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In this assignment one is critically going to discuss about the compensation strategies of Alliston
Instruments. Firstly, one will identify and discuss about the major problems that are related to the
company¶s compensation system and compensation practices. Later in the assignment one will
analyze the firm¶s current compensation strategies and also practices which have caused those
indentified problems. After analyzing one will recommend the solution s in terms of
compensation system and strategy design and implementation which will help to solve the
indentified problems. Finally to conclude the assignment one has to recommend strategies which
will help to solve the problems also will give explanation and justification.

  

One of the major problems of Alliston instrument was the unit costs of production. They wanted
to reduce the cost per unit, as they were facing a market competition. In 2007 two Asian firms
had entered into the Canadian medical instrument producing market which produces high quality
medical instrument and were able to price very attractively. The reason they were able to sell
high quality products on the lower prices was that they had very low labour costs. The other
major problem which company has faced later on was related to the quality of the product.
Company wanted to be more efficient with the productivity which directly hampered the quality
of their product.

Before the two Asian companies entered into the Canadian market in 2007, Alliston was the only
company which was selling its medical instruments in the market at very competitive rates.
During that period of time there were few American and European companies, which were in
competition with Alliston instrument, however their products were very high priced for the
consumers and that¶s the reason their sales were outnumbered by Alliston instruments. When
two Asian firms entered the Canadian market, Alliston faced very tough competition in the
market. The Asian firms were very price competitive because they had very low labour costs and

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therefore they could sell their products on very attractive prices. However, initially buyer held
back because they were concerned about potential quality problems. Of course when buyers are
getting same products on very competitive rates, the first thought which comes to their mind was
if the quality of the product is up to the standards. So, for a while, it seemed like alliston
customers are going to be loyal buyers specially hospitals and clinics, even though they
themselves were under pressure to cut costs due to budget cuts in 2007.

During that period of time most off the companies were cutting their budgets because of the
economical downfall in the world. In late 2007, the sales of Asian companies were drastically
increased and which directly had a negative impact on the Alliston 2008 sales. Alliston
instrument come up with a compensation strategy, in order to increase efficiency, firm persuaded
the union to accept the incentive system rather than increase in their hourly wages. The incentive
plan was, if production per hour for a particular item exceeded 2008 levels, the employee will
receive fixed sum for each piece produced over that level, in addition to normal hourly pay. The
major problem was that the company has never kept the detailed record of the per piece
production time, these standard were simply based on estimates of the supervisors. There were
different tasks in the production area, and many workers raised issuse that standard for some
tasks are set too high and they have no chance earning a bonus or incentive on those tasks. Here
the compensations strategy fails to determine the equality of the different tasks. Therefore most
of the works start avoiding particular tasks and at the same time some jobs everybody wants to
do, so that they can earn bonuses and incentives. This had a major impact on the quality of the
products, as everybody wanted to earn the incentives and they hardly care about the quality for
the products and just make the product to the acceptable standards. So the productivity of the
tasks went down on which the standards were set too high and on the other hand productivity
dramatically went up on the easier tasks. And as a result the net employee productions did not
change and moreover company has to pay bonuses to the employees. That clearly shows that
compensation strategies and practices directly hampered company¶s production and product
quality. The poor compensation strategy and practices caused conflicts between the employees,
because nobody wanted to the poor paying job, where they cannot earn good incentives and
employees resent it, when poor paying jobs were assigned to them. Alliston faced serious
problems with the quality of the products, as the employees were not happy doing poor paying
jobs. Supervisors¶ job was even more difficult because they had to now supervise closely to deal

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with these problems to keep the quality and productivity up on µbad¶ poor paying jobs. And on
top of this, supervisors were not making any extra money as they were not eligible of any
incentive program. In result, 3 senior supervisors quit the job, and this was first time in the
company¶s history that three supervisors have quit the job in a same year. From the above
arguments, it clearly shows that the compensation strategies and practices were not implemented
properly and which directly hampered company¶s performance.

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The Alliston instrument compensation system and strategy design and implementation, had a
major drawback that they did not focus on specific performance objectives. The incentive
program which Alliston have introduced for their employees did not have set objectives for their
tasks.The purpose of their incentive plan was to focus and align the organization by
communicating and rewarding the achievement of company goals. Alliston Instruments should
have implemented the compensation mix strategy. That would have allowed them substantial
portion of compensation to be allocated to short-term incentives and long-term equity incentive,
i.e., percentage of pay allocated between base pay and short-term incentive and long-term equity
incentive pay. The base salary of the employees should have based on external market data,
internal equity value, and performance of the company and in the end an individual performance.
In terms of short term incentive Plans Company should have a criteria in which the overall
performance of an employee should be measured on different tasks and should set up minimum
performance targets. This way employee would work hard and will not compromise with the
quality of the products.

The short term incentive plans varies company to company, however the minimum incentive
plans generally comprises 10-20% of the base of total direct compensation. Alliston should also
introduce the annual incentive plans, the results of which should be measured in respective of
total quality performance of the company. This strategy will help Alliston to be consistent in
their quality production and eventually will help them to achieve their goals. This will also help
the company to meet their minimum threshold financial performance; by achieving this company
can payout the short term incentive plans to their employees. In the terms of long term equity

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incentive, company can compensate their employees in the form of stock options. Generally
supervisors and managers get compensate long term equity incentive for their target
performance. When company hires a new supervisor or a manager, at the time of hiring the stock
option should be granted to them vesting over minimum of three year period. In addition
company can also offer annually stock option awards to their supervisors or managers. In case of
financial performance goals will exceed or the company stock prices increases, then the above
element should deliver total direct compensation above the median of compensation ranges to
supervisors and managers of the Alliston instrument company. The above mentioned strategies
will help Alliston to come back in the market strongly and with the implementation of long and
short term incentive plans, employees will be motivated to achieve their goals by the means of
team work and equal job objectives.

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RICHARD J. LONG, 2001. Π 


      -th ed.

ARNOLDS, C.A. AND BOSHOFF, C., 2002. Compensation, esteem valence and job
performance: an empirical assessment of Alderfer¶s ERG theory. International Journal of Human
Resource Management, 13 (- ,

http://www.wikinvest.com/stock/IBasis_(IBAS /Compensation%20Elements (ONLINE

(Accessed on 08/02/2011

http://www.valueadvisors.com/Attachments/OByrne-JACF82.pdf (ONLINE

(Accessed on 08/02/2011

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