirements is very costly for Canada Chemicals, because the entire purchase price must then be refunded and sometimes damages must be paid. Almost always, the firm loses the customer.)

Problems in Attracting and Retaining Sales Engineers

You believe that some of these problems may have to do with your sales engineers. Sales engineers have a bachelor's degree in chemical engineering. When they join the firm, they are given a two-month intensive course on company products, ways to assess customer needs, and related skills. They are then assigned a territory, under the supervision and guidance of a senior sales engineer in a nearby territory. Canada is divided into five sales regions, with a regional sales manager for each region.

Currently, each sales engineer averages about $75 000 in total compensation, approximately 40 percent of which is base pay, 40 percent is commission based on volume of sales, and 20 percent is indirect pay. (Most sales engineers consider the free use of a company car as their most important benefit.) Base pay is $30 000, indirect pay is $15 000, and commissions are five percent on gross sales (the average annual sales per sales engineer is $600 000), which results in an average of $30 000 in performance pay per sales engineer (which of course varies for each sales engineer, depending on their sales). This system matches industry standards.

However, you perceive problems with the current sales compensation system. First, it is becoming difficult to attract sales engineers, who are usually hired right from university. Last year, there were only 160 applicants for the 30 vacancies, and three out of every four job offers the company made were rejected.

Many of those who refused job offers cited the compensation system as a deterrent. They indicated that while the average direct compensation of $60 000 plus car sounded okay, and while they were impressed that some sales engineers earned as much as $90 000 in direct pay (the company has about 10 sales engineers in this league), most were concerned about the uncertainty of their pay, given that they had high student loans to pay off. They were concerned that pay might be low in the first couple of years (direct pay in the first two years averaged $45 000 per year) and therefore, most new graduates turned down the firm's offers.

You are concerned about the high turnover rate of new sales engineers—many are leaving in their first year. In fact, of the 30 you hire each year to fill vacancies, only 10 remain after the first year. The company also loses about 10 experienced sales engineers each year. Job stress is often cited as a reason for leaving.

Other Concerns with Sales Engineers

Besides the problems attracting and retaining sales engineers, there are a number of other concerns regarding the sales engineers. New sales engineers report that senior sales engineers show very little interest in helping them do their jobs, even though advice and tips from them would be very valuable. When questioned about this problem by their district managers, the experienced sales engineers defend themselves vigorously, arguing that the only way they can make enough money is to spend all their time selling and that they have little time to help anyone else.

Another concern is that most sales engineers seem to be focusing on the OTS products, even though the custom-designed products carry a much higher profit margin for the company. Sales engineers report that selling custom products is just too time consuming and frustrating, citing lack of cooperation from the other departments. As one sales engineer put it, "With friends like those [in the Chemistry and Production Departments], who needs enemies? They don't seem to understand what it takes to sell a product and seem to work against me more than with me. Besides, with prices dropping on the OTS products, I've got to pay most of my attention to moving these products if I want to make a living."

Finally, high animosity and conflict among the chemists, the production personnel, and the sales engineers has you very concerned. Production accuses the sales engineers of always trying to cut prices on their products to stimulate sales and accuses the chemists of coming up with production specifications that are overly complex and that do not meet customer requirements, resulting in wasted product. The chemists accuse the sales engineers of not taking the time to really find out customers' needs and turning in poorly defined customer requests, which often result in the wrong type of product. They view the Production Department as technically incompetent, fouling up the final product.

The sales engineers accuse the chemists of being too fussy in what they want, too slow to formulate the product, and too likely to mis formulate products. They accuse Production of overpricing products, being too slow in delivery, and producing poor-quality products. Also, the sales engineers deeply resent top management for leaning on them to sell more custom products, although there is little money in it for them, and for making them scapegoats for the company's drop in profitability.