Posted by: Brandon W. Jones | March 7, 2010

Case Study Review: Compensation and Performance Evaluation at Arrow Electronics

The system that is set up at performance review and compensation systems at Arrow Electronics are broken. There are two specific aspects of the system that are broken: the employees are rated on a bell curve type system for their evaluations and the compensation system for the sales force isn’t competitive for the market.

First, the CEO, Steve Kaufman, has required that the employees are rated on a bell curve type system for their evaluations. Since the evaluation system is set up as a bell curve, the supervisors and managers must always be comparing their employees against each other. Once the employees realize that they are being compared against each other, they will stop working as a team and begin competing against each other rather than viewing the group as a team that works together. The individuals will try to look and perform better than their coworkers so that they get the better review and receive the better compensation. In this type of a system there are no incentives to work together because when one employee succeeds it in turn looks bad for the other employees.

Second, the compensation system for the sales force wasn’t competitive for the market. As the case study pointed out, Arrow Electronics trained and created strong sales force employees, but were unable to reap the benefits in return. After just two years with the company, the employees were very marketable with their experience and extensive training. At that point, they were of great value to many companies in the market, but didn’t receive the market-value compensation within Arrow Electronics. In order for Arrow Electronics to be a competitive company and grow in the market, they must set up a compensation package that incentivizes the employees to stay with the company. The biggest issue with raising the compensation for the new hires to market value was that the seasoned employees would also be on the same compensation level. That would in turn create a lot of resentment amongst employees and further hurt the system. The seasoned employees didn’t have a proper compensation system in place because that rewarded them for their many years of experience and service and they weren’t making anything more than the industry average. The system must be changed so that each year the employees get an incremental increase that is equal or greater than market value. If the experienced employees receive a competitive wage they won’t feel resentment towards the new employees.

The system for performance evaluations and compensation are two of the most important systems for retaining the qualified employees.

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