Cooper Cameron and Cytec industries are companies which are both listed in the New York Stock Exchange (NYSE). They began trading at NYSE after a spin-off from parent companies; Cytec from Cyanamid and Cooper Cameron from Cooper Industries in 1993 and 1995 respectively (Black, 2009). Both companies have existed in business for quite some time. Cooper Cameron specialized in oil field service and manufacturing of petroleum machinery from 1921. On the other hand, Cytec deals in specialty chemicals like its parent company, American Cyanamid founded in 1907. Both companies had a long history of making losses and were continuously being subsidized by their parent companies. After the spin-offs, managers were confronted with the challenge of revamping their respective organizational structures since no more financial incentives were forthcoming from their parent companies.
The companies equally faced the challenge of asserting their position in extremely competitive markets. Despite being independent from their mother companies, Cooper Cameron and Cytec were in need of a thorough makeover in terms of shifting from the legacy of the past cultures and organizational structure. As independent companies, there was a need to foster new relationships with customers. Being independent entities, managers were at liberty to approach different mechanisms in order to create necessary changes in their organizational structure. They were therefore unconstrained in the manner in which they made decisions since they were no longer answerable to higher authorities (Rynes & Gerhardt, 2003).
Both companies achieved impressive performance in terms of the operating profits a few years after the spin-offs. This is largely attributed to an improvement in the operating efficiency of both companies since the status of their assets remained almost the same (Henderson, 2005). One of the strategic means in which managers of both Cooper Cameron and Cytec applied towards organizational change is the area of compensation systems. Compensation systems were directly compared with performance of individual workers. Compensation systems were structured in a manner to reflect individual effort in achieving greater productivity. Managers understood that motivated employees were self-driven in their work and directed their efforts towards activities that attracted rewards rather than those which were punished. Employee behavior was therefore modified in alignment with rewards as opposed to punishment.
In essence, employee performance improved resulting in greater productivity since compensation systems directly inspired workers in both organizations. Rewards were found to motivate employees to develop their professional skills and stimulate innovation congruent with objectives of the organization. In view of these developments, I wish to present a report that looks into compensation systems for organizations such as Cooper Cameron and Cytec that are in dire need of organizational reform in order to remain relevant in competitive industries. It is important that the spin-offs companies adjust their compensation in order to streamline employees’ input and decision making processes in line with the desired organizational goals. A cultural shift from the past organizational practices from the parent companies is necessary since incentives were no longer forthcoming to check the recurrent losses (Martocchio, 2010). Being newly enrolled to the NYSE, both Cooper Cameron and Cytec were exposed to significant competition which could only be handled through innovative responses and wiser decision making.
Compensation systems at Cooper Cameron and Cytec
Prior to the spin-off, substantial gaps existed between the actual employee behaviors and the preferred approach. It is extremely evident that some hidden elements affected workers’ behavior even though they were not inclusive of the incumbent compensation system (Kazanas & Rothwell, 2003). It was therefore important that managers from both companies discover the hidden elements of their compensation systems that were counterproductive with the objectives of their organizations. The hidden, sometimes minute elements count if effective compensation systems should be administered at the workplace especially for an organization trying to recover from a long period of making losses.
Apparently, a redesign of the compensation system by Cooper Cameron and Cytec was necessary taking into consideration the hidden and minute elements during implementation. Managers of the spin-offs noticed that ineffective compensation systems in the parent companies were responsible for the distorted behavior of employees. The incumbent compensation systems were marred with unintended adverse repercussions of the reward and punishment schemes (Heneman, 2002). Spin-offs’ managers therefore thought it wise to extend performance-based incentives to workers in order to motivate them.
The Hay compensation system was applied at Cooper industries. The advantage of this system is that it allowed for uniform payment for managers across different departments of the company. The hidden element which worked against the hay system is that it had provisions for incentives to those managers who increased the number of workforce and revenue in departments under their jurisdiction (Balkin & Gomez Mejia, 2002). In essence, compensation under the hay system increased in proportion with the amount of work under a manager’s docket. Unfortunately, the hay system lacked parameters for checking growth in different departments of the organization resulting in disproportionate increase in the size of the company and incentives. Managers were therefore compensated for creating their own empire within the company without a proper structure of evaluating whether the growth was consistent with value addition in the company.
Another hidden element which was counterproductive to Cooper’s compensation system was the “management development and planning program” (MD&P) which empowered managers to design their own goals based on their assessment as whether they could be achieved, which also attracted a salary bonus. The bonus was calculated at 20% to 40% of a manager’s basic wage and was a factor of the rank in the management hierarchy (Deb, 2006). Spin-off managers at Cooper Cameron conducted interviews which revealed that the hay compensation was seriously flawed since the bonus allocations were neither consistent with manager’s nor company’s performance. MD& P was therefore a de-motivating factor which resulted in poor outcomes and losses.
Cytec managers as well noted that the compensation system structured in their mother company provided unwarranted incentives. The compensation system at American Cyanamid was founded on the premise that when workers’ happiness is reinforced through incentives, their performance subsequently improved (Locke & Cooper, 2000). This was not the case since the system did not provide for a structure through which individuals could be accountable for their decisions. On the other hand, the notion of job security at American Cyanamid was identified as a motivating factor among most employees.
Workers were therefore compromised by an organizational culture that promised them a lifetime job and were bent towards pleasing authorities to retain their jobs. The culture was quite conservative and bureaucratic while employees never thought of taking the risk of leaving the company. Workers’ actions were therefore directed towards pleasing their bosses at whatever cost in order to preserve their jobs. Compensation systems in both companies were substantially flawed due to the hidden elements which compromised performance. Cooper’s mysterious incentives and Cyanamid’s culture of pleasing one’s superior created hidden elements within the compensation system that not only frustrated but also caused the company’s huge losses.
