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Bonuses in Bad Times作業代寫

Bonuses in Bad Times作業代寫

IllustratIon: olIvIer balez
Case Study
l
Bonuses in Bad Times
uisa Fernandez pulled into a parking
spot behind one of Superado’s stores
on the outskirts of Seville but paused
before getting out of the car. This was usu-
ally the best part of her week—visiting one
of her company’s supermarkets, talking
to the store manager, walking through the
aisles, watching employees interact with
the customers.
Bonuses in Bad Times作業代寫
She’d been doing it since she was a lit-
tle girl, tagging along with her father as he
grew his business from one small market
in central Seville into one of Spain’s largest
grocery retailers, with more than 1,000
locations across the country. He’d kept up
his site visits for 30 years, even after he’d
gotten sick. When Luisa took over as CEO,
after his death, she vowed to continue the
tradition.
Today, though, she felt uneasy. Jorge
Ramos, the manager of the store she was
about to tour, had asked her to briefly ad-
dress the staff, and she knew it would not
be the usual cheerful exchange of ideas.
Spain was on the verge of a recession,
and everyone was worried about money.
Someone was bound to ask her whether
Superado would pay bonuses this year.
And she didn’t yet have an answer.
Is the Party Over?
The previous night, Luisa had met with
Maria Alva, Superado’s vice president
for finance. Preliminary group results
for 2008 had revealed a sharp fall in both
the number of transactions per store per
day and the average value of each. The
company had enjoyed steady increases in
sales and profits for the past 15 years, but it
was now up against the harsh reality of an
economic crisis, and it was going to miss
its targets.
Maria did not mince words. “You
understand what this means, Luisa,” she
said. “We can’t pay bonuses this year. Our
policy is quite clear: Even if the employees
have met their individual performance
targets and the local stores have met theirs,
Bonuses in
Bad Times
In a recession, how should a supermarket
chain acknowledge its employees’ extra effort?
by Daniela Beyersdorfer, Vincent Dessain,
and Zeynep Ton
The Experts
Nicolas Hollanders,
executive vice president of
human resources, It, and
sustainability, Delhaize Group
Marcos Barberán,
human resources director,
Mercadona
Bonuses in Bad Times作業代寫
Hbr’s fictionalized case studies present
dilemmas faced by leaders in real compa-
nies and offer solutions from experts. this one is
based on the Hbs Case study “Mercadona” (case
no. 610-089), by zeynep ton and simon Harrow.
It is available at hbr.org.
July–August 2012 Harvard business review 153
Hbr.orG EXPERIENCE
we give bonuses only if we also meet the
company’s growth targets.” She gave Luisa
a hard look. “So you’re going to have to
make the call: No one gets a bonus this
year. Not you, not me, not the store man­
agers, not the cashiers, not anyone.”
Luisa had suspected that this was
a possibility, but she wasn’t entirely
prepared to take such a drastic step. “I
understand the position we’re in, but this
is going to come as a huge shock to our
employees. You know as well as I do that
everyone thinks of the bonuses as part of
their salary. They count on them, espe­
cially around the holidays.” Superado’s
bonuses represented one to two months’
pay for most employees, depending on
their length of service, and in a typical
year about 90% of people qualified.
Maria shrugged. “The policy is the
policy.”
Luisa took a deep breath. “I think we
need Rodrigo’s perspective on this.” She
dialed the extension of Superado’s vice
president of human resources, and he
picked up on the first ring. In less than a
minute, he had joined them.
Bonuses in Bad Times作業代寫
Rodrigo Mendoza had worked closely
with Luisa’s father, and she valued his
advice. She briefed him on the bonus issue.
He’d clearly seen it coming.
“Look, the crisis has affected everyone,
not just us,” he said. “But we can hardly
hold our employees responsible for the
poor results. In fact, it’s thanks to their ef­
forts that our numbers aren’t much worse.
Sales per employee are almost 20% higher
than at other supermarkets.”
“That may be,” Maria replied. “But it
doesn’t change the fact that we can’t pay
out bonuses of €200 million in a year
when we’ve made only €220 million. What
if the recession gets worse? Anything we
paid out now would have to be made up
next year by raising prices, which would
send our customers running to Grand­
place or other competitors. That would
mean even worse results.” Maria pointed
to the stack of financial reports she’d
dropped on Luisa’s desk. “We’re talking
about the stability of the company here. In
the long run, the employees will care more
about having a secure job than they will
about one year’s bonus.”
Bonuses in Bad Times作業代寫
She paused and softened her voice. “Of
course, we have to recognize that times
have changed, and we should lower our
performance targets for next year. We
could even revise our policy on bonuses so
that they reflect performance relative to
our peers. But I think a bonus is out of the
question for this year.”
