Performance

Pay for Performance Park University Overview Incentive pay, also known as “pay for performance” is generally given for specific performance results rather than simply for time worked. While incentives are not the answer to all personnel challenges, they can do much to increase worker performance. (Billikopf) Performance pay has various names: merit pay, pay for performance, knowledge-and-skill- based pay, or individual or group incentive pay. Delisio) Pay for performance systems have further been proven to have two advantages for organizations: attracting more high-quality employees and motivating employees to exert more effort at their jobs. (Gordon, Kaswin) This paper will show the positive benefits of performance pay as well as some steps to implement the pay for performance program. Productivity Implications Companies that have switched from salaries to individual incentives have increased productivity dramatically—some by as much as 44 percent.

Linking pay to performance not only motivates but also helps to recruit and retain the most talented employees. New graduates seek to join organizations that make use of performance-related rewards, and they have long-term loyalty to these organizations. The use of performance pay has also grown in popularity, as 67 percent of companies offer some form of performance pay to employees below the executive level. Likewise, the practice of compensating managers below the senior executive level with stock options and other forms of long-term incentives has risen dramatically.

This is because performance-sensitive pay aligns the interest of all levels of employees with the interests of shareholders. (Gordon, Kaswin) Implementing a pay for performance system has been shown to resolve organizational problems because it aligns the preferences of firms and employees. In addition, creating a pay for performance system serves as a sorting mechanism to identify and attract the most capable employees. Gordon, Kaswin) The economic downturn has accentuated the need to contain compensation costs by holding down fixed-based salary expenses. To maintain competitive pay plans, an increasing number of companies are giving more employees across different job functions the opportunity to earn variable, performance-driven incentives for achieving individual and organizational goals. (Gordon, Kaswin) Pay for Performance Objectives Developing a pay for performance philosophy and strategy is easier when we understand what such an approach is intended to achieve.

If effectively constructed, pay for performance compensation plans should help a company fulfill the following objectives: * Recruit and retain the highest quality employees * Communicate and reinforce the values, goals and objectives of the company * Engage employees in the organization’s success * Reward contributors for successful achievements (The VisionLink Advisory Group) Line of Sight Ultimately, the combination of rewards strategies that a company institutes should help to raw a correlation in the mind of the employees between interdependent elements: * Vision – where is this company going? * Strategy – how is it going to get there? * Roles and Expectations – what role does each key person have in that strategy and what is expected of him or her in that role? * Rewards – how will each employee be financially rewarded for the achievement of the expectations associated with his or her role   Pay for performance is the mechanism that is used to create this “line of sight” between related elements of company culture and purpose.

In the final analysis, compensation needs to reinforce the behaviors that are desired within the strategy framework of the company in a way that is compelling enough to produce the desired performance. (The VisionLink Advisory Group) In adopting a rewards philosophy for how people will be remunerated for their contributions within an organization, a company has to determine what the right balance should be between short and long-term compensation and guaranteed versus performance compensation.

Pivotal in that philosophy development is how and to what extent pay will be tied to specific types of performance. This issue will not be treated the same in every organization. However, every business should be able to identify certain performance objectives it wants its workforce to fulfill and the financial outcome that will be achieved if that result is attained. Such a projection can be translated into an increased shareholder value figure. (The VisionLink Advisory Group)

Features of Effective Plans Top Management Support Supervisors must understand the incentive pay process in order to support and administer it. Oftentimes, a lack of understanding causes managers to ignore or adapt the process as they see fit. Moreover, if supervisors are not trained on how to measure performance, the process will not be standardized across the company. (Gordon, Kaswin) Having buy-in from key stakeholders is crucial for the success of an incentive pay system.

For example, if top management does not support such a program, lower-level managers will place little importance on effectively administering the program. Hence, a lack of top management support often leads to a lack of accountability. (Gordon, Kaswin) Communication Consistent and methodical communication is necessary when implementing an incentive pay plan. It will ensure employees understand what is expected of them while decreasing the likelihood of morale problems that result from misinterpretations of how incentives are awarded. Gordon, Kaswin) Performance Management Oftentimes, a flawed performance management system is the main reason an incentive pay system in not successful. When designing a performance management process that will be linked with pay, it is imperative that both employees and managers know what the individual goals are, how they will be measured, and how they will be compensated when achieved. Managers must also be careful to ensure that there is adequate differentiation between high and low performers. If mediocre employees are given an average merit increase, hey will perceive that their performance is adequate. Conversely, if excellent performers only receive a little more in incentive pay than average performers, they will perceive that the company does not value their performance. (Gordon, Kaswin) Appropriate Rewards The amount of incentive a company should offer to an individual depends on current income, amount of effort needed to invest, likelihood of obtaining the reward, acceptance of risk, equity of reward and contribution, and industry standards.

A minimum for incentive pay is considered to be 5 to 15 percent of an individual’s base pay. (Gordon, Kaswin) Considerations before Implementing a Plan The best compensation plans take into account several key considerations. Before instituting a pay for performance system, companies should define which employees should be eligible for the program. Furthermore, it is important for companies to determine the role of equity in a total rewards framework from the perspectives of the employee and employer, as well as in terms of cost.

Steps should be taken to (1) review the current objectives and purpose of the equity plan; (2) identify alternative rewards; (3) develop a communication plan for how the effectiveness of the program will be measured; (4) gather employees’ perspectives via surveys, focus groups, or internal research; (5) gather external market information; (6) determine the costs; (7) develop recommendations for design change; and (8) create the communication plan. The communication strategy for the program should encompass the value employees place on various rewards and how the changes will be perceived by employees.

It should then monitor and manage employees’ reactions to the changes in their compensation structure. (Gordon, Kaswin) Objectives of a Broad-Based Incentive Plan When creating an incentive plan, the organization has to determine and clearly define the goals for the program. The objectives should be aligned with the business strategy. These goals should be utilized to shape the incentive plan as well as the expectations and objectives of individual employees. A main reason why incentive plans fail is because they are introduced as an inflexible process.

