Erich’s Roofing | Remuneration Management Program

Abstract

This document discusses the remuneration management plan at Erich’s Roofing, the eleventh largest roofing company in the world. This plan has been formulated by the company’s HR team on request from the General Manager, who is concerned over the recent increase in roofer turnovers. The roofers are critical human resources to this business and it is imperative to understand their turnovers and the ways in which remuneration can be adjusted to help retain them. The document discusses the work environment, employee motivation and remuneration-related issues in the organisation. It also provides some probable solutions to the current problem and suggests a remuneration plan as a way forward.

Introduction

Erich’s Roofing is the eleventh largest roofing company in the world, providing roofing services to several residences within Australia and beyond. The quality of its roofing has earned it worldwide acclaim in the construction sector and a loyal customer base over the years. However, the company is recently facing serious human resource management (HRM) issues due to high turnover of the roofers, the employees who install roofs. The company’s management is naturally worried as high turnovers negatively impact the company, directly taking a toll on its revenues and profitability (Markovich, 2019). Not only that, high turnovers can also lower the workplace morale and demotivate employees. This, in turn, affects the product or service quality.

There can be many reasons behind employee turnovers, but all of them can be generally summed up as “dissatisfaction” – the employee leaves when his/her satisfaction level is compromised, either due to the job or due to the company environment (Flowers & Hughes, 1973). Sometimes there can be external reasons too, like better financial opportunities in the market. The reasons notwithstanding, a company must endeavour to retain its employees who add value to its bottomline. In case of Erich’s Roofing, the roofers are critical people to the business and its profitability. Hence, the management has decided to formulate a remuneration management program with the intent to lower turnovers.

This document has been created on the General Manager’s request to address the turnover issue and will discuss the reasons and solutions for roofer turnovers at Erich’s Roofing. It will assess if a competitive base pay can help mitigate the problem or if the company needs to enhance its incentive package or both or more.

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Work Environment

Employee turnover is one of the key result areas (KRAs) measured in an organisation to understand how the company is performing. The key performance indicator (KPI) for quantifying this KRA (employee turnover) is simply by tracking the number of voluntary separations every month. The lesser the number, the better the KPI for the KRA. In case of construction companies, such as Erich’s Roofing, there is yet another KRA and corresponding KPI to consider and that is the ‘safety’ area. Construction is a high-risk sector as it exposes the workers to occupational safety hazards like falls and injuries (Choi & Carlson, 2014). According to a study by Nadhim, Hon, Xia, Stewart and Fang (2016), falls from a height and subsequent injuries are a significant public health issue worldwide and these are also one of the major reasons behind severe injuries for construction people. Recent high employee turnovers at Erich’s Roofing need to reflect on this safety KRA. The company can measure KPI against this by tracking the man hours lost every month due to injuries.

As per the US Occupational Safety and Health Administration (OSHA), residential construction is a hazardous industry due to the health risks workers face when they work at heights (US NIOSH, 1999). The roofers here also face similar work hazards every day. Falling from heights are the commonest causes of on-the-job fatalities in the residential construction industry, contributing to 64% of fatalities in the sector (US BLS). These fatalities can occur due to lack of proper awareness/training of the construction workers or due to lack of proper protective equipment like safety glasses, gloves, safety shoes, back supports, hearing protection equipment, fall protection gears, etc. (Choi & Carlson, 2014). Since construction sector emerged as the largest contributor to workplace fatalities in 2019 (PBCToday, 2020), Erich’s Roofing must probe the ‘safety’ issue behind its recent employee turnovers. 

The regulatory environment of Erich’s Roofing is also sketchy. OSHA does not regulate it well as residential construction projects are often small-scale and fast-moving; the work gets finished even before the inspectors/regulatory authorities get to know of them after all the paperwork (Clark, 2008). Therefore, safety issues get documented only after the damage is done.

There is also the problem with lack of prior training of workers. Residential construction is a non-unionised sector and thus, there is no established protocol for formal safety training or skills training; the employee is expected to learn on the job in the actual site (Clark, 2008). When inexperienced or untrained workers work in a potentially dangerous work environment, the likelihood of accidents naturally increase. Unsafe environments lower employee morale. Addressing these issues in the internal and external environment, Erich’s Roofing may be able to enhance its KPIs and KRAs.

Employee Motivation 

The obvious fallouts of low employee morale in an organisation are high employee turnovers and low productivity (Magloff, 2020). There can be both financial and non-financial reasons for lack of employee motivation. The financial motivations are directly linked to the cash rewards an employee receives (salary, superannuation, healthcare fund contributions, medical insurance cover, fringe benefits, etc), while the non-financial motivators are wellness programs, work-life balance programs, employee-assistance programs like work-related trauma management, etc.). For the roofers at Erich’s Roofing, there can be a dearth of both financial and non-financial motivators. There is no work-related trauma management program to assist workers working in high-risk construction environments. Additionally, Erich’s Roofing has a competency-based pay system, which often leads to some of the following problems:

• Prioritising soft skill competency over hard technical skills (supervisors having more recognition than roofers)
• High-performance competency chosen for non-managerial manual jobs and less pay. Lack of fair compensation system often leads to low employee morale (Shaban, Al-Zubi, Ali & Alqtish, 2017).
• Lack of clarity between ‘core’ and ‘role’ competencies
• Incorrect assessment of individual performances as competencies are not directly proportional to productivity or outcomes
• Generates a feeling of inequity among workers

These can be probable contributors to low employee morale in the organisation.

