Compensation and Profit-Sharing Plan for StarDash Shoes Ltd Report

This report examines compensation strategies and profit-sharing plans for StarDash Shoes Ltd, addressing the company's challenges of increasing production costs, declining productivity, and a unionized workforce. It identifies the main problems, including rising labor costs and the need for employee motivation. The report outlines three profit-sharing plans: straight profit-sharing, hurdle-rate profit-sharing, and goal-driven profit-sharing, detailing their mechanisms and potential benefits. The analysis recommends the goal-driven profit-sharing method as the most effective, considering the company's specific circumstances and the need to align employee incentives with broader company objectives such as cost control and customer service. The report also discusses the implementation of the plan within the unionized environment, emphasizing the importance of communication and negotiation to ensure its successful adoption and achieve improved productivity and profitability. It concludes by highlighting the benefits of this strategy for both short and long-term company performance, including increased employee trust and a more harmonious working environment, which reduces the need for unionization.

Running head: COMPENSATION
COMPENSATION
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1Compensation
Table of Contents
1. What is the main problem of people and the required strategies for them to follow for the
betterment of the organization?..................................................................................................3
2. Three profit-sharing plans in detail which can be better for the organization.......................5
3. Which of the three profit-sharing plans will be the most effective for StarDash Shoes Ltd?8
4. How Goal-driven profit-sharing method can be applied into the organization?..................10

2Compensation
1. What is the main problem of people and the required strategies for them
to follow for the betterment of the organization?
From the case study it can be easily identified that StarDash Shoes Ltd was suffering
from increment in the cost of production. Their labor cost is also increasing rapidly and along
with that their productivity level is degrading since three years. Their competitors are
capturing the target market introducing similar or lower cost products with similar quality
(HR Daily Advisor, 2020).
Company’s almost 70% of the manpower are unionized and there is a possibility that
the non-managerial workers will also form or join union. The workers are not showing any
enthusiasm to increase the productivity level and help the company to increase more profit
rather they are interested more into union works. They wanted to get paid more wage and
also a part of the profit which will act as a motivation for them. They want to negotiate with
the company regarding their wages system.
The management of the company is trying to motivate the employees with their new
profit-sharing plans. Managers are also in the process of forming their own union. The
managers thinks that if the new incentive plan is applied in company policies then it will only
further degrade the quality of the productivity of the workers. They are more focused towards
the performance of the company rather than interest of the workers
(Smallbusiness.chron.com, 2020).
CEO of the company is also more intended to rise the productivity along with
motivating the employees with more incentive. They highly support the plan because they
believe that if workers are motivated then they will perform better. Whereas, one Union

3Compensation
President of that company believes that if there is no profit then how will the company share
profit with their workers to motivate them for more productivity.
The performance of the employees can be increased by understanding few points
which will help them to motivate by the profit-sharing plan. Management must understand
the needs of the employees which will help them to motivate accordingly because every
employee has different need in their life. Employees have a tendency to start negotiations
regarding the contract of wage system, if they are paid well then they would not feel the need
of negotiations and work productively (HR Daily Advisor, 2020).
Employees should actively take part in the wellness programs which are organized by
the company which will increase the productivity. Maintaining a healthy balance in the work-
life is also an important duty of the employees which will help to focus on the productivity
rather than making excuses (The Balance, 2020). Managers should take initiative to support
their employees whenever there is any crisis which helps to maintain a good relation between
both of them. If the company maintains a good working environment then it will be easy for
the management to include their new profit-sharing plan into the organization. This will
ensure that productivity increases and their market position is retained again and along with
that their labor cost decreases which will decrease the product price also (Blasi, Freeman &
Kruse, 2016).

4Compensation
2. Three profit-sharing plans in detail which can be better for the
organization
Keeping in mind the unionized situation of the workers and how they want to
negotiate their wage system, three appropriate profit-sharing plans are recommended which
will be useful for the management to implement and they are following:
1. Straight Profit-sharing – here the management keeps aside a specific portion of the
company profit and the rate of profit sharing is equal for every employee. These funds
are used by the company to supplement the workers’ retirement funds. It also helps
the company to designate whether the profit percentage is after tax or before tax
(Luedtke, 2013).
When the portion of profit reaches the limit of retirement plan fund for the
employee then extra amount of the profit is distributed to the employee in a way of
award on a quarterly or annual basis of cash bonus. The most positive fact about this
plan is that every employee of the company is eligible for the profit sharing program.
When any employee leaves the company within three years of joining then their share
of cash bonus is prorated as awards by many companies. A lot of companies also
plans their strategy to provide awards as per the level of pay or level of their
organization (Fibírová & Petera, 2013).
The implication of this strategy however differs from one organization to
other. The reason being that the management of many organization believes that this
strategy can be easily administered and enhances the performance cycle of the
employees when applied once in a year. Whereas other organizations believe that this