Rodrigo didn’t respond to Maria
directly; instead he looked at Luisa. “Your
father always said, ‘You have to give to
get.’ If you don’t treat employees well, they
won’t work hard for you. We’re competi­
tive because our people go the extra mile
for customers.” He leaned in, visibly
agitated. “Will they keep doing that if you
take away their bonuses? You can’t risk it,
especially when times are this tough. Just
think about what your father would do.”
Maria looked exasperated. “No, think
about what we need to do as a company in
this economic climate,” she said.
Luisa thanked them, and then con­
sidered her options as the two filed out
of her office. Even without the bonus,
Superado offered much more than other
chains did. Employees had permanent
contracts, and most workers—85% of
them—were full­time. Shifts were stable,
benefits were generous, and salaries were
well above market levels. And all employ­
ees received management training. Would
they really give all that up for a part­time,
low­wage, no­benefits job at another
retailer just because Superado didn’t pay
bonuses this year?
She didn’t think so. Superado was
an outstanding employer, and its low
turnover rate—3.8%—reflected that. Still,
bonuses had been part of the deal for 30
years. How could she change that?
Hard at Work
Luisa was still mulling over her problem
in the parking lot when someone knocked
on her car window. It was Jorge, the store
manager.
“Glad you remembered to park in the
back,” he teased as she got out of the car.
That’s where staff and management at all
Superado stores always parked their cars.
The front was kept clear for “los jefes,” or
“the bosses,” which is how employees were
taught to refer to customers. Concern
for the jefes’ needs was also behind the
company’s unusual pricing model. While
most Spanish supermarkets varied prices
throughout the year with frequent promo­
tions, Superado kept its prices low but
steady. Luisa’s father had believed that
customers prefer predictability, and so far,
the evidence was on his side.
Jorge walked Luisa inside and began
her routine tour. They started in the ware­
house at the back of the store, where work­
ers were unloading pallets of food from
delivery trucks, and then reloading the
pallets with waste for the recycling center.
Next, they walked through the store itself,
which was laid out in six simple sections
(meats, fish, baked goods, fruits and veg­
etables, cosmetics, and a deli), each with
its own distinctive decor. In the produce
section, Jorge called over a plump, middle­
aged employee with a warm smile.
“Luisa, you remember Rosa,” he said.
“Rosa has been with us nearly 10 years,
almost since the opening of the store.
She’s the one who came up with the loose
produce idea.”
Luisa remembered it well. Superado
used to sell its fruits and vegetables
waxed and packed for presentation.
Although the produce looked nicer, some
shoppers had in recent years started
buying their fruits and vegetables from
competitors instead. In talking to her
customers, Rosa had discovered that most
of them found the packaging unnecessary.
And they resented being forced to buy
“We’re competitive because
our people go the extra
mile. Will they keep doing
Bonuses in Bad Times作業代寫
that if you take away their
bonuses?”
EXPERIENCE
154  Harvard Business Review July–August 2012
a pack of six apples, for example, when
they needed only two—especially since it
made the purchase more expensive. She’d
suggested switching to loose produce at
her store, sales had picked back up, and
every other site quickly adopted the
practice. “Rosa, tell Luisa what we were
talking about yesterday,” Jorge prompted.
Rosa beamed. “It’s like this, senora,”
she began. “We see the jefes getting more
and more worried about their budgets.
I think we can help them if we cut down
on the product range. I know it seems odd,
but when they see all the things we have,
they get overwhelmed. They have to make
hard choices about what they really need
versus what they might like to have. If
we help them avoid that pressure by of er-
ing really good deals on fewer products,
I think we’ll end up getting more business,
not less.”
“Interesting idea, Rosa, thank you,” said
Luisa. “Jorge must be thrilled to have you.”
“Yes, I certainly am,” he said. “In fact,
I’m happy to have everyone in this store.
I don’t think I’ve ever seen a team work
harder or smarter than I have in the past
few months. We’re really pulling together.”
Luisa and Jorge kept walking. “There’s
something I wanted to mention to you,” he
said, suddenly less cheerful. “Grandplace
has just moved into our neighborhood
with a small-store format. It’s trying to
poach our customers—and our employ-
ees. Rosa said a manager was talking with
people at the bus stop last week.”
Jorge regarded Luisa ruefully. “I’ve
heard the same thing from several other
store managers. They’re even of ering
signing bonuses.”
“Has anyone left yet?” she asked.
“No one from this store,” he replied.
“Everyone’s happy here. But I just wanted
to make sure you knew.”
Luisa was about to respond, but
something near the exit caught Jorge’s eye
and he quickly excused himself. Looking
over, Luisa saw four people queued up at
one of the cash registers. Always diligent,
Jorge had probably gone to open another
checkout line.
Time to Adjust?
After closing for the day, employees began
to gather for the staf meeting. Luisa
glanced through her notes.
