In an effort to generate high performance, Xcel Energy implemented a reward program that paid employees who submitted useful suggestions. Unfortunately, no one thought to evaluate and measure the benefits these useful ideas had to the overall mission and vision of the company. Xcel decided that merit pay can support the company’s strategy better than paying for suggestions. Have they arrived at the best conclusion? What can Xcel do to incite favorable submissions that are parallel with the company’s strategy and have a positive response from employees?
It may be in Xcel’s best interest to hire a consultant to make suggestions that would ensure merit pay is an effective incentive program. Review/Analysis of the Case A merit pay system would be a better option for Xcel as oppose to paying employees for ideas. The merit pay system gives the highest pay to the best performer which is still in line with the company’s goal to link rewards to performance. Additionally, it doesn’t limit employees to developing favorable concepts for the company.
Employees that excel above their job description are rewarded and their excellent performance serves an example to other employees that the company rewards their top performers. Paying for suggestions was not a bad idea it’s the lack of evaluating the idea and how compatible it is to the company’s strategy is where is went wrong (Colter, C. , 2003). In order for employees to develop ideas that complement the company’s strategies the company must clearly communicate the strategies they feel their employees can aid the company in achieving.
Xcel realized that to meet the increasing needs of their customers it would have financial implications that would directly impact their employees. Xcel took steps to help their employees understand how the company operates financially. By using Zodiak: The Game of Business Finance and Strategy, it enabled employees to appreciate how finances flow through to the company operations as well as their involvement. As a result the company saw a new level of productivity and efficiency.
Through effective training the company was able to motivate efficient work performance that translated into achieving its earnings target six consecutive years and increasing ongoing earnings by 8 percent (Kelly & Fowke, 2010). Paying employees for excellent performance does have its advantages. However, there are at least three ways a company like Xcel can improve their merit pay system to ensure it’s an effective reward program.
First, since a combination of individual, group and corporate performance is what is measured to determine eligibility for merit pay the company must emphasize the importance of timely and accurate performance reports as well as communicating constructive criticism throughout the performance observation period. This way, employees will have the opportunity to improve if needed and it also contributes to fair compensation. Second and more importantly, the criteria to attain compensation must be clear and attainable for employees to realize.
Misinterpretation on the criteria will result in unfair reward according to employee judgment which will negatively affect moral. Finally, Xcel should consider raises for top performers only. It is fair to say that employees that meet normal company requirements are already compensated by their normal wages. A raise for top performers not only distinguishes their performance from the norm but serves as an acceptable mark of exceeding expectations.
It is not as simple as arriving to work 15-20 minutes early to work but using duty time to make improvements on the processes and duties in their purview which doesn’t just serve them but their division, other divisions, customers and thus the company (Murnan, R. J; Cohen, D. K. , 1986). Summary and Conclusions It is good that Xcel Energy wants to reward their employees for their performance. Merit pay will serve as a good motivator for employees to improve on their performance. Although paying for ideas wasn’t initially measured to evaluate if it supports company strategy the idea shouldn’t be completely abandon.
Perhaps it can be incorporated into the merit pay system. Companies should always design incentive programs with company strategies and objectives in mind or it will be doling out rewards that doesn’t aid in success for the company.
Noe, R. , Hollenbeck, J. , Gerhart, B. , & Wright, P. (2009). Fundamentals of human resource management, 3rd edition. New York, NY: McGraw-Hill/Irwin. Colter, C (July-Aug, 2003) Does Merit Pay Really Work, Cooperative Grocer. Retrieved from http://www. cooperativegrocer. coop/articles/2008-12-27/does-merit-pay-really-work
Kelly, R; Fowke, B (2010) Built to Last Corporate Responsibility Report. Xcel Energy Corp. Retrieved from http://www. xcelenergy. com/staticfiles/xe/Corporate/CRR2010/stakeholders/index. html Murnane, R. J; Cohen, D. K (1986) Merit Pay and the Evaluation Problem: Why Most Merit Pay Plans Fail and a Few Survive. Harvard Educational Review Vol. 56 Xcel Energy is Playing the Game of Business: Using Discovery Learning to Communicate Business Literacy. Retrieved from http://www. paradigmlearning. com/documents/ASTD-Xcel-Energy. pdf