5Compensation
will be less motivating for the workers as the time period is long and thus they apply
the monthly or quarterly basis for the strategy (Long & Fang, 2013).
Frequent distribution of the profit will increase the motivation among the
employees to follow organizational goal and reinforce the employees to get involve in
the process. However, this may be complicated to manage for those product which are
highly volatile.
2. Hurdle-rate profit-sharing – here the company a first keeps a margin of profit for
the productive purpose and the rest is then distributed to the employees of the
organization. This profit-sharing plan maintains the profit improvement ratio of the
organization. This plan is also similar to gain-sharing plan. Here the organization
generally distributes maximum amount to the higher authority as they believe that
higher salaried people have more impact roles in the profit earning process (Poole &
Jenkins, 2013).
Companies should keep a lot of things in mind when they introduce this
method of plan into their management. When the company tries to give a strong
message to their employees then they will set their return on sales (ROS) to a lower
level for example at 5%. But when the company has less market risk then they would
pay more ROS to their employees like 10%. The percentage of ROS depends upon the
risk the company have in market. So, if high percentage of ROS is set and the
company fails to fulfill the promise then it will impact the organization negatively and
employees’ trust will shift from them (Daneshfar, 2015).
Excess profit which is distributed among the employees reflects company’s
performance for that period. When employees gets a portion of the company profit,
they get motivation to work more productively as it will increase their ROS ratio. This

6Compensation
plan can be utilized in the company as it will motivate every employee to perform
their part of job efficiently which will increase the productivity of the company
overall. Management does not have to think about the ratio of distribution because
here the excess amount is shared which does not impact the financial position of the
organization (McKemmish & Gilliland, 2013).
This method is widely used by many companies because here both the work is
satisfied, management does not compromise with the company’s reserve to keep their
promise and employees also gets motivated at the same time to work more for earning
more profit.
3. Goal-driven profit-sharing – here the company wants to provide their employees a
strong message that apart from incentive earning other goals are additionally
important to achieve. Employees must also focus on acquiring corporate goal rather
than just operational goal. This method of plan is generally mixed with the hurdle-rate
profit-sharing method while introducing it to the organization.
When company earns a lot of excess profit then the whole amount is not
distributed among the employees, rather under the hurdle-rate profit-sharing method
profit is distributed based upon the performance of the employee. The performance
includes achieving other goals like cost control by any department, providing best
quality service to the customer or maintaining good relationship with the customers.
Management here does not have to repeatedly communicate with their
employees to teach them about the importance of other goals. Employee are self-
aware of the fact that if they fulfill additional goals or objectives then their profit
earnings percentage will increase automatically. This method is better than the
objective-based plans because it reduces the company risk.

7Compensation
Many times it is seen that employees does not put extra effort for the
production and still the overall production is high which results in profit earning for
the company. employee still gets a specific amount of bonus cash under previous
methods, but here if the employee will not earn any profit because his/her individual
contribution towards the production was equal to NIL. This will force the employee to
put their effort into the production and those who sis their best will earn extra profit
because their contribution was more towards the production.
This is so far the best profit-sharing plan which is applied by different
organizations because here the employees are already motivated to contribute their
efficient work and earn bonus which automatically increases the profit of the
company.

8Compensation
3. Which of the three profit-sharing plans will be the most effective for
StarDash Shoes Ltd?
According to the current situation of this company, Goal-driven profit-sharing method
will be more effective for the organization. This method also involves the features of hurdle-
rate profit-sharing method in it. This method will be effective for this organization because at
present it is running on loss as their products are most of the time returned by customers.
Some other brands are also trying to capture their target market which shows that they have
threat from competitors as well. Their labor cost is increasing day by day but their product
quality is decreasing. There is also a hurdle of unionization which restricts the management
to imply any strategy which does not involve incentives. Managers do not trust their
employees; hence there is always a clash between managers and employees in the
organization (Mullins, Whitehouse & Atkinson, 2013).
This method will help the managers to increase the productivity of the employees as it
states that those who will contribute more will be paid more and it will also increase the
profitability of the company (Brown (Ed.), 2013). The risk of losing more fund and failure of
keeping the promise of incentive is also not there because under this method the company can
be able to keep a portion of profit aside for the productive purpose and then rest of the profit
is distributed. This will motivate the employees equally because if they contribute more for
the productivity then the profit will be more and hence they will earn more incentive. When
labors will start to work more, then labor cost will decrease per product and hence the price
of the product will also decrease. As the price will decrease, customer will again prefer their
product and their market position will retain. There will also be good relation with the
customers.