Since resources are scarce to find, including human resources, a proper compensation system is required for each of the spin-off companies in order to establish return business on a path of profitability (Heneman & Tansky, 2006). The value of incentives extended to managers in former Cooper’s compensation scheme was not commensurate with returns on investment. An effective compensation system should ensure that worker’s motivation and productivity are continuously improved. It should simultaneously lead to sustainable worker turnover through effective decentralization of knowledge. An effective compensation system incorporates rewards which include both monetary and non-monetary gains. In order to promote productivity among employees, it is necessary that motivation and incentives are tied to individual performance. Non-monetary rewards include workplace changes that facilitate greater productivity among workers by reducing work-related stress. Others include public recognition of exemplary performance, promotions, bonuses and improved manager-subordinate relations (Jackson & Schuler, 2007).
Monetary rewards can be applied as part of a wider compensation scheme to motivate employees in both companies. Monetary rewards are strategic for the new spin-offs to start with since money is a medium of exchange through which employees can obtain goods and services that are valuable to them(Sims, 2007). Money is a utility which allows for greater flexibility in terms of purchasing goods and services that match with employees’ tastes and preferences. Pay and performance promote positive behavior among employees. Cooper’s compensation system needs a redesign in order to administer incentives and monetary rewards in alignment with desired skills and performance. The compensation system should ensure that the right people are attracted and retained by the company through different stages of its transformation.
The spin-off is a welcome opportunity for Cooper’s top authority to redesign their compensation in accordance with desired organizational goals. The entire organizational culture and business practices which appear mysterious should be redesigned in order to select out individuals who may not adjust with the new compensation regime (Jensen, 2008). The compensation system should result in productive turnover of employees’ performance. A redesign of the compensation system comes in handy at Cytec having been used to the culture of long-term employment for workers at Cyanamid. The payment system can be designed to ensure that workers are paid average wages at recruitment which can be improved as their experience in the company improves with desired performance. Employees who are interested in short-term contracts with higher pay shall obviously select out paving way for individuals who are committed to better their earnings through enhanced performance. This will facilitate the process of hiring and retaining people with the right skills and impetus for the company.
It is important that workers who possess the right skills and mindset join either of the companies after which they should be motivated to create the desired value through appropriate reward schemes with performance being the lowest common denominator (Lengnick-Hall & Lengnick-Hall, 2003). Definitely, Cooper Cameron requires a total turnover of its management since the previous pool of managers were already used to free gifts in terms of incentives which they could account for. Managers should assist Cooper Cameron develop its business portfolio in line with market and organizational expectations. The compensation package for the new managers being brought on board should be negotiated based on their work experience and performance expectations. The package should take into consideration the previous base pay and other executive allowances in addition to equity and performance goals set out by Cooper Cameron. In essence, the salary could be negotiated downwards but compensated through appropriate stock options.
Cytec should equally redesign its organizational culture and compensation system to reflect the current demands after the spin-off. Self-selection is a useful tool for helping the spin-off process (Sherer, Mitchell & Lewin, 2002). Managers who may be interested in moving with the company or remain with the previous Cyanamid can do so at their own will. Managers interested in staying with Cytec are likely to do so from such benefits such as job security and an ambitious retirement program. It is most likely that managers at Cyanamid could find it difficult to give up a life time job to take a Cytec appointment in a more challenging situation. Cyanamid’s conservative and bureaucratic culture made it difficult for managers to take risks such as moving from an established organization to manage a completely new outfit struggling with losses and debt. However, a window of opportunity presents itself at Cytec, being a new entry at the New York Stock Exchange. Prospects of developing one’s career in a challenging environment are feasible at Cytec away from the comfort zone exhibited by Cyanamid conservative culture. A move to Cytec represents a bold step to revamp lukewarm business culture towards a makeover that exhibits performance and entrepreneurial credibility.
A redesign of Cytec compensation system is handy in view of shifting from the parent company’s conservative culture to a more dynamic performance-based culture for the purpose of streamlining Cytec operations competitively. There is need for a comprehensive long-term compensation package for new managers at Cytec which should be connected to a time-bound performance target (Black, 2009). Bonuses should also be tied to performance which should be evaluated on a time-line perspective say annually. Production related turnover should be encouraged in both companies during the spin-offs through self-selection. People with the right skills and characteristics shall therefore be attracted, recruited and retained based on a comprehensive wage profile that incorporates salary, bonuses and stock options for managers keen on performance.
The mysterious incentives provided to managers at Cooper industries should be revised appropriately if the spin-off company, Cooper Cameron is keen on taking on a profit making path. Incentive-driven performance-oriented compensation scheme should be designed to encourage managers to make the right decisions. The previous concept of a standalone approach in setting goals should be replaced with a concerted approach. This is necessary in streamlining the entire organization towards applying home-based solutions and creative ideas.
Decentralization of knowledge is also important in strategizing the best compensation system for both companies. It is important that transferability of knowledge is enhanced in both companies through decentralization of decision making among individuals and teams (Rynes & Gerhardt, 2003). Apart from assigning duties to different individuals based on their expertise and experience, exchange of company information and innovative ideas should be enhanced through greater manager-subordinate relations. This system of empowerment allows for managers to delegate roles to individuals in order to enhance their creativity and stimulate innovation. Rewards are therefore directed to individuals who have exhibited exemplary performance in their assignments through promotions, public recognition and raises (Henderson, 2005). Knowledge should therefore be utilized properly through comprehensive studies and education forums undertaken by both managers and employees meant to adjust organizational culture and compensation systems in both companies in line with current trends.
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