Morgan & Gordon - Compensation Executive Summary

Introduction:

When a company's structure turns into an 'Eat-What-You-Can-Kill' system, it creates an individualistic culture where incentives are based off of fear. When this is combined with a competitive industry where employees can find better compensation plans, this correlates to low retention and high turnover cost. Gardner & Herman (2013) explain that Marshall & Gordon is experiencing just this. With competing firms taking clients, competition for talent intensified and the lack of employer loyalty grew. A Senior Partner for Morgan & Gordon stated, "Our current compensation system makes collaboration difficult. It rewards entrepreneurialism, with no mitigating factors to encourage people to share the pie" (pg. 7).  With a faulty incentive program discouraging collaboration when team and culture is a necessity, strategic focus in environmental culture and compensation for better team collaboration is essential.

Body 1: Changing Culture with Transparency

The methods organizations use to reward employees are grounded in the culture of the company. In order to successfully reward and retain employees, changing the culture of the company is needed first and foremost. Garden & Herman (2013) need to shift the 'strong individualistic culture' into a company and team oriented culture (pg. 4). Across the PR industry, revenues from financial services clients had dropped 40%; the impact on Marshall & Gordon was significant, given that 30% of its revenues came from its financial services practice. Marshall & Gordon undergone cut costs, including two rounds of layoffs in 2009, took several charges associated with the layoffs, cut all consultant salaries by 5%, and suspended all matching funds to the firm’s 401(k) retirement plan in attempts to weather the challenging environment.  Transparency in this matter, as well as compensation, became clear. In order for Marshall & Gordon to become transparent, they will need to communicate to the firm their issues as relate employee compensation to the company's profits as a whole.

Krattenmaker (2002) explain the key to earning that acceptance is giving employees information about the company’s fortunes, which requires treating them more like trusted insiders than an external audience to impress or mollify. Managers need to learn to translate the information and use language appropriate to apply the concepts to an individual’s situation. Krattenmaker (2002) discuss a recent study done by LeBlanc that shown that more and better communication about compensation can boost employees’ satisfaction with their pay, leading to stronger commitment to the organization, enhanced trust in management, and other benefits. Most companies turned a blind eye to this concept as they may fear conflict. However, Krattenmaker counters these arguments stating that misinformation from rumors within the company or online salary sites is often more dangerous than the truth. Knowing more about compensation not only made more employees satisfied with their pay it increased employee commitment and created work engagement and retention. Communication entails more than answering compensation questions. E-learning, trainings, contact personal contact (formal or informal), and giving employees inside company information connects subordinates to the company. In Case (2001), Bakke illustrates If the company creates a rewarding and engaging and exciting place to work, and pay issues become far less consequential.

Body 2: Changing Compensation Structure

In order to foster an environment where collaboration is emphasized and employee’s pay is directly correlated to team efforts, the compensation structure needs to be revised. Sisk (2005) quoted Judith Thorp, “Are you going to pay for effort, or are you going to pay for results?”  (pg. 3). Dube, Freeman, Reich (2010) break down the cost of employee turnover. $4,000 is lost overall per employee. $2,000 is churned with blue collar and manual labor workers, and the costs can get as high as $7,000 for professional and managerial employee turnover. Ongori (2007) argue that other expenses are incurred such as such as lost productivity, lost sales, and management’s time, estimate the turnover costs of an hourly employee to be $3,000 to $10,000 each. Gibbs (1990) explains that a company needs to be willing to pay for the investment since it increases their earning power. Gardner & Herman (2013) define Marshall & Gordon's compensation model as a two-part formula. Consultants earned credits both for business originated (“O”) and executed (“E”). The amount that the client paid Marshall & Gordon was credited twice internally: once as O and once as E. When another team member helps with the sell, credits are split. If an employee's credits are less than his or her salary, he or she is considered “underwater” and therefore ineligible for bonuses. This policy disincentives help from other colleagues as well as create fear.

By focusing strictly on individual performance, Marshall & Gordon created a shortcut and sacrificed teamwork and results by turning the consultant position into a business entrepreneurial single mind-set.  Preffer (1998) explain one of the most common myths about compensation: that people work primarily for money.  In order to combat the myth about the effectiveness of individual performance pay, managers are encouraged to create a large dose of collective rewards in their employees’ compensation package. The more aggregated the unit used to measure performance, the more reliably performance can be assessed. Because Morgan & Gordon's structure needs teamwork and the credits are split when a sale is created, the percentage of the sale if incorporating a colleague should be higher. For example, Morgan & Gordon had a consultant cost the firm millions of dollars by losing a client deal. Browne acted as a free agent due to the credit split, and if he received the help he needed, the firm could have earned millions of dollars. In this instance, instead of splitting 20%, incorporating a teammate increases the commission. This is similar to Sisk's (2005) linear system with an example that there is a 2% bonus for every 1% increase in sales. With a higher sale, the bonus can be uncapped.  If Morgan & Gordon set a price mark where teamwork was required and used the linear system, it would force sales member into a team.