9Compensation
This method is not only helpful in the short run but also for long run because if they
continue to use this strategy then their productivity will increase gradually along with the
labor power, their profitability will also increase which ultimately will increase the incentives
for labors. This will increase the trust of labors upon the company and their system.
Managers will also trust their employees and there will be a healthy relationship in the
organization. This will eliminate the purpose of unionization as everyone is satisfied with a
single strategy in their system.
Negligence form many employees is noticed in this organization because they were
not motivated enough to work. After implication of this method employees will finally work
for the organization to get more incentive facility. As this method is used by many other
organizations, so it is proven that this method does help the organization to increase their
productive and decrease their product cost (Chung & Hsu, 2017). The reason behind
choosing this method over other two methods is that there is chance that few employees will
neglect their responsibility and others will work under pressure for increasing the
productivity. This will be unfair to those employees who worked hard and because for them
others are also getting the incentive. There is also a silent clash going on between employees
and managers and the management does not trust their employees due to unionization. This
method is a solution for all the problems (Inc.com, 2020).

10Compensation
4. How Goal-driven profit-sharing method can be applied into the
organization?
Now, as it is confirmed that this profit-sharing ratio will be used, it is necessary to
plan as how to implement this method into the organization. The CEO of the company has to
keep in mind about the employee’s trust over them and managers demand as well. The CEO
has to strategically set up a plan which will help them to easily implement the method and to
gain more profit for their production. Successful implementation will help everyone to gain
profit and feel satisfied with their job as well (Telegraph Jobs, 2020).
The first step which must be followed by the CEO is to set up a full document which
will contain every detail of the method. All the procedures which will be followed from the
beginning to the end and it should write down on that document. Every people who will be
involved in the procedure, their names and designation must be written in that document with
their duty (BusinessDictionary.com, 2020). The document must also contain every detail of
the procedure and it must also contain the details of all the best alternatives which will be
followed in any required situation by the organization. This document must be prepared by a
group of managers and auditors who will look into the current market situation and then form
a plan accordingly. Every organization needs a customized documented plan prepared
according to their financial position and market trend and which is to be followed thoroughly.
This documentation is circulated to the CEOs and Board of Director which is analyzed that
whether this will improve the situation of the organization or not and whether all the
conditions have been focused by the preparers or not. After the analysis of the document it is
then applied into the organization (My Accounting Course, 2020).
After this step, it is necessary to execute the plan into the organization and advice the
employees to follow the procedures according to the document. It is important for the

11Compensation
organization to gain trust over the plan’s assets. Every employee at first focuses to the
procedures thoroughly then analyzes it and then implements into their duty. If there is any
doubt or any question regarding the procedure then they must communicate with their
supervisor rather than unionize regarding the issue. Unionization may become one of a big
hinder for the implementation but this problem must be addressed as well by the document
preparers as well (Collinsdictionary.com, 2020). The organization and the supervisors must
gain the trust of employees that if they will work according to the document then it will
increase the production and gain profit for the company which will ultimately provide
incentive to the employees only. If the employees’ trust is gained over the plan’s assets then
it will be easier to implement the plan into the system. Managers should also cooperate with
the situation and help the employees focus into the plan rather than focusing into the
unionization and create issues regarding the plan for the firm (Burton, 2014).
After gaining the trust over plan’s asset, now it is time to develop a recordkeeping
system by the management. Recordkeeping will help the organization to proceed
systematically of their record by which it is created, maintained, captured and disposed. This
is important for the management as it will preserve all the evidences of success and failures,
their purpose and efficiency of the plan (Referenceforbusiness.com, 2020). The records will
also be updated accordingly and only be accessed by the authorized personnel of the
organization. It is important for StarDash Shoes Ltd to develop a good recordkeeping system
because their present condition in the market is not very strong and they need to highly focus
on their production, if they implement this profit-sharing method then they have to start
maintaining their record which will allow them to clarify their failures and focus only into
their successes. By recordkeeping they can also maintain their organizational environment as
it will have a practical evidence of every situation and work according to the need of the
organization. It will also help to provide the exact amount of cash incentive and award to the