The incentive plan should be first implemented on a small group of employees in order to determine the flaws and rectify them before implementing them across the enterprise. Once the plan is implemented, it should be regularly adapted. (Gordon, Kaswin) If companies want a pay for performance system, the firm should define the desired performance and establish methods of measuring it first. Then, connect goals for individuals, for business units, and for the company. Meanwhile, track everyone’s progress and periodically give back the data to raise everyone’s awareness of the program.

Sixty-two percent of compensation professionals report that their organizations did not attempt to measure the return on investment of their compensation program. (Gordon, Kaswin) Conclusion Research indicates that broad-based incentive plans can be utilized as a means to encourage both employee performance and productivity. When implementing an incentive plan, several considerations are needed to ensure the plan is successful. However, it is important to note that incentive plans cannot ensure employee productivity by themselves. They must be coupled with effective human resources practices in order to ensure a successful work environment.

These include determining the appropriate rewards, instituting comprehensive performance management systems, widespread and effective communication, as well as buy-in from top management to support the compensation plan. Over the past decade and increasingly in the past year, performance pay has become the standard as companies reward strong performance and lower overhead costs. This trend is expected to continue in the coming years. (Gordon, Kaswin) Like most things in business, compensation is something that requires evaluation, study, assessment, strategy, modeling and integration.

Achieving a pay for performance culture does not happen without paying attention to the behaviors, activities, rewards and motivations that have to be linked and reinforced through a well-engineered and effectively executed process. And if that process does not tie rewards to shareholder financial objectives, employ the proper mix of compensation elements, result in meaningful dollars, embrace performance that employees can impact and are effectively communicated and reinforced, then the results it produces will likely fall short. (The VisionLink Advisory Group) Pay for performance systems need ngoing attention to keep them functioning properly. Organizational goals will change; performance goals and measures will become obsolete; performance may improve or decline; managers may make errors in evaluating performance or allocating rewards. For all these reasons and more, agencies need to monitor the operation and effectiveness of their pay for performance systems and modify them accordingly. Only by giving the pay systems and related organizational requirements the ongoing attention that they warrant will agencies be able to obtain optimal results from their pay for performance systems. U. S. Merit Systems Protection Board) Works Cited Billikopf, Gregoria. (2001) Incentive Pay (Pay for Performance). The Regents of the University of California, retrieved from http://www. cnr. berkeley. edu/ucce50/ag-labor/7labor/08. htm The VisionLink Advisory Group, The Five Essentials of Pay for Performance, retrieved from http://www. vladvisors. com/images/PDF/VisionLink_Five-Essentials-Pay-For-Performance. pdf Gordon, A. A. , Kaswin, J. L. , Effective Employee Incentive Plans: Features and Implementation Processes, Cornell HR Review, 2010, retrieved from http://cornellhrreview. rg/2010/05/31/effective-employee-incentive-plans-features-and-implementation-processes/ U. S. Merit Systems Protection Board, (2006) Designing an Effective Pay for Performance Compensation System. Retrieved from http://www. mspb. gov/netsearch/viewdocs. aspx? docnumber=224104;version=224323;application=ACROBAT Delisio, E. R. , Pay for Performance: What Are the Issues? , retrieved from http://www. educationworld. com/a_issues/issues/issues374a. shtml

Abstract Today’s leaders face many challenges in the creation of a high-performing team. Effective leaders are able to assemble a high-performance team with good hierarchical balance, measurable and attainable goals, and appropriate communication expectations across the team. They promptly address conflict resolutions and break down all physical barriers in managing multi-city offices and dispersed employees. By paying close attention to team demographics and diversity, good leaders will establish a solid group foundation which will result in a high-performance team.

Groups and High-Performance Teams There are many factors that affect a team’s behavior and overall performance. Group demographics and diversity can ultimately play a key role in the success or failure of any team. This paper will identify some of the challenges that today’s leaders face in turning a group into a high-performance team, and the impact of demographic characteristics and cultural diversity on group behavior. Groups vs. Teams As defined by Schermerhorn (2005), “A group is a collection of two or more people who work with one another regularly to achieve common goals.

An effective group is one that achieves high levels of task performance, member satisfaction, and team viability. ” Teams on the other hand, are usually time-limited groups that get together to achieve a common purpose. “An essential criterion of a true team is that the members feel ‘collectively accountable’ for what they accomplish. ” (Schermerhorn, 2005). The manager or team leader must remember the importance of the team members’ ability to associate themselves with a group identity and begin to form an attachment to their teammates. The fact is that it takes a lot more work to build a well-functioning team than simply assigning members to the same group and then expecting them to do a great job. ” (Shcermerhorn, 2005). Team Identity Setting a team’s identity is one of the first steps a manager must take in forming a high-performing team. As we often witness in the sports world, a team’s identity can help to rally team members and build camaraderie amongst its members. The same approach holds true in a business setting. Computer Weekly (2004) reports, “The project start process can also be used to build team identity and build psychological attachment between members. (p. 24). This psychological attachment will serve as the foundation upon which the team is built and will affect the team’s overall performance. According to Turk (2005), “As the project manager you need to build a staff that can get the job done. You need the right mix of expertise, creativity, flexibility, enthusiasm, and experience. ” ( p. 30). These key attributes will work to motivate other team members and assist the manager in establishing the appropriate balance to the team. Team Diversity When forming effective teams, managers must consider team synergy an important goal, and diversity plays a major role.

Managers should strive to create the appropriate balance between workers and their personality types. As Martinette (2005) points out, “Work groups and teams that have too many people of one type or another soon find themselves out of balance. ” (p. 117). “For good problem solving and decision making, you need a diversity of personality types. ” (Hill, 2005, p. 37). Striking the proper team balance is important and balance does not mean people with a background and disposition just like the boss. Many types of diversity are to be expected on any team, and can be the source of many differences of opinion.