Other Remuneration Management Issues

Non-cash recognition: According to Mercer Human Resource Consulting (2004, 2014), there has been a significant rise in non-cash recognitions offered by organisations in Australia – 94% in 2014 as compared to 55% in 2002. However, only 13% rated these as highly effective. Erich’s Roofing also offers certain non-cash recognitions such as company merchandise (gifts/vouchers) and symbolic awards (thank you emails, employee of the month highlight, hamper goodies) to boost employee morale. But these do not seem to outdo the disengagement of roofers who need cash recognitions more vis-à-vis their technical skill and contribution. Cash rewards are preferred more than social rewards/recognition because the money can be translated into other desirable outcomes, to serve other needs (Peterson & Luthans, 2006).

Competency-based pay structure: The competency-based pay system at Erich’s Roofing has little room for maintaining equity among workers. The competency levels are defined as ‘learning’, ‘applying’, ‘guiding’ etc. (in sequential progression), where a roofer ‘applies’ knowledge and his supervisor ‘guides’ the application. The supervisor has a higher competency level and thus has a higher base pay than the roofer who is applying the technical skill in a high-risk job environment. Roofers doing same work also often have varying base pay at the company, because their competency levels are defined differently by the company. This generates internal inequity.

Faulty job evaluations & no equity: The job evaluations at Erich’s Roofing need reconsideration in the context of recent turnovers. Base pay should be determined for every ‘job’ based on the required skills, knowledge, mental/physical effort, responsibility, accuracy level, training, work environment, exposure to hazards, etc. Equal pay for jobs of equal value is not prevalent in the company.

Lack of contingent compensation: The problem of equity in remuneration at Erich’s Roofing is also manifested in the absence of a contingent compensation system, where an employee can receive cash benefits based on organisational performance. Most high-performance companies have contingent compensations in the form of either profit sharing, stock ownership, pay for skill or other individual/group incentives (Pfeffer, 1998). According to Pfeffer (1998), contingent compensation generates a feeling of equity and fairness among employees. It motivates the effort and increases productivity. 

Probable Resolutions

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Recommended Remuneration Plan

Remuneration management is not just about money, it also involves the right proportion of non-cash benefits that can generate internal and external motivation in employees (Patnaik & Padhi, 2012). Also, from the HRM point of view, a compensation or remuneration plan must pay people fairly, equitably and consistently with regard to the value they hold in the organisation (Hewitt, 2005). Vidal‑Salazar, Cordón‑Pozo & De La Torre‑Ruiz (2015) observed in their study that today’s fast-evolving organisations prefer more competitive and creative remuneration plans. The best plan would be one that harmonises the organisational needs along with the employees’ needs.

Considering the above and the identified issues at Erich’s Roofing, the recommended remuneration plan should have the following features:

• Base pay should be skill or performance-based. This is because blanket pay hikes irrespective of skill/performance negatively impact employee morale and leads to turnovers (Urbancová & Šnýdrová, 2017).
• Implementing points-factor job evaluation for objectively assigning value to employee contribution and his/her remuneration.
• Including contingent compensation schemes such as ‘pay for skill acquisition’.
• Right mix of non-cash and cash rewards in order to strike a balance between organisational capabilities and employee expectations. This should include introduction of wellness or counselling programs for workplace trauma management (falls, injuries, etc)
• Fringe benefits need to adapt to employee preferences and labour market demands. For this, periodic employee surveys are necessary to understand their motivation levels or lack thereof.

Conclusion

It is understood from the above discussions that Erich’s Roofing needs a systematic overhaul of its remuneration system as there are some problematic areas majorly hurting employee commitment. The recent high turnover of roofers, the critical human resources to the business, had prompted the company to take a deep dive into its HRM practices, more specifically into the remuneration management area. What surfaces from the preliminary analysis is that the risky work environment (susceptible to falls/injuries) of roofers and their skills remain mostly unrecognised in the design of their pay packages, while others who piggyback on them are well-compensated. Such issues of equity have lowered employee morale and perhaps led to turnovers. The company has identified some issues regarding its remuneration management – imbalance of cash/non-cash benefits, competency-based pay, incorrect job evaluations and lack of contingent compensation. The recommended remuneration plan addresses these issues and suggests skill-based pay, contingent compensation, points-factor job evaluation, right mix of cash/non-cash rewards and internal/external survey-based fringe benefits.

References

Cardrain, D. 2003. Cash vs. Non-Cash Rewards, 1 April, SHRM, <https://www.shrm.org/hr-today/news/hr-magazine/pages/0403cadrain.aspx>. viewed 16 October, 2020.

Choi, S. D. & Carlson, K. 2014. Occupational safety issues in residential construction surveyed in Wisconsin, United States. Industrial Health, 52(6):541-7. doi: 10.2486/indhealth.2014-0008.

Clark, S. 2008. Residential Construction Presents Many Hazards. Laborers’ Health & Safety Fund of North America, 4(12).

Flowers, V. S. & Hughes, C. L. 1973. Why Employees Stay, July 1973, Harvard Business Review, <https://hbr.org/1973/07/why-employees-stay> viewed 15 October 2020.

Hewitt, A. 2005. Managing performance with incentive pay. Journal of personnel Management, 7(1): 20-31.

Magloff, L. 2020. How Does Employee Morale Impact Turnover? Chron, <https://smallbusiness.chron.com/employee-morale-impact-turnover-11108.html>. viewed 15 October, 2020.

Markovich, M. 2019. The Negative Impacts of a High Turnover Rate, 4 February, Chron, <https://smallbusiness.chron.com/negative-impacts-high-turnover-rate-20269.html>. viewed 15 October 2020.

Mercer Human Resource Consulting. 2020. <www.mercer.com/>. viewed 16 October, 2020.

Nadhim, E. A., Hon, C., Xia, B., Stewart, I, & Fang, D. 2016. Falls from Height in the Construction Industry: A Critical Review of the Scientific Literature. International Journal of Environmental Research and Public Health, 13(7):638. doi: 10.3390/ijerph13070638.