Jorge would open with a presenta-
tion on the past year’s performance and
goals going forward. He would then ask
Luisa to take over. She planned to f rst
congratulate Jorge and his team on their
store’s being one of the best performers
in the region. But then she would have to
present the estimates on Superado’s group
performance, which would show that not
all other stores had been doing as well and
that the company would miss its annual
sales and prof t targets.
During the Q&A session, someone
would surely raise the bonus question.
Luisa knew that anything less than a frank
and straightforward answer would be
unacceptable. And once she’d given the
employees an indication, she’d have to
stick to it to remain credible. Many of the
store’s staf ers knew employees at other
Superado sites. The news would spread
quickly.
HBR.ORG
Tell us what you’d do.
Go to hbr.org.
Q
Should
Superado give
its employees a
bonus this year?
See commentaries on the next page.
Daniela Beyersdorfer is the assistant
director of Harvard Business School’s Eu-
rope Research Center, in Paris. Vincent Dessain
is the center’s executive director. Zeynep Ton
is a visiting assistant professor in the operations
management group at MIT’s Sloan School of
Management.
Looking around at the gathering crowd
chatting excitedly, Luisa felt a sudden rush
of gratitude toward the employees. It was
Bonuses in Bad Times作業代寫
their daily ef orts, year after year, that had
made her father’s company what it was
today, and for that alone they deserved a
bonus. Yet, as the f nancial tables in her
notes reminded her, the economic reality
had changed. It was her responsibility
to see to it that Superado survived and
thrived.
“...and this brain specimen was exposed to high levels of pointless meetings.”
CARTOON: TERESA BURNS PARKHURST
HBR.ORG
July–August 2012 Harvard Business Review 155
Luisa has a communication problem.
Somewhere along the way, Superado
stopped making it clear that bonuses are
tightly linked to overall growth targets,
and the notion took hold that bonuses are
a guaranteed part of salary rather than a
reward for superior work.
Clearly the company’s bonus system
needs to be overhauled. Luisa should start
by creating a structured decision-making
process for compensation issues of this im-
portance. At Delhaize Group, we typically
discuss bonus payouts first in the full ex-
ecutive committee. Recommendations are
then reviewed by the remuneration com-
mittee of the board before being submitted
to the board of directors for approval.
Also, I would advise Luisa to get rid of
Superado’s “all or nothing” bonus scheme.
The retailer could, for example, set a
target for minimum company performance
below which employees would receive no
bonus, an intermediate target at which
they’d receive half the bonus amount, and
a challenging target at which they’d get the
full bonus. I would add an additional range
for exceptional performance. Luisa and
her management team should continually
communicate to employees throughout
the year about performance against the
targets. Setting employee expectations
from the outset would certainly have made
it easier for Luisa to find a bonus solution
that signaled the downturn in company
performance and also provided an incen-
tive for the next year.
Now, to the question of whether Su-
perado should pay a full bonus, my answer
is no. Given that the company’s revenues
fell to €220 million, a bonus payout of
€200 million is far from prudent from an
economic perspective, even assuming that
Superado is still a private company.
It’s also true that paying no bonus at all
is out of the question. Superado’s employ-
ees have played a big part in making the
company successful, by working hard and
smartly. Moreover, they have become so
used to receiving bonuses that they might
see nonpayment as a breach of trust. In
the retail food business, store employees
are absolutely critical to the customer ex-
perience. It is incredible how fast customer
satisfaction can plummet if the in-store
experience with the staff is bad. I believe
that interactions with salespeople are even
more important to the customer experi-
ence than the products themselves. Luisa
also can’t ignore the fact that a competitor
is out there poaching her employees.
I understand that this is not an easy situ-
ation. My advice to Luisa is twofold. First,
Superado’s executive team and its board
must decide on a reasonable total amount
to pay out in bonuses. They should then
allocate that money in a differentiated way
across the levels.
For example, Luisa and her execu-
tive team could take no bonus, middle
managers could receive 25% of their target
bonus, and store-level employees could
receive 50% of theirs. This would send
a clear signal that Superado recognizes
the hard work and effort of its employees
but at the same time would communicate
the very real economic pressures on the
business. “We are in danger,” should be
the message, “and if we don’t work even
harder, the competition may put us out of
business.”
The Experts Respond
Nicolas Hollanders is the executive vice president
of human resources, IT, and sustainability at the
Belgian food retailer Delhaize Group.
Setting employee
expectations from the
outset would certainly
have made it easier for
Luisa to find a solution.
WHat Would You do?
SoMe ADvICe FRoM The hBR.oRG CoMMuNITy
to Give bonuses only to those who
have performed exceptionally well
would be fraught with danger. True
meritocracies take years to build
and require agreement on what
constitutes achievement and how it
is measured.