Age, gender, ethnicity, and personality differences can affect the team’s cohesiveness, or non-cohesiveness as may be. Obviously, with a diverse group the possibilities of conflict increase, but so do the possibilities of a greater outcome. Hill (2005) gives us an example, “Meetings are more raucous and consensus is harder to achieve. But these arguments often spark new ideas. As a result, the company is constantly spawning and sculpting new innovations in a way the old team never did. ” (p. 38). Differences in world view can create dynamic conversations and results, if the team can learn how to effectively deal with conflict.

According to D Andrea-O Brien and Buono (1996), “True team learning is the ability of members to… build on their knowledge so that their collective knowledge enables them to continually improve team… performance as well as to discover, develop and implement completely new ways of doing business (p. 1). Demographics Managing remote employees is a growing challenge for many of today’s leaders. It is not just about managing employees at satellite offices; it is also managing telecommuters who work a certain number of days from their home offices.

A manager needs to understand the complexities of managing a virtual team and communicating across the boundaries of time zones, organizations and cultures. Good communication practices as well as building personal relationships are both key to working with remote employees. As Pauleen (2003) states, “Effective communications is a key to successful virtual teams, and one of the keys to effective communications is how well team members are able to build and maintain their personal relationships. ” (p. 229).

Video conferencing works well and provides a company’s employees with a visual link that serves to backfill for the lack of face-to-face communications that employees would have if they were collocated. Trust and Motivation An important goal for managers, in addressing and monitoring a team’s behavior, is to develop the trust of his or her team members. Employees that trust one another will often be motivated to go the extra mile in meeting and exceeding team objectives. Team motivation is extremely important because it makes the team more effective.

Stephen Covey (1989) states: “Unclear expectations in the area of goals also undermine communication and trust. ” (p. 194). If goals seem unachievable, it could affect the teams buy-in to the whole process. Giving, receiving and being responsive to feedback should be a fundamental part of the team process. Conflict According to DeJanasz, Dewd and Schneider (2001), “Conflict is any situation in which there are incompatible goals, cognitions, or emotions within or between individuals or groups that lead to opposition or antagonistic interaction. ” (p. 243).

Conflict among team members is inevitable and desirable, because “conflict in itself is not the problem. It is, rather, our reactions to it that determine the impact, and causes us to characterize it as a negative experience. ” (Porter, 2005, p. 1). It should be anticipated that the team will disagree, and therefore, conflict should be considered a part of the process. “In fact, if we define conflicts as simply differences of opinion, this is exactly what we want to happen. In bringing together a diverse group of experts, we expect and want these differences to surface because, in the end, we expect a better outcome or result. (The Team, p. 171). If everyone agreed, there would be no reason to team up to resolve a situation, or to come up with new ideas. Teams are developed for a specific purpose, and diverse opinions, ideas, and perspectives will make the team most effective. Conclusion Team diversity and demographics play a key role in determining the success or failure of any team. An appropriate understanding and acceptance of a diverse group will benefit the organization through innovative and diverse ideas. “Of course, that doesn’t mean you should go out of your way to hire people you don’t like.

While a certain measure of conflict is healthy, too much conflict can be destructive. ” (Hill, 2005, p. 39). Paying close attention to team identity, trust, diversity, motivation and conflict resolution will go a long way in paving the road for a successful team outcome. Employees will appreciate that their leadership cares about these issues and will reward the team with their best efforts in meeting goals, which results in a high-performance team. References Computer Weekly. (2004, June). Plan your web project milestones. Computer Weekly. 4-54. Retrieved October 8, 2005 from Business Source Premier database. Covey, Stephen R. (1989). The Seven Habits of Highly Effective People: Powerful Lessons in Personal Change. New York: Fireside. D Andrea-O Brien, Charlene & Buono, Anthony F. (1999, Summer). Building effective learning teams: Lessons from the field. S. A. M. Advanced Management Journal, 61(3), 1-6. Retrieved September 23, 2005, from ProQuest database. DeJanasz, Dewd & Schneider. (2001). Conflict: Sources and solutions. Interpersonal Skills in Organizations. University of Phoenix Custom Edition e-text]. McGraw-Hill Companies. Retrieved October 3, 2005, from University of Phoenix, rEsource, GEN 300 – Skill for Professional Development Course Web site: https://ecampus. phoenix. edu/secure/resource/resource. asp. Hill, Dee. (2005, November). Dealing with diversity. Inc. , 27(11), 37-40. Retrieved January 13, 2006, from Academic Search Premier Database. Martinette, Jr. ,C. V. (2005, April). Leadership and Balance. Fire Engineering, 158, 117-126. Retrieved October 8, 2005 from Academic Search Premier database.

Pauleen, David J. (2003, Winter). An Inductively Derived Model of Leader-Initiated Relationship Building with Virtual Team Members. Journal of Management Information Systems, 20, 227-256. Retrieved October 7, 2005 from Business Source Premier database. Porter, Sheila, J. D. Managing Conflict in Learning Teams. [University of Phoenix Custom Edition e-text]. Retrieved September 28, 2005, from University of Phoenix, rEsource, GEN 300 – Skills for Professional Development Course Web site: https://ecampus. phoenix. edu/secure/resource/resource. asp.

Schermerhorn, Jr. J. R. , Hunt, J. G. , and Osborn, R. N. (2005). Organizational Behavior (9th ed. ) Wiley. Hoboken, NJ. The Team Working Together. Chapter 12. [University of Phoenix Custom Edition e-text]. Retrieved September 26, 2005, from University of Phoenix, rEsource, GEN 300 – Skills for Professional Development Course Web site: https://ecampus. phoenix. edu/secure/resource/resource. asp. Turk, Wayne. (2005, May/June). Quality Management – A Primer. Defense & AT-L, 34, 30-33. Retrieved October 7, 2005 from Business Source Premier database.

Motivation, Satisfaction and Performance Plan LDR 531 Table of Contents The Team1 Motivation, Satisfaction, and Performance1 Motivation1 Satisfaction2 Performance2 The Plan2 References4 The Team The team is composed of four team members and one team manager; Mike, James, Mary, Katy and Barb. The team does a good job staying motivated and satisfied, and also performs well. However, there are moments the team struggles due to differences in attitudes, emotions, and values. The team manager strives to implement ways to keep the team where it should be.

