FINAL PAPER

FINAL PAPER

HR330

12/12/2010

-MINDSHAKER COMPENSATION STRATEGY- By: A N D R E A H A N S E N

What is a Strategic Compensation Plan? It informs all of the organizations members of the direction the organization wishes to take, and entails determining the work that must be performed by a work unit or individual, the kinds and levels of knowledge and skill required, the quality of people needed to promote organizational success, and the rewards the organization can offer to its members that promote a work culture that ensures accomplishment of organization strategy (Henderson, 2006). An analysis of Mindshakers business plan will be conducted and four key compensation components to ensure the companys success will be discussed. These four components include design of a team-based pay structure, measuring and paying for performance, short-term and long-term incentives, and executive pay. The discussion will begin with an overview of Mindshaker and continue with compensation strategy in each of the four areas.

Mindshaker is an organization that provides graduate students and faculty with an efficient, comprehensive avenue to access educational materials via the Internet (Mindshaker Business Plan- Executive Summary, 1999). Their goal as a provider of educational materials is to make the process of buying books more convenient and eliminate the hassles that accompany the process. Providing these materials online ensures that the materials needed are always available and cuts out the waiting time to receive the materials. Students save time and duplication of effort and the books are conveniently shipped to their doorstep, generally within 48 hours, as a result of Mindshakers one-source service (Mindshaker Business Plan- Executive Summary, 1999). Initially, Mindshaker has established academic and business contacts at 20 top universities from whom the curricula and booklists are secured to accomplish their goal of becoming a top provider of school materials (Mindshaker Business Plan- Executive Summary, 1999). Mindshaker expects net revenues to grow from $2.2 million to $22 million from 1999-2003, the increase being a result of expansion into more schools and solidifying long-term relationships (Mindshaker Business Plan- Executive Summary, 1999). The discussion will continue with proposed compensation strategies in the area of team-based pay structure design. Mindshaker will utilize teams to create consistent bottom-line profits and to foster client loyalty to the company, rather than an individual. Because of the reliance on team performance, Mindshaker will adopt a team-based pay structure. The company will establish team-based pay as salary program, which ties a team bonus to the achievement of critical numbers (Ducoff, 2008). Individual growth is tied to overall performance; not just the employees ability to generate revenue (Ducoff, 2008). The team-based pay system will be designed to reward the right behaviors and performance; those that support the business goals and culture (Ducoff, 2008). The structure will be recognized through skill-based pay. Mindshaker utilizes six groups of employees according to job description, which established function and responsibilities for each job. These six groups include on-campus representatives, regional marketing and sales representatives, database managers, data entry clerks, relationship managers, and general administrators (Mindshaker Business Plan- Employees, 1999). Skill will be analyzed to determine base pay of employees. This skill-based plan will identify kinds and levels of skills required of an employee and the objective will be to promote knowledge and skill development of all team members so they can perform all team assignments successfully (Henderson, 2006). Mindshaker will look for the following skills in all of its employees: Information Management

Organization

Computer Skills

Exemplary Communication Skills

Problem Solving Skills(Mindshaker Business Plan- Employees, 1999).

Additional specialty skills for the jobs of Database Manager and Data Entry Clerk include:

Electronic Skills

Mechanical Skills

Graphics

CodingInitially, one data entry clerk, Relationship Manager, and General Administrator will be hired. However, actual sales volume levels are expected to exceed the appropriate workload for one employee, so more individuals for each title will be hired and Mindshaker will develop a team-based structure for these jobs. The team-based structure, must fit the financial reality of the business today and into the foreseeable future; It must be controllable, not a large fixed percentage of revenue; It must encourage and reward the right individual behaviors, and performance consistent with the vision and culture of the business; It must give clear guidelines and pathways for individual growth; It must inspire and reward teamwork, team culture, and attainment of the business overall performance and revenue goals (Ducoff, 2008). The compensation strategy of measuring and paying for performance will be the next area of discussion.