Charl Cloete, COO,
Clearance Capital
tHe CoNfliCt comes not from the
economic downturn, new competi-
tion, employee entitlement, or any
other circumstance. The conflict
is people versus policy. Policies
provide legal and ethical guardrails
for a corporation, but when they
prevent it from practicing its values,
they become roadblocks to success.
erich Roehl, Venntis, LLC
luisa sHould enlist the front-
line employees in innovation. If
she asked them to help Superado
cut costs by, say, $50 million and
promised to apply any savings to
bonuses, she’d get a committed
workforce actively engaged in mak-
ing Superado more profitable. using
bonuses to focus employees on
uncovering consumer insights and
generating ideas helps the company
in the long run.
Katie Konrath, Innovation Process
Specialist, Ideas To Go
eXPeRieNCe
156  harvard Business Review July–august 2012
In my opinion, Luisa should pay the
bonuses. Any business with an eye to the
long term must reward people’s individual
and joint efforts. As Superado has found
over the past three decades, teamwork
and commitment are crucial to build-
ing an organization that is successful in
good times and in hard times. Overcoming
obstacles together creates a sense of pride
and of belonging to a team. The bonuses
reinforce that.
I speak from experience. Superado’s
story is loosely based on the situation
Mercadona faced a few years ago. In
September and October 2008, Mercadona
saw sharp drops in sales—3% and 6%
respectively. As a result, we were going to
miss our annual growth targets and had to
decide whether or not to pay out the usual
bonuses.
In our case, the management commit-
tee decided that all Mercadona employees
who had achieved their individual targets
and had passed their evaluation interviews
would receive a bonus. Senior managers
believed that it was important to reward
and foster individual and team efforts,
especially against the backdrop of a severe
economic downturn and uncertainty about
the future. In the end, 95% of Mercadona’s
employees received bonuses—€190 million
in total.
Our reasoning was simple: We needed
the commitment of our people if we were
to negotiate the tough times ahead. We
did not feel confident that we’d be posi-
tioned to understand and adapt quickly to
changes in customers’ needs and buying
habits without that commitment. After
all, people learn new skills and fulfill goals
not because somebody tells them to but
because they want to.
The decision paid off. Since 2008
Mercadona’s productivity has risen by an
average of 4% a year. Our company policy
on bonuses and targets has remained
unchanged; indeed, despite the tough
economic conditions, Mercadona continues
to grow, and in 2011 employees received
target-related bonuses amounting to
€223 million.
The Superado team has to face a hard
decision, but it is often the case that lead-
ers must find the courage to take deci-
sions that are tough but necessary. Most
important, Luisa needs to be very clear in
how she communicates the firm’s decision
to pay bonuses in such hard times. She
should state openly the philosophy behind
it so that employees understand that there
is a strong expectation of their renewed
commitment.
It’s worth noting that Mercadona’s deci-
sion back in 2008 might well have been
different if we had been a public company.
The capital markets often punish firms that
make large bonus payments in deterio-
rating economic climates. But that’s the
advantage we have as a family-run busi-
ness. We can be much more flexible than a
public company when weighing short-term
and long-term issues.
And I am absolutely convinced that pay-
ing bonuses is the right long-term decision.
A culture that rewards the commitment
and hard work of employees will deliver
sustained growth and higher productiv-
ity. It will also nurture a richer pool of
committed talent to draw on—perhaps the
single biggest competitive advantage any
company can have.
HBR Reprint R1207R
Reprint Case only R1207X
Reprint Commentary only R1207Z
Marcos Barberán is the human
resources director of Mercadona.
A culture that rewards the commitment
and hard work of employees will deliver
sustained growth and higher productivity—
and a richer pool of talent to draw on.
hBR.ORg
SUMMER ISSUE
ON NEWSSTANDS
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Harvard Business review onpoint Managing uncertainty | Summer 2012
Managing
Uncertainty
Learning to
Live with
Complexity
Gökçe Sargut
and Rita Gunther
McGrath
Leadership in a
(Permanent) Crisis
Ronald Heifetz,
Alexander Grashow,
and Marty Linsky
Strategy Under
Uncertainty
Hugh Courtney, Jane
Kirkland, and Patrick
Viguerie onpoint
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ARTICLES INCLUDE
Strategy Under Uncertainty
Hugh Courtney, Jane Kirkland, and
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Gökçe Sargut and Rita Gunther McGrath
Leadership in a (Permanent) Crisis
Ronald Heifetz, Alexander Grashow,
and Marty Linsky
PLUS, FROM HBR.ORG
Managing Project Risk
Loren Gary
Bonuses in Bad Times作業代寫
Three Leadership Skills That Count
Morten T. Hansen
and more…
17450_HBR_OnPoint_Summer12_1third.indd 1 5/24/12 4:33 PM
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