The plan will address the ways to keep the team motivated, satisfied and preforming well. Motivation, Satisfaction, and Performance The team currently has one thing that motivates them, satisfies them, and keeps them performing well, bonuses. The team works on different projects throughout the year. Meeting the deadlines on these projects keeps the team performing well which in turn earns them a bigger bonus check which motivates and satisfies them. However, there have been several instances where the team has not met a deadline and it has caused them their bonus for the project.

This then causes issues between the team members and keeps them from performing well, being satisfied, and being motivated. Motivation In order to increase team motivation, the manager has come up with two suggestions; get connected and show the team appreciation. The best way to get connected with your team is to build relationships with them. It is very important to let your team know you have their best interest in mind. By doing so, you also build trust. Very rarely do employees do more than just the minimum when they do not feel like you will do more for them. The key here is to establish a professional relationship, not a friendship.

By establishing these relationships and getting connected with your team, you will increase their motivation. (Kearns, 2010) Showing the team appreciation is also something that will increase the motivation within a team. Doing simple gestures like bringing in donuts or bagels (something your team enjoys), shows you are thinking of them and appreciate their hard work. It is important that when deciding to do this, it is not overdone. Team members can start to expect such a gesture and you don’t want that happening. Satisfaction The team has expressed major dissatisfaction when it comes to working long days for several weeks at a time.

In order to overcome this dissatisfaction, the team manager has proposed the team take turns in deciding a schedule for the week. There are several rules that need to be taken into account, like hours of operation. By implementing this type of plan, the employees will be allowed to work out schedules that satisfy all of them and they get a sense of more than just work back. (Improve Your Employees’ Job Satisfaction, 2004) Performance The most important thing to increase performance is to give regular performance reviews. This ensures that the team members and the team manager are all on the same page.

While in a team, it’s important to discuss team reviews as well. As a manager, it is important to do this so that the team as a whole knows how they are doing. It allows for corrections and for the team to know how well they are doing. Strengths are a great focus point, however it is also important to address the weaknesses so they can be corrected. (McCormick, 2012) The Plan The following is a detail of what the plan is for motivation, satisfaction, and performance. Months 1-3 * Inform team members of the plan * 1st individual and team performance reviews * Set expectations Start developing a professional relationship * Set expectations * Team manager only: Treat the team (bagels, donuts, etc. ) * Set schedule * Discuss rules for schedules during long projects * Set expectations Months 4-6 * 2nd individual and performance reviews * Evaluate schedule setting for long projects * Evaluate professional relationships Months 7-12 * 3rd and 4th individual and performance reviews * Schedule setting for long projects * Continue building professional relationships At the end of the year, there will be a yearly evaluation taking into account all the evaluations for the year.

It is a good way to show your team how far they’ve come. At this time, any changes that the team believes should be made can be addressed. References Improve Your Employees’ Job Satisfaction. (2004, March 22). Retrieved from Entrepreneur: http://www. entrepreneur. com/article/70060# Kearns, K. (2010). Top 7 Tips for Motivating Your Team. Retrieved from Top 7 Business: http://top7business. com/? Top-7-Tips-for-Motivating-Your-Team&id=567 McCormick, M. (2012). Chron. Retrieved from How to Increase Employee Performance in the Workplace: http://smallbusiness. chron. com/increase-employee-performance-workplace-1950. html

Introduction International entry mode choice is considered a critical strategic decision. In an attempt to understand this choice, scholars have primarily focused on transaction cost theory Previous literature have failed to examine how the transactional cost model applies to smaller entrepreneurial firms. ” Small and medium-sized enterprises (SMEs) are not smaller versions of larger companies, but mainly due to their size they tend to interact differently with their environment.

The Authors could identify no studies of SME entry mode choice that have examined the three main causes of transaction costs: asset specificity, behavioral uncertainties, and environmental uncertainties. By examining the entry mode behavior of SMEs, they can determine whether they follow similar patterns as their larger counterparts and whether the strategic decision processes that influence success for larger companies have validity in smaller firms.

In this article they hope to make two important contributions to the SME international literature. First, by examining the applicability of transaction cost theory to SME inter- national entry mode choice, we hope to extend the generalizability of transaction cost theory for entry mode choice to this large and growing sector of the global economy Transactional costs and mode choices Transaction cost (TC) theory has been widely used in entry mode research to explain why large companies utilize different modes in expanding abroad.

The existing literature suggests that companies adopt a certain organizational structure—markets (non-equity modes) versus hierarchies (equity modes)—when expanding abroad based on how efficient one structure is compared with the alternative structure. Transaction cost theory suggests that asset specificity, behavioral uncertainties, and environmental uncertainties create two main costs: market transaction costs and control costs Asset specificity Asset specificity refers to the physical and human resources, which may lose value in another use, that a company employs to complete a specific task.

A firm that possesses unique technology and know-how has to take extra precautions (and incur additional costs) in order to protect its differentiated assets from falling into the hands of competitors. When asset specificity is low, firms will incur few costs in protecting their know-how from competitors. Low asset-specific investments involve the use of generally available knowledge; hence, firms are not concerned about protecting this knowledge from competitors, since competitors already have access to the knowledge.

When asset specificity is low, firms tend to use market-based non-equity modes of entry. When asset specificity is high, firms are more concerned with protecting proprietary knowledge or technology from competitors. Hypothesis1: SMEs will tend to prefer non-equity modes of entry when assets specificity is low, but tend to prefer equity modes of entry when asset specificity is high. Behaviour uncertanty Transaction cost theory suggests firms face two types of uncertainty: behavioral and environmental.

Behavioral uncertainties arise from the inability of a company to predict the behavior of individuals in a foreign country. According to transaction cost theory, behavioral uncertainty may lead to opportunistic behavior involving cheating, distortion of information, shirking of responsibility, and other forms of dishonest behavior. Internationalization theory suggests that firms develop skills at controlling international operations through experience.

