Evaluations of the Compensation Packages of Catalytic Solutions Inc. (Essay Sample)

MANAGEMENT CASE STUDY ASSIGNMENT
CASE OF CATALYTIC SOLUTIONS INC.
STUDENT NAME:
STUDENT ID:
DATE:
Introduction
Catalytic solutions Inc. is a private company incorporated in 1996 with a major aim of profit maximisation. It has been involved in development of catalytic converters that are said to have better performance. Their competitive advantage has been on quality and low prices (Shen, 2004). Their major market has been manufacturing firms that need to reduce pollution. The market has been lucrative especially in the advent of tightened pollution and environmental conservation regulations (Langley, 2013). The company has been working 24hrs and need to have a lot of incentives in place as will be discussed in the current essay.
BODY
Evaluations of the compensation packages
Catalytic solutions Inc. has been employing different ways to ensure they are able to coordinate work and have a positive influence on their stakeholders. Employee’s compensation forms basis for motivation and improved productivity (Langley, 2013). Owing to this concept, Catalytic solutions Inc. has a compensation package for its employees. The package consist of a basic pay, stock option, and bonuses.
After entry to the firm, although the basic pay is set below the average industry pay, the employees are given a stock option. The option was granted at 4% per year and within a period of 10 years. One would also loose the grant in 30 days after they left the firm. Although this made employees feel a sense of belonging as they became part of the company, the plan had no formal arrangements put in place. In addition, although the grants were given based on employee’s position, the allocation was using the adhoc formula, which would mean that for some employees, they were not be compensated accordingly in relation to their contribution which could result to an agency problem (Chun & Lee, 2015). Their shareholding by 2002 was 24% of shares. This meant that they had controlling interest on the firm’s decision. This gives an art of responsibility and efficiency in production. Consequently, assisting the firm in achievement of its quality goal. However, most employees did not make use of this advantage as they were not aware of its importance.
As for annual bonuses, it is an important option to keep workers focused, to improve their attention to work, and improve productivity. It has also been used as a strategy of aligning goals of the employees with those of the firm. The employees have a high appreciation of this form of compensation as it is fast and give returns that are tangible. However, as for Catalytic solutions Inc. the awards are based on corporate performance and not individual performance. This would lead to freeriding problem by some of the workers as they will not be evaluated at a personal level. Though this lead to the spirit of team working, it demotivates workers at an individual level who will not work to their full capability, but to the accepted team levels (Chun & Lee, 2015).
The firm had a need to offer the compensation package in a mix instead of only pay, or bonuses. This is because, the firm had a low basic pay for employees compared to other firms. Therefore, the only way to attract employees to the firm was to buff the salary with other complements to make it worth working there. In addition, offering salary alone does not improve employee’s engagement especially on quality. Bonus and stock options act as appreciation of work done. In addition, they improve commitment of the employees (Wang, 2004). Also, the firm cannot offer bonus without a basic pay. This is because employees will be demotivated at times of firm low performance. Therefore, they need a retainer at all periods, which will make them improve their productivity to have high performance which fuels high bonuses.
Evolution of the compensation package
As the firm grows, the CEO expects that there would be changes which will be attributed by changes in commitment. In 2001 the salary would range between 4-5% and would not be significantly different between employees of different levels. The stock option were accumulated at a rate of 25% of the basic pay per year. The base bonus in 2001 were 5-15% of the basic pay. Therefore, the firm would devise ways to meeting their objectives and to sustain their compensation package. In 2002, the firm had financial target which would lead to 0-60% of target bonuses. This means that the firms performance to a great extent influence the achie