Harvard Case - RKO Warner Video, Inc.: Incentive Compensation Plan
"RKO Warner Video, Inc.: Incentive Compensation Plan" Harvard business case study is written by George P. Baker, Samuel L. Shimer. It deals with the challenges in the field of Human Resource Management. The case study is 14 page(s) long and it was first published on : Oct 20, 1989
At Fern Fort University, we recommend RKO Warner Video, Inc. implement a comprehensive incentive compensation plan that aligns with the company's strategic goals, addresses the specific needs of different employee groups, and fosters a culture of performance excellence. This plan should be designed to motivate employees, improve productivity, and ultimately drive profitable growth for the company.
2. Background
RKO Warner Video, Inc. is a major distributor of prerecorded video cassettes, facing intense competition and evolving market dynamics. The company is seeking to improve its incentive compensation plan to better motivate its sales force and achieve its strategic objectives. The current plan, based on sales volume, is perceived as ineffective and fails to incentivize desired behaviors like customer retention and new product promotion.
The case study focuses on the company's need to develop a new compensation plan that addresses these challenges and aligns with its strategic goals. The main protagonists are the CEO, who is looking for a solution to improve sales performance, and the human resources department, tasked with designing and implementing the new compensation plan.
3. Analysis of the Case Study
The case study highlights several key issues that need to be addressed in designing an effective incentive compensation plan:
- Lack of alignment with strategic goals: The current plan solely focuses on sales volume, failing to incentivize other crucial aspects like customer retention and new product promotion.
- Ineffective motivation: The existing plan is perceived as unfair and demotivating by employees, leading to low morale and reduced productivity.
- Limited flexibility: The current plan lacks flexibility to cater to the diverse needs and roles of different employee groups within the sales force.
- Lack of performance metrics: The current plan lacks clear performance metrics to measure the effectiveness of the incentive program.
To address these issues, we recommend utilizing a Balanced Scorecard approach to develop the new incentive compensation plan. This framework allows for a holistic view of performance by considering financial, customer, internal process, and learning and growth perspectives.
4. Recommendations
1. Design a Multi-Tiered Incentive Plan:
- Tier 1: Base Salary: Maintain a competitive base salary structure, ensuring it is aligned with market rates and employee experience.
- Tier 2: Performance-Based Incentives: Implement a performance-based incentive program that rewards employees for achieving specific goals aligned with the company's strategic objectives. This could include metrics like:
- Sales Revenue Growth: Rewarding employees for exceeding sales targets and driving revenue growth.
- Customer Retention: Incentivize employees for maintaining existing customer relationships and minimizing churn.
- New Product Promotion: Reward employees for successfully introducing and promoting new products to customers.
- Profitability: Incentivize employees for maximizing profitability by focusing on efficient sales practices and cost optimization.
- Tier 3: Long-Term Incentives: Implement a long-term incentive program to retain key talent and incentivize long-term performance. This could include stock options, performance shares, or other equity-based compensation.
2. Differentiate Incentive Programs for Different Employee Groups:
- Sales Representatives: Focus on sales volume, customer acquisition, and new product promotion.
- Customer Service Representatives: Emphasize customer satisfaction, retention, and resolution of customer issues.
- Marketing and Sales Management: Focus on team performance, profitability, and achieving strategic goals.
3. Implement a Clear Performance Measurement System:
- Key Performance Indicators (KPIs): Define clear and measurable KPIs for each employee group and individual role.
- Performance Reviews: Regularly review employee performance against the defined KPIs and provide constructive feedback.
- Performance Bonuses: Link performance bonuses to the achievement of pre-defined KPIs.
4. Foster a Culture of Performance Excellence:
- Communication and Transparency: Clearly communicate the incentive plan and performance expectations to all employees.
- Recognition and Rewards: Acknowledge and reward outstanding performance to motivate and inspire employees.
- Training and Development: Provide employees with the necessary training and development opportunities to enhance their skills and performance.
5. Basis of Recommendations
These recommendations are based on the following considerations:
- Core competencies and consistency with mission: The proposed plan aligns with RKO Warner Video's mission to be a leading distributor of prerecorded video cassettes by incentivizing behaviors that drive sales, customer satisfaction, and profitability.
- External customers and internal clients: The plan considers the needs of both external customers (through customer retention and satisfaction) and internal clients (by providing a clear and fair compensation structure).
- Competitors: The plan aims to be competitive in the market by offering a compensation package that attracts and retains top talent.
- Attractiveness ' quantitative measures if applicable: The plan can be evaluated using metrics like employee satisfaction, sales growth, customer retention, and profitability.
- Assumptions: The recommendations assume that the company is committed to implementing a comprehensive and transparent incentive compensation plan and providing employees with the necessary training and resources to succeed.
6. Conclusion
By implementing a comprehensive and well-designed incentive compensation plan, RKO Warner Video, Inc. can effectively motivate its employees, improve productivity, and achieve its strategic goals. This plan should be aligned with the company's overall business strategy, address the specific needs of different employee groups, and foster a culture of performance excellence.
7. Discussion
Alternatives not selected:
- Purely commission-based compensation: This approach could lead to excessive focus on short-term sales and neglect of other important aspects like customer service and long-term relationships.
- Flat salary with no incentives: This approach could lead to low motivation and reduced productivity, as employees may not be incentivized to go above and beyond.
Risks and key assumptions:
- Implementation challenges: The successful implementation of the plan requires effective communication, training, and ongoing monitoring.
- Cost implications: The plan may require significant investment in terms of compensation and administration.
- Employee resistance: Some employees may resist changes to the existing compensation system.
8. Next Steps
- Develop a detailed implementation plan: This plan should outline the specific steps involved in designing, implementing, and monitoring the new incentive compensation plan.
- Communicate the plan to employees: Clearly communicate the details of the new plan to all employees, addressing any concerns and providing necessary training.
- Monitor and evaluate the plan: Regularly monitor the effectiveness of the plan and make adjustments as needed based on employee feedback and performance data.
By taking these steps, RKO Warner Video, Inc. can successfully implement a new incentive compensation plan that drives performance, motivates employees, and positions the company for continued success in the competitive video distribution market.
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Case Description
Details the design and implementation of an incentive bonus plan for video store managers. The problem for top management of the chain is to induce the store managers to "sweat the details," to keep the stores neat and well organized, and to deal courteously and efficiently with customers. The design of the bonus plan is simple: rather than try to measure the neatness of the stores or the quality of customer service directly, give the managers a fraction of the revenue from the store and let them worry about the details themselves. The case ends after a six-month experimental period with the new plan, and leaves the top managers of the chain saying that although revenues have increased, the store management has not improved in terms of managing the details.
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