Through learning, firms develop expertise in managing foreign operations (either independent operations like license agreements or more complex operations like wholly owned subsidiaries). Firms lacking international control-related experience tend to prefer non-equity modes of entry, as a means of controlling the behavior-related uncertainties of foreign expansion. High behavioral uncertainties may discourage SMEs from organizing foreign operations in a hierarchical form Hypothesis 2: SMEs

Performance objectives of Wegmans Today I decided to do my presentation about Wegmans main performance objectives, first of all I will describe what exactly Wegmans Company is and what are 5 objectives of operations. Wegmans Food Markets, Inc. is a privately-held, family owned company that was founded in 1916 by the Wegman family. Based in Rochester, NY, they have raised the bar on the customer shopping experience. The company prides itself on offering exceptional customer service, high quality goods, an abundance of choice, restaurant-quality prepared foods, and beautiful stores and displays.

Wegmans has appeared on Fortune’s annual “100 Best Companies to Work For” list since its inception in 1998, and has ranked among the top 10 for eight consecutive years. And about performance objectives I can say that it is a generic set of performance and indicators that can be used to set the objectives or judge the performance of any type of operation. There are 5 main performance objectives: Quality – “Doing things right”. Quality is very important aspect for customer satisfaction or dissatisfaction, it’s all about providing error free goods and services.

Speed – “Doing things fast” to minimize the time between the order and the availability of the product or service that gives the customer a speed advantage. Dependability –“”, means that customers will get their goods and services when they are promised. Flexibility – “Changing what they do”. It’s about that organizations can change their products and services and change the way they do business. Cost – “Doing things cheaply”. Low price is a universal attractive objective to customers, which can be achieved by producing goods at lower costs.

Let’s begin discussion about Wegmans performance objectives. Quality as I already said is most important from these five and of course it’s important for this company as well. The most important thing employers are doing is prevent problems from occurring in the first place by carefully partnering with suppliers who understand their expectations. Be it a grower, a Wegmans brand manufacturer or a seafood supplier, company makes it its business to know suppliers well, visiting their fields or facilities whenever possible.

If a supplier is making a product for Wegmans lebel, they must either be inspected by Wegmans’ own Quality Assurance Auditors or must be certified against one of seven “Global Food Safety Initiative (GFSI)” endorsed manufacturing standards. The first shipment of any new Wegmans brand product is scrutinized by company’s Quality Assurance staff to be sure it meets product specifications and food safety requirements. Tests are conducted in Wegmans Test Kitchen lab, or if necessary, by independent laboratories. Additional sampling and testing is done periodically, sometimes prompted by customer or employee comments.

Company also pays attention on friendly environment. Each store manager sets the tone for the warm, friendly work environment that employees expect when they work for Wegmans. And in turn, employees greet their customers with warm, friendly, helpful attitudes, which is crucial for any business whose employees regularly interact with customers. So as we can see Company cares much about safety and high quality of products, because the owners of the business know well that high quality can influence customer satisfaction and lead to stable and efficient processes.

For Wegmans Company it is very important to produce services and goods as fast as possible, and for this they are doing their best. As we know for fast production it’s important to have very good, qualified employees and good, modern technologies. So Wegmans company cares much about staff which works there, Wegmans’ Chairman Robert Wegman state that: “Respect, fairness, honesty, and concern are what’s important to people. To my way of thinking, the only way to achieve great customer service is by treating employees right.

They have qualified employees in technic and production departments and also they have different training programs for providing better performance of the staff. Wegmans puts a huge emphasis on being an innovator in retail technology. In 1974, Wegmans was one of the first companies to introduce bar-code scanning, and in 1990 Wegmans introduced electronic discounts. The company launched its web site, wegmans. com in 1996. The site not only helps customers save time and money through its on-line ad, but also offers meal solutions, recipes, and even provides the ability to apply for jobs within the company.

According to all these company is providing fast production and this is a huge way for the company success. Dependability is extremely important factor for customer trust and satisfaction, as i checked Wegman’s has strong position in it too. Customers are much satisfied how fast the company delivers its products, they love to go for shopping in Wegmans, some of them even said that: “A trip to Wegman’s is better than a trip to an amusement park”. All these is caused because firm provides additional ervices such as internet shops, which means that you can check out Wegmans products and services online, and even buy there, so save time by this, they also have recipes how to cook many different type and delicious food, they even provide these service by internet, if you go on their online page you can see many videos, about how to cook different foods, so as one Wegmaniac put it, “Shopping at Wegman’s is an experience. ” In addition to a unique shopping experience, including one-third of the space devoted to prepared foods, with another 15,000 sq. ft. or a liquor department, a 300-seat cafe, 70,000 products and some 30 checkout lanes, Wegmans brought relocated 75 Rochester employees to Massachusetts to ensure customers are treated the way Wegmans wants them to be treated. As an addition i would like to say that company managers said that for them it’s very important to know their consumer base and understand the demand. There’s so much diversity in Wegman’s markets these days, they need to know who their customers are and give them what they want. They said they have to give them not only what they are familiar with, but also explore other products that might not be a mainstream item.

And in their case, that’s unique vegetables and fruits. Flexibility helps the firm to change over between tasks quickly and without wasting time and capacity. Wegmans provide good flexibility, as the firm is changing over time, they are doing researches and are changing by customer needs, they can change techniques, operations, they are producing new products, are offering many different services. For example last year they did a research and find out that they can be successful in growing certain varieties of organic produce in the northeast.

CEO of the firm also said that last year they explored new techniques called a hoop house. It’s a metal frame with a plastic cover, and there they grow heirloom tomatoes and it was very successful. Every month they are offering new food products and for special celebration days they have special recipes, for example for thanksgiving day they offer which Turkey to choose, how to cook it, with what ingredients and so on, all these staff is very likable for customers and that’s a another factor why it is so popular.

