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Bonus is the additional payment beside from usual salary or wage. This kind of payment is expected reward; employee may or may not earn the bonus depending on many factors such as, company sales, employee performance, economic situation, etc. This article discusses about to reward or not reward the Bonus to the employees in big grocery store chains in Spain among the economic recession affects. Bonus is attractive reward and can make employees commit to the company but Bonus also can be major effect to company sustainability as a whole if actually the company has unfavorable sales revenue. Our group project will give you an idea regarding the Bonus and options to reward while considering on the company and economic situation.
This case study is about sustainability of constant bonuses given to the employees of Superado super market. Luisa the CEO of this company got mingled in a situation of paying bonuses to their employees during this dusk period of business all around the Spain. She got suggestions from different managers of her company. First she discussed with Maria, vice president of Superado super market, Maria was having concern about not paying bonuses to anyone in this company this year with respect to the efforts of all the employees in the last fifteen years. Maria is considering all this bonuses to their employees should be the part of their normal salary. Maria is suggesting that this cutting down of bonuses will demoralize their employees and can reflect some adverse effects on this company through their performance. Luisa took suggestions from Rodrigo, president of HR department. He was also supporting the bonuses given to the employees. He pointed out the fact that in this recession period also this company is managing 20% higher sales than the other super markets. (Beyerdorfer, Dessain &Ton, 2012)
Luisa having big concern about the profits, this year is just â‚¬220 millions and they will have to give away bonuses in total of â‚¬200 millions. If Luisa and her company takes a decision of distributing profits to their employees. If situation goes even worse than there is no margin for keeping same level of profits next year and need to take some steps so that they have compromise with the company's years of reputations of having constant low and stable price. That will affect customer relationship with this company. Luisa favoring her side for not giving bonuses this year on the facts that this company has given their employees long term contract and more than 85% of the employees have permanent contracts and salaries are well above the normal market level, unlike the other competitor companies. (Beyerdorfer, Dessain &Ton, 2012).
However Luisa has to address to the companies meeting with the employees. Why this year bonuses are going to cut down with all the dedicate team work and commitment to this company for more than fifteen years of journey. (Beyerdorfer, Dessain &Ton, 2012)
Since the company failed to reach its growth objective this year and the economy is in downturn, the CEO of the company has to make a decision on its annual bonus payout to employees. The CEO has three choices on the bonus payout; no payout, full payout, and partial payout.
No bonus payout
Even though the case (Beyersdorfer et al., 2012) states that the company policy is the annual bonus payout on employees who meet their performance goal occurs only when the company meets its growth goal, the choice is not recommendable.
First, the annual bonus has been considering as a part of their salary for 30 years since its establishment (Beyersdorfer et al., 2012). Employees will expect their bonus considering their outstanding performance and they may put it in individual budget planning due to regularity of the bonus payout. If the company does not pay out the annual bonus at all, it would have negative effects on well-being of employees because of unexpected contract of the budget. Then, their anticipation of work would get negative impact and bring up dissatisfaction of their job. According to the case (Beyersdorfer et al., 2012), employees have shown high involvement and commitment on their job and their relationship with customers has strong impact on sales. Thus, the company would face the harder time in the recessionary economic situation.
Second, newly opened competitor is looking for highly qualified employees around the town with unusual benefits such as job entering bonus (Beyersdorfer et al., 2012). It may mean that possibility of losing good employees. Also, abrupt and dramatic change in the bonus payout would raise possibility of losing employees. Employee and customer relationship is essential in a service industry. Thus, losing employees would cause dissatisfaction of customer and loss in sales.
Full bonus payout
Although the case (Beyersdorfer et al., 2012) indicates that the annual bonus payout is the one of ways the founder showed his appreciation on employee's commitment of work and the CEO followed the custom after she took over the office, the choice is also not recommendable.
First, the company made â‚¬220 million this year, but expected bonus payout is â‚¬200 million (Beyersdorfer et al., 2012). If the company pays full bonus out, it would have financial difficulties due to lack of account capability. It would cause failure to maintain its competitiveness which is low and stable price strategy. Also, it would create need of loans with an interest payment which causes increase in costs. Thus, the company may need to higher its products price. Then, it would cause customers to shift to competitors and lower sales. Decrease in sales would affect on achieving target growth next year and the CEO would face the same issue on the annual bonus payout regardless of employees' performance with the worse situation.
Second, it would discourage a sense of ownership to employees. The company was able to pay the annual bonus with its stable growth due to hard work of employees (Beyersdorfer et al., 2012). However, some may not recognize value and meaning of the annual bonus since the annual bonus has distributed to employees like the part of salary for a long time. They would think of it as a given benefit to employees instead of an earned benefit. Then, it would make the original purpose which encourages employee involvedness of work to fade away.
Partial bonus payout
Considering high employee commitment of work and economic downturn, it should be the most reasonable choice. However, the CEO should elicit positive agreements from employees on it. And the CEO should express anticipation and contribution of employees in the past and it is the company's core competency. Also, the CEO should address the company's difficulty and employees should understand that they cannot stand alone without the company same as the company cannot be sustained without employees in the industry.
These processes would build a sense of thought that changes in employee benefits can occur when situations differ from the past. It would prevent the company from losing employee commitment, thus it would make the company being able to hold its competencies higher than competitors. Furthermore, savings from partial payout would give a room to company to manage its account for a coming year.
The followings are suggestions for the partial payout:
First, the company may restructure its annual bonus system in order to reduce the total amount of payment. For example, the company may set individual goals for employee higher than the current target. It would reduce the percentage of employees who get the annual bonus rather than "90% of people qualified" (Beyersdorfer et al., 2012). For another example, the company may set double objectives on the annual bonus qualification such as employees who meet their goals earn the bonus only if the stores where they work meet its goals. It would encourage employees to help each other rather than competing to achieve individual goals and to participate and practice team works. Also, it would give a chance to poor performance stores to increase its performance rate.
Second, the company may pay the annual bonus around 50% of actual amounts this year and promise progressive rate based on the company's performance accomplishment, then eventually full payout when the company reach the target growth. It would develop a sense of idea that everyone is equally treated and reduce pessimistic emotions coming from being out of benefits. And it would help employees keep the certain level of well-being in regard to capability to make adjustment in their budget planning. Employees would believe what the CEO promises due to relationship between both parties in the past and they would believe themselves that they can overcome the current difficulties since they are still well performed than competitors.
Third, the company may change the form of bonus rather than money. For example, the company would give employees gift cards that have same face value of the annual bonus in total and can be used in the company stores or affiliated stores. It would allow the company to lower the total cost of payment because it requires only raw material costs to the company for its stores and the company may be eligible to get discount from affiliated stores. Also, it would give employees saving money in some way because supermarket products are mostly basic commodities for living which means products are in the daily life. By paying them with gift cards instead of paying on cash or with credits, they would save money that can be used in different places. Also, they would give them to friends or families as a gift. Then, the company would increase traffic in stores and they may become regular customers. Even though this method is same as giving full payment, employees may feel it as a partial payout considering of restriction of its usage.
We would like to recommend "Partial Bonus Payout" option. Because this option will beneficial to both parties since the company does not prefer to pay too much and good employees who work hard for bonus throughout the year will earn it in reasonable proportion to their performance. This option will keep good employees and commit them with the company. However, bonus could be rewarded in many ways. We just have to adjust the proportion of the bonus to the potential of the company and in the level that company still can survive. As well as, during economic recession, employees should consider stable job as the highest priority because there are possibility of lay off that could not meet the mission as well as vision of this company.