Measuring and paying for performance will be a crucial factor in determining Mindshakers work unit and organizational efficiency. Promoting organizational productivity will ensure that Mindshaker benefits fully from its employees abilities. Rewarding employees for favorable results and behaviors demonstrated will be central to Mindshakers success. The team-based pay structure will reward employees who work in a team, as individuals that work in a team can have the ability to produce greater results. In order to establish a balanced team bonus program the company will also include qualifiers for participation. Team members who do not contribute to the task assignments will not be eligible to receive the bonus. Team bonus is a key element in creating a well-balanced team-based pay program. Its that special ingredient that keeps business exciting and employees laser-focused on growth, cost control, and driving net profits (Ducoff, 2008). Central to the team-based pay structure will be the use of a collective performance evaluation method to emphasize team performance rather than individual assessments. Various aspects of performance will be considered, including outputs and the teams and work units responsible for their achievement. Measurement of performance will include emphasis of strengths and weaknesses and will be conducted in efforts to reward and expand areas of strength and improve or at least minimize areas of weakness (Henderson, 2006). In rewarding employees for exemplary performance base pay figures will increase by 5% according to performance evaluation scores, as an incentive for productivity in employees. These performance evaluations will assess the overall effectiveness of the team and their ability to achieve performance standards. Different individual components will be addressed to give an accurate representation of overall performance of the team. In designing the group incentive plan, Mindshaker will first identify performance targets and the standards of performance required to achieve the performance targets. For instance, campus representative teams will be rewarded for achieving a target number of book list acquisitions and achieving sales goals by dollar amount and by number of accounts acquired. The rewards will be allocated to each team member based on reaching their target goals. The next area of compensation discussed will be short-term and long-term incentives.Measuring and paying for performance go hand in hand with Mindsharkers short-term and long-term incentives. The primary short-term incentives that will be established include commission, contest bonuses and productivity gainsharing (Henderson, 2006). Team members will each get 1% commission on their particular schools sales and receive a bonus incentive for reaching the target number of accounts established (Mindshaker Business Plan- Employees, 1999). Mindshaker will document these standards to properly guide team members. Contest bonuses will be rewarded to on-campus representative teams and regional marketing and sales teams for achieving the best performance in terms of sales, along with commission for each team sale achieved. The amount of the bonus received will be established as a percentage of base pay, being labeled as the target award (Henderson, 2006). The main goal of Mindshakers short-term incentives is to increase teamwork and productivity in teams. Individual incentives will be established in order to motivate all employees to put forth their best efforts. All employees, in addition to on-campus representatives and sales and marketing representatives, will be included in the productivity gainsharing short-term incentive opportunity, including database managers, data entry clerks, relationship managers, and general administrators. This will allow these other jobs to be part of the incentive process, as they are left out of contest bonuses and commission opportunities. Productivity gainsharing will allow employees to share the bottom-line improvements obtained through increased productivity (Henderson, 2006). This plan will relate business objectives to the standards indentified as improvement targets (Henderson, 2006). The purpose will be to encourage employee involvement and commitment to improving the performance of the organization (Henderson, 2006). The Scanlon Plan will be the type of gainsharing plan established, as its central focus is to reward employees based on their constructive efforts that increase Mindshakers profitability.The long-term target recipients are to be rewarded through a cash-balance plan for performance that isnt precisely correlated with stock performance because the company is private; the shareholders havent approved a plan to go public. Also, shareholder dilution is a concern, making cash-balance incentives all the more appealing to enforce (Coleman & Fortier, 2002). The cash-balance plan is qualified and federally insured, providing a hypothetical account for each employee (Henderson, 2006). The cash-balance long-term incentive plan will require Mindshaker to contribute a certain amount each year for each employee based on employee earnings (Henderson, 2006). Employee retention is critical for Mindshaker. For this reason, long-term incentives will be designed to foster employee loyalty and satisfaction. The discussion will continue with executive compensation.Executive compensation will strive for the following goals: Substantial equity ownership by CEOs; Structuring of cash compensation to provide big rewards for outstanding performance and meaningful penalties for poor performance; Increased threat of dismissal for poor performance (Jensen, 2010). Short-term and long-term performance bonuses and will be the main components of executive compensation. Short-term bonuses will be awarded at 50% of base pay as a result of having a good year, in terms of company profits. Long-term performance bonuses will be awarded 2 years into the future, as the size of the award will be based on multiyear achievement of established performance-related goals (Henderson, 2006). The standards of performance will relate to the profitability of Mindshaker. Target standards will be established related to the ratio of increased accounts to increased profit margin. The four partners of the corporation will have equal equity stakes, consisting of 50,000 shares per executive (Mindshaker Business Plan- Management and Board of Directors, 1999). Mindshaker will be particularly interested in the role of equity ownership in the overall context of the compensation plan. The policy should address the expected value of the alignment from equity ownership and how the role of equity may evolve over time (CalStrs Company Compensation Strategy, 2009). Issues will be addressed, providing the rationale for projected run rates and how the company will evaluate the effectiveness of the plan over time (CalStrs Company Compensation Strategy, 2009).In conclusion, Mindshakers strategic compensation plan will address the areas of team-based pay, measuring and paying for performance, short-term and long-term incentives, and executive pay, among other components of compensation. The main goal of Mindshaker is to increase productivity through these avenues. Mindshaker values teamwork and expects full commitment from employees in achieving results and performing above at the standard or exceeding the standard. Mindshaker believes that in order to be successful employees need to work together and build strong relationships with each other. With the use of teams and incentives, Mindshaker foresees company success. ReferencesColeman, W. & Fortier, K. (2002). Understanding and Using Long-Term Incentives. Retrieved on

December 10, 2010 from:http://www.salary.com/docs/resources/salarycom_wp_incentives.pdfCover Image-

http://www.inc.com/uploaded_files/image/featuer-91-compensation1-pop_122.jpgDucoff, N. (July 2008). White Paper- Team-Based Pay. Retrieved on December 4, 2010 from:http://www.strategies.com/uploads/1216408527.pdfHenderson, R. (2006). Compensation Management in a Knowledge-Based World (10th ed.). Upper Saddle

River, NJ: Pearson Education, Inc.How will you spend your future? (April 2009). CalStrs Company Compensation Strategy. Retrieved on December 12, 2010 from: http://www.calstrs.com/investments/ExecutiveCompensationGuidelines.pdfJensen, Michael C., and Kevin J. Murphy. "CEO Incentives-It's Not How Much You Pay, But How." Journal of Applied Corporate Finance 22.1 (2010): 64+. Academic OneFile. Web. 10 Dec. 2010.http://find.galegroup.com.proxy.msbcollege.edu/gtx/infomark.do?&contentSet=IAC-Documents&type=retrieve&tabID=T002&prodId=AONE&docId=A222452384&source=gale&srcprod=AONE&userGroupName=mnapcl&version=1.0Mindshaker Business Plan. Center for Business Planning. Retrieved on December 10, 2010 from:

http://www.businessplans.org/Mind/Mind00.html

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