And the final objective cost is described For Wegmans as follows, they are trying in all ways to keep medium costs and at this time keep all the customers as well. They are doing this very well, because they have many tools for this, for example at a time when commodity and fuel costs are rising dramatically, Wegmans Food Markets announced that it will not increase prices on 40 products that families buy most, to help customers and employees manage their grocery costs. “We considered the importance of an item to a family when choosing our list of 40,” said President Colleen Wegman. Such things as bananas, pasta, frozen vegetables, and laundry detergent are in most shopping carts every week. They are products that families can’t do without, so what they pay for these items really matters. ” The 40 products they selected to hold prices on were those that families buy week in and out. They were mostly Wegmans brand. Why? They have better access to information on the factors that determine costs for their own brand. Their quality makes them already the best value in their categories, and they’re often the top-selling brand.

Another good example of cost leadrship of Wegmans is that, In November of 2008, many families were feeling the economic shock of their lives as the nation’s financial system teetered, jobs melted away, and household budgets shrank. Wegmans announced a decision to lower hundreds of prices on frequently purchased products. If customers and employees were facing leaner times, the company reasoned, Wegmans should also live with leaner times. So by performance objectives described above we can see that Wegmans is successful company and is doing best for its customers.

MANAGING COSTS

Standard-cost systems are used to help managers control the cost of operations. The system has three components: standard costs (i. e. , predetermined costs), actual costs, and the difference between the two figures (termed a variance).

A standard cost for each product cost category (materials, labor, and overhead) is calculated on a per-unit basis.  This calculation considers the planned quantity of each input factor allowed (pounds, hours, etc. and the planned price for each input factor (price per pound, rate per hour, etc. ). The total planned cost is a mini, per-unit budgeted amount.  After the actual costs are known, a report is generated that shows actual costs, planned costs, and related variances. A manager can examine the variance column quickly to ascertain which exceptions require attention.  Following up on significant variances is called management by exception. Managers focus their efforts where they are most needed in the limited time available.

SETTING STANDARDS

Managers set standards by analyzing historical data. However, past data must be adjusted for expected changes in technology, the production process, inflation, and other similar factors.  Managers also use task analysis to focus on how much a product should cost.  Knowledgeable people such as engineers, purchasing agents, production supervisors, and accountants should be brought into the standard-setting process. Cross-functional teams are very useful here. Two types of standards may be used: perfection standards and practical standards. Perfection (ideal) standards assume that production takes place in the ideal world: employees always work at peak performance, materials are never defective, and machines never break down.  Although some managers feel that ideal standards give employees a goal to shoot for, many behavioral scientists believe that setting unattainable goals has a demotivating effect, as employees simply give up trying to reach the standard.  Practical (attainable) standards are set high enough to encourage efficient and effective operations but not so high as to seem impossible. Behavioral scientists feel that practical standards have a more positive effect on the productivity of employees.  Unlike variances computed with perfection standards, variances calculated when practical standards are employed tend to be more meaningful as they represent deviations from a realistic goal.  Service firms also use standards. For example, McDonald’s restaurants are noted for using standards, not only for quantities of material (amount of beef per burger) but also for the time allowed to serve customers at the drive-in window or counter.

VARIANCE ANALYSIS

Variance analysis involves calculating the actual amount of input used and comparing it to the budgeted amount of input that should have been used (i. e., the standard cost allowed for actual output). The variance is then analyzed into its component parts. Standards are established for: The amount of material required to produce a finished product (the standard material quantity).  The anticipated delivered cost of materials (the standard material price). The number of hours normally needed to manufacture one unit of product (the standard direct-labor quantity). ? The estimated hourly cost of compensation (the standard labor rate). The following model can be used to calculate variances for direct materials (DM) and direct labor (DL): DM Price = (AQ Purchased x AP) – (AQ Purchased x SP) DM Quantity = (AQ Used x SP) – (SQ Used* x SP) DL Rate = (AQ x AP) – (AQ x SP) DL Efficiency = (AQ x SP) – (SQ* x SP) * Standard quantity for the actual production level

Notice that the price and rate variances use a similar approach, and the quantity and efficiency variances use a similar approach, with efficiency being another way to say “quantity of hours” allowed.  Unfavorable variances arise when the actual cost per unit of input (e. g., gallons, hours, etc. ) exceeds standard cost and when actual quantities used (e. g., gallons, hours, etc. ) exceed standard quantities. The opposite situation gives rise to favorable variances.

VARIANCE INVESTIGATION

A manager does not have time to examine each variance; therefore, he or she must consider selected factors in deciding when an investigation should take place. The factors include one or more of the following:  Size of the variance (in absolute and/or relative terms, such as $5,000 or 10% of standard cost)  Frequency of occurrence An otherwise small variance may require investigation if it consistently occurs, as it may indicate an ongoing problem or an outdated standard.  Trends Controllability (there is little point to investigate items over which managers have no control). Favorable variances A manager should investigate both favorable and unfavorable variances. A favorable variance with advertising expense, for instance, could lead to the conclusion that an insufficient amount is being spent on promotion, which could lead to a loss of customers. ? Costs and benefits (the decision to investigate involves a cost-benefit analysis, as a number of investigative costs are incurred). Some companies use a statistical approach to variance investigation by preparing a statistical control chart. These charts help to pinpoint random and nonrandom variances, with a statistically determined critical value being compared to a variance to determine whether an investigation is warranted.

BEHAVIORAL IMPACT OF STANDARD COSTING

 Variances may be used to evaluate personnel, often with regard to salary increases, bonuses, and promotions.  Such incentives can have positive and negative effects, as a bonus plan may prompt a manager to pursue actions that are not in the best interests of the organization.  An example of detrimental behavior: A purchasing manager may purchase cheap material to create a favorable price variance.

That material could be of poor quality, which might result in excess usage and problems with the finished product.

