BUSI 440 Week 3 Case Study Forum 1 Example

Case Study Forum 1: Crestline Freight's Pay Level Policy

BUSI 440 Compensation Management, Case Study Forum 1 Thread and Replies

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Crestline Freight and its figures stand in for the instructor's assigned case, and the two classmates are composites; the textbooks, the research and the Scripture cited are real.

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Crestline Freight, a regional trucking company with about 420 employees, faces a retention problem concentrated in two jobs. Last year 68 percent of its drivers left, and 14 diesel technician jobs sit open, each unfilled for about four months on average. Exit interviews name pay as the leading reason for leaving, and a survey shows Crestline paying drivers about 9 percent and technicians about 12 percent below nearby competitors. Office and warehouse jobs, by contrast, have normal turnover and pay close to market. The company must decide its pay level policy.

Milkovich et al. (2017) describe three classic policies for external competitiveness: leading the market to attract and keep talent, matching it to stay comparable, and lagging it to control costs while accepting higher turnover or offering other rewards. They also note that a firm need not use one policy for every job. I recommend a hybrid: lead the market by about 5 percent for drivers and technicians, and continue to match the market for other jobs.

The research supports targeting pay level where it matters most. Williams et al. (2006) conducted a meta-analysis of pay level satisfaction and found that satisfaction depends strongly on how employees' pay compares with what they believe others earn, and that pay level satisfaction relates to outcomes including turnover intentions and organizational commitment. Crestline's drivers know exactly what competitors pay, since recruiters call them weekly, so the comparison is constant. Shaw and Gupta (2007) found that the design of pay systems affected which employees quit, good, average or poor performers, rather than only how many. If Crestline's best drivers are the ones being recruited away, the cost of lagging is higher than the turnover rate suggests.

The cost is real but bearable. Raising driver and technician pay by 14 to 17 percent would add roughly $1.9 million a year for about 180 drivers and 40 technicians. Replacing a driver, however, costs Crestline about $9,000 in recruiting, training and lost revenue, and at 68 percent turnover among 180 drivers, that is about $1.1 million a year before counting the revenue lost to idle trucks and missed deliveries. Koss (2008) advises tying pay decisions to a clear business case, and here the case is strong: lower turnover and filled technician positions would recover much of the cost.

A proverb forbids keeping back what is good from those who deserve it whenever it lies within one's power to give (English Standard Version Bible, 2001/2016, Proverbs 3:27). Crestline has the power to pay its essential workers fairly, and its current policy withholds what the market says they are due. The biblical principle and the business case point in the same direction.

Two safeguards would make the policy work. First, Crestline should explain the change to office and warehouse staff, whose pay will continue to match the market, so they understand that the difference reflects a labor shortage rather than a judgment about the value of their work. Second, the company should review the policy each year against fresh market data, since a lead that is necessary in a tight driver market could become an unnecessary cost if the market loosens. Tracking turnover by performance level, as the research suggests, will show whether the policy is keeping the right people.

Reply to Rachel

Rachel, your proposal to move the diesel technicians to skill-based pay is a smart fit for chapter 6, since technicians who learn electrical systems and emissions work become more valuable. Milkovich et al. (2017) describe skill-based structures as paying for the skills a person can use rather than the job held. The evidence suggests that design and support decide whether such plans work. Shaw et al. (2005) studied skill-based pay plans and found that their success and survival depended on organizational conditions and how the plans were implemented, not on the idea alone. Crestline would need training slots, a fair test of each skill and a budget for the raises the plan promises. Proverbs observes that a person skillful in work will stand before kings (English Standard Version Bible, 2001/2016, Proverbs 22:29), and a skill-based plan honors that skill directly. A pilot with one shop and a handful of technicians could show whether the plan raises skills and retention before Crestline extends it to every location. Would the company certify skills internally or rely on manufacturers' certifications?

Reply to Brandon

Brandon, you recommended matching the market based on the regional wage survey in the case. I agree with matching for most jobs, but I would be cautious about treating one survey as the market. Rynes and Milkovich (1986) showed that the "market wage" is not a single objective figure; it depends on choices about which employers are surveyed, which jobs are matched and how data are weighted and aged. Milkovich et al. (2017) make the same point when they describe defining the relevant labor market. A survey of local warehouses might understate what drivers can earn at national carriers recruiting in the area. Proverbs warns that the one who states a case first seems right until another comes and examines it (English Standard Version Bible, 2001/2016, Proverbs 18:17). A second survey of national carriers might show a different market. If drivers leave mostly for national carriers, those carriers belong in the comparison group even if their headquarters are far away, because they compete for the same people. Which competitors do Crestline's drivers actually leave for?

References

English Standard Version Bible. (2016). Crossway. (Original work published 2001)

Koss, S. (2008). Solving the compensation puzzle: Putting together a complete pay and performance system. Society for Human Resource Management.

Milkovich, G. T., Newman, J. M., & Gerhart, B. (2017). Compensation (12th ed.). McGraw-Hill Education.

Rynes, S. L., & Milkovich, G. T. (1986). Wage surveys: Dispelling some myths about the "market wage." Personnel Psychology, 39(1), 71-90. https://doi.org/10.1111/j.1744-6570.1986.tb00575.x

Shaw, J. D., & Gupta, N. (2007). Pay system characteristics and quit patterns of good, average, and poor performers. Personnel Psychology, 60(4), 903-928. https://doi.org/10.1111/j.1744-6570.2007.00095.x

Shaw, J. D., Gupta, N., Mitra, A., & Ledford, G. E. (2005). Success and survival of skill-based pay plans. Journal of Management, 31(1), 28-49. https://doi.org/10.1177/0149206304271376

Williams, M. L., McDaniel, M. A., & Nguyen, N. T. (2006). A meta-analysis of the antecedents and consequences of pay level satisfaction. Journal of Applied Psychology, 91(2), 392-413. https://doi.org/10.1037/0021-9010.91.2.392