CONTROLLABILITY OF VARIANCES

It is rare that one person controls any event; however, it is often possible to identify the manager who is most able to influence a particular variance. These managers are often the following:  Direct-material price variance—Purchasing manager  Direct-material quantity variance—Production supervisor and/or production engineers  Direct-labor rate variance—Production supervisor  Direct-labor efficiency variance—Production supervisor. Variances often interact, making investigation and controllability difficult. For example, a labor efficiency variance may be caused by problems not only with labor but by problems with machinery and/or material.  Managers sometimes trade-off variances, purposely incurring an unfavorable variance that is more than offset by favorable variances.

STANDARD COSTS AND PRODUCT COSTING

In a standard-cost system, costs flow through the same accounts in the general ledger as shown earlier in the text; however, they flow through at standard cost.

In other words, Work-in-Process Inventory, Finished-Goods Inventory, and Cost of Goods Sold are carried at standard cost.

ADVANTAGES OF STANDARD COSTS

A standard-cost system has several advantages, as follows: ? Managers have a sensible comparison method at their disposal, one that looks at budgeted costs vs. actual costs at the actual level of output. ? Managers can practice management by exception. ? Variances provide a benchmark for performance evaluation and employee rewards. ? Standard costs provide a stable product cost.

Actual costs may fluctuate erratically, whereas standard costs are changed only periodically.

CRITICISMS OF STANDARD COSTING IN TODAY’S MANUFACTURING ENVIRONMENT

 Criticisms of standard costing in advanced manufacturing settings include: Variances are too aggregated and arrive too late to be useful. Variances should focus on activities, specific product lines, or production batches. Variances focus too much on the cost and efficiency of labor, which is becoming a relatively unimportant factor of production. Standard costs rely on a stable production environment, and flexible manufacturing systems have reduced this stability, with frequent switching among a variety of products on the same manufacturing line.  Standards focus too much on cost minimization and not enough on product quality, customer service, and other contemporary issues.

OPERATIONAL CONTROL MEASURES

Many companies now focus on an increased number of performance measures, many of which are nonfinancial in nature. Examples often include:  Customer-acceptance measures such as customer complaints, warranty claims, and product returns. Delivery cycle time, or the average time between the receipt of a customer order and the delivery of goods.  Manufacturing cycle time, or the total production time per unit.  Manufacturing cycle efficiency, or processing time divided by the sum of processing time, inspection time, waiting time, and move time.  To judge how well or poorly a company is performing, many firms use benchmarking, which involves comparing existing performance levels against those of either other organizations or other units within the same organization.

DEPARTMENT OF COMMERCE SCHOOL OF MANAGEMENT PONDICHERRY UNIVERSITY ASSIGNMENT ON ADVANCED COST ACCOUNTING ANALYSIS OF DIVISIONAL PERFORMANCE OF ASIAN PAINTS LTD SUBMITTED TO: -SUBMITTED BY: – DR. G. SHANMUGHASUNDARAM A. PURUSHOTHAMAN ASSOCIATE PROFESSOR M. COM (BUSINESS FINANCE) DEPT. OF COMMERCE 2nd YEAR PONDICHERRY UNIVERSITY REG. NUMBER: 11351059 INTRODUCTION DIVISIONAL PERFOMANCE OF COST CENTRE AND PROFIT CENTRE A profit centre is a unit of a company that generates revenue in excess of its expenses. The main aim of profit centre is to earn profit.

The performance of profit centre is evaluated in terms of whether the centre has been achieved its budgeted profit A cost centre is a business unit that is only responsible for the costs that it incurs. The manager of a cost centre is not responsible for revenue generation or asset usage. The performance of a cost centre is usually evaluated through the comparison of budgeted to actual costs. The costs incurred by a cost centre may be aggregated into a cost pool and allocated to other business units. Investment centre is responsible for both profit and investment.

The investment centre manager has control over revenue, expenses and the amount invested in the current assets. The following are the techniques used to measure the divisional performance of cost centre and profit centre * Variance analysis * Profit * Return on investment * Market share COST PER UNIT: Cost refers to the total cost incurred for the production. So cost per unit refers to the cost incurred for producing 1 unit. Normally we used the below formula to calculate the cost per unit Cost/unit = total cost / No. of unit produced COST PER UNIT year| Production| Total expenses| COST PER UNIT| 008| 40946. 7| 559586| 0. 073173203| 2009| 50418. 7| 602922| 0. 083623918| 2010| 57937. 2| 732142| 0. 079133829| 2011| 72582. 9| 849056| 0. 085486587| Interpretation: The above table and chart shows the cost per unit of Asian paints India ltd. They incurred highest cost per unit in the year 2011. This may because increasing the cost of raw material or other charges etc. It is better to have lower cost per unit because when cost per unit increases the total cost will increase. That in turn reduces the profitability of a firm. In the 2008 the firms have lower cost per unit of production compared to other years.

So may be this year the profit is increased. The cost per unit is higher in the years 2011 and 2009. COST VARIANCE Cost variance (CV) is the amount of money that was actually spent on a project or a part of a project compared to the amount of work that was actually accomplished. Cost variance = Budgeted cost of work performed – The actual cost of work performed. YEAR| TOTAL COST| STANDARD| COST VARIANCE | DECISION| 2008| 40946. 7| 61276. 54| -20329. 84| A| 2009| 50418. 7| 61276. 54| -10857. 84| A| 2010| 57937. 2| 61276. 54| -3339. 34| A| 2011| 72582. 9| 61276. 54| 11306. 6| F| 2012| 84,497. 20| 61276. 54| 23220. 66| F| Interpretation: Here from 2008 to 2010 there is a favorable situation because in these years actual cost is less than standard cost. In 2011 and 2012 actual cost exceeds standard cost. That may be because of increase in the cost/unit in these years. SALES VARIANCE Sales variance is the difference between actual sales and budget sales. It is used to measure the performance of a sales function, and/or analyze business results to better understand market conditions. Sales variance = Actual sales – standard sales Segment 1= Paint

YEAR| SALE| STANDARD| SALES VARIANCE| DECISION| 2008| 39062. 2| 51731. 3| -12669. 1| A| 2009| 48641. 9| 51731. 3| -3089. 4| A| 2010| 56135| 51731. 3| 4403. 7| F| 2011| 63086. 1| 51731. 3| 11354. 8| F| Segment 2= Others YEAR| SALE| STANDARD| SALES VARIANCE| DECISION| 2008| 1731. 7| 1717. 375| 14. 325| F| 2009| 1634. 5| 1717. 375| -82. 875| A| 2010| 1774| 1717. 375| 56. 625| A| 2011| 1729. 3| 1717. 375| 11. 925| A| TOTAL SALES VARIANCE YEAR| TOTAL SALES| STANDARD| COST VARIANCE | DECISION| 2008| 40,946. 70| 62,655. 72| -21,709. 02| A| 2009| 50,418. 70| 62655. 72| -12,237. 02| A| 2010| 57,937. 0| 62655. 72| -4,718. 52| A| 2011| 72,582. 90| 62655. 72| 9,927. 18| F| 2012| 91,393. 10| 62655. 72| 28,737. 38| F| INTERPRETATION Sales variance is higher in the year 2012 which means that company sold more than standard sales in the year 2012. And the 2011 also have the favorable value but it is lower than 2012. From 2008 to 2010 company cannot sold more than standard sales. That is an unfavorable situation for the company. MARKET SHARE The percentage of an industry or market’s total sales that is earned by a particular company over a specified time period is known as market share.

Market share is calculated by taking the company’s sales over the period and dividing it by the total sales of the industry over the same period. This metric is used to give a general idea of the size of a company to its market and its competitors. Market share Year| Total sales| Industrial sales| Market share | 2008| 40,946. 70| 348047| 11. 76| 2009| 50,418. 70| 393266| 12. 82| 2010| 57,937. 20| 260717| 22. 22| 2011| 72,582. 90| 834703| 8. 70| 2012| 91,393. 10| 868,234. 00| 10. 53| Interpretation: Company has highest market share in the year 2010. It is decreased in the subsequent years may be because of increased price of the products.

WORKING CAPITAL TURN OVER RATIO A measurement comparing the depletion of working capital to the generation of sales over a given period called as working capital turn over ration. This provides some useful information as to how effectively a company is using its working capital to generate sales. WORKING CAPITAL TURN OVER RATIO YEAR| TOTAL SALES| CURRENT ASSETS| CURRENT LIABILITIES| WC| WCTOR| 2008| 40,946. 70| 8,686. 30| 8018. 6| 667. 70| 61. 32| 2009| 50,418. 70| 10,403. 70| 7811. 4| 2,592. 30| 19. 45| 2010| 57,937. 20| 11,981. 00| 10588. 7| 1,392. 30| 41. 61| 2011| 72,582. 90| 15,475. 70| 11952. | 3,522. 90| 20. 60| 2012| 91,393. 10| 19,927. 70| 16008. 9| 3,918. 80| 23. 32| Interpretation: Here working capital ratio is higher in the year 2008. This means that company may have adequate working capital for their operation in 2008. Working capital to ratio is very lower in the subsequent years (i. e. 2009 to 2012), it shows that company is struggled with inadequacy of working capital in that years. INVENTORY TURN OVER RATIO Inventory Turnover Ratio is one of the efficiency ratios and measures the number of times, on average, the inventory is sold and replaced during the fiscal year.

Inventory Turnover Ratio formula is: year| Total sales| opening stock| closing stock| Avg stock| ITOR| 2008| 40,946. 70| 40,946. 70 | 42,954. 70 | 41,950. 70 | 97. 61| 2009| 50,418. 70| 50,418. 70 | 52,427. 70 | 51,423. 20 | 98. 05| 2010| 57,937. 20| 57,937. 20 | 59,947. 20 | 58,942. 20 | 98. 29| 2011| 72,582. 90| 72,582. 90 | 74,593. 90 | 73,588. 40 | 98. 63| INTERPRETATION

A low inventory turnover ratio is a signal of inefficiency, since inventory usually has a rate of return of zero. It also implies either poor sales or excess inventory. A low turnover rate can indicate poor liquidity, possible overstocking, and obsolescence, but it may also reflect a planned inventory buildup in the case of material shortages or in anticipation of rapidly rising prices. In our case the 2008 has the lower turnover rate. A high inventory turnover ratio implies either strong sales or ineffective buying (the company buys too often in small quantities, therefore the buying price is higher).

A high inventory turnover ratio can indicate better liquidity, but it can also indicate a shortage or inadequate inventory levels, which may lead to a loss in business. Here the years from 2009 to 2011 there is constant turnover rate. RETURN ON INVESTMENT A performance measure used to evaluate the efficiency of an investment or to compare the efficiency of a number of different investments. The objective of every firm is to earn a satisfactory return on capital invested. This is the measure of success i. e. it shows the overall profitability of the firm. ROI = PAT/ cap. Employed YEAR| PBIT| CAPILAT EMPLOYED| ROI| 2008| 5925. | 9,285. 00| 63. 81583199| 2009| 6075. 9| 10,944. 70| 55. 51454128| 2010| 10526. 9| 15,572. 20| 67. 60059593| 2011| 11636. 7| 19,753. 20| 58. 91045501| 2012| 14,086. 30| 24,877. 80| 56. 62196818| INTERPRETATION The above table and chart implies us, The ROI is higher in the year 2008. The Company gets 63. 82% as return on investment. This may because; in this year company sold more than the standard sales. So return on investment is increased. Company received lowest ROI in the year 2009 CONCLUSION: The Asian paints ltd is having an indifferent performance levels, they have both positive and negative performance indicators.

The sales variance is for the last two years is favorable for the company, and also all other indicators such as cost variance favorable for the firm. Another thing is that market share of the company shows a decreasing trend due to decrease in sales. The inventory and working capital of the company is also not good. So it is important for the company to focus on to improve sales volume with higher turnover, better maintenance of working capital. And to try to get more return on investment by adopt necessary measure and techniques.