Fluent Essays

Strategic compensation is thought of by HR and Compensation professionals as a way to increase the organizations goal of attracting and hiring the best employees. A successful compensation plan has three main functions, which are: to attract employees to an organization, reduce employee turnover and create high levels of efficacies in the organization. Attached below is the case study. Read the case study and in a 2-3-page paper and answer the following questions: Do you feel the strategic compensation procedures discussed in this case study are a competitive advantage for the organization? Why or why not? What do you think could enhance the continuous improvement pay plan (CIPP) decisions discussed in this case study? What do you perceive the strategic benefits associated with using team-based, rather than an individual based, incentive plan at John Deere? Include a citation of the case study and any other references you may have used for this assignment. arise_case_study.pdf Unformatted Attachment Preview 9-913-521 AUGUST 20, 2012 MICHAEL BEER LYNDA ST. CLAIR ARISE: A Destination-for-a-Day Spa Driving to work on May 27, 2011, Twyla Thompson, VP of spa operations at Dallas-based ARISE, suspected that her 9:00 AM meeting with CEO Kristen Chambers and VP of business operations Sam Solti would be stormy. They would be evaluating the All-Star Team organizational design that Thompson had developed in August 2010 and implemented in September. The plan was created, after the first year of operations, to stem negative cash flow and reduce turnover. Now, with two years of operations completed, the spa was still in the red and turnover was higher than ever. Clearly, it was time to revisit the All-Star Team concept and other aspects of the business—and to make some tough decisions. As she entered the spa, Thompson noted the lavender-scented air and earth-tone decor of the sunlit lobby. Everything appeared to be perfect, but the reality was that the business was struggling. Staffing issues were especially vexing. Chambers had built ARISE’s differentiation strategy on the idea of retaining a staff of full-time spa specialists, called personal wellness coaches (PWCs), who would provide spa treatments, help clients create “integrated health and happiness plans,” and keep in touch with clients between spa visits to help them achieve their goals. Low turnover was essential, both for building customer loyalty and for controlling labor costs. However, PWC turnover stood at 31\% by the end of the first year (see Exhibit 1a)—although much better than the industry average of 75\%, it was still too high to achieve the organization’s goals. Thompson’s All-Star Team design had attempted to address employee concerns, but turnover continued to climb. By the end of Year 2, only 31 of the 83 PWCs hired from 2009 through 2011 were still with the business (see Exhibits 1a & 1b). Thompson wondered whether tweaking the design would be enough to prevent high turnover from sinking ARISE. The Global Spa Industry Modern spas serve a range of shifting customer demands for wellness and beauty services. These include specialty treatments for the body, skin, hair, and nails, as well as help with personal goals related to nutrition, fitness, and stress reduction. The first systematic analysis of the industry in 2007 defined spas as “establishments that promote wellness through the provision of therapeutic and other ________________________________________________________________________________________________________________ Harvard Business School Professor Michael Beer and writer Lynda St. Clair, PhD, prepared this case solely as a basis for classroom discussion and not as an endorsement, a source of primary data, or an illustration of effective or ineffective management. Although based on real events and despite occasional references to actual companies, this case is fictitious and any resemblance to actual persons or entities is coincidental. Occasional references to actual companies appear in the narration. The authors thank Rutgers University professor Charles C. Heckscher, whose work informed the development of the case. Copyright © 2012 President and Fellows of Harvard College. To order copies or request permission to reproduce materials, call 1-800-545-7685, write Harvard Business Publishing, Boston, MA 02163, or go to http://www.hbsp.harvard.edu. This publication may not be digitized, photocopied, or otherwise reproduced, posted, or transmitted, without the permission of Harvard Business School. This document is authorized for use only in B453c - Compensation Administration by Dev Team at Rasmussen from September 2014 to March 2024. 913-521 | ARISE: A Destination-for-a-Day Spa professional services aimed at renewing the body, mind, and spirit.”1 The study divided spas into five categories:2 • Day/Club/Salon spas that offer a variety of services by trained professionals on a day-use basis, either independently or in association with a fitness club or salon • Hotel/Resort spas with facilities that complement the primary business of offering overnight accommodations • Destination spas and health resorts that offer spa services, accommodations, and other offerings focused on fitness and well-being • Medical spas that operate under the full-time, on-site supervision of licensed healthcare professionals • “Other” spas, including mobile and cruise-ship spas. Destination spas were the main catalyst for the emergence of the industry in the 1980s and 1990s. More recently, the day spa category has grown rapidly. Industry analysts estimated the global market for spa services in 2010 to be more than $60 billion.3 ARISE’s Planning and Development Phase: May 2008 – April 2009 With her MBA from the University of Texas at Austin and family connections in Dallas, Kristen Chambers founded ABROAD, an international travel company, in 1999 and built it into a multimillion-dollar enterprise. More interested in starting businesses than in running them, she sold ABROAD for $6 million in 2007 and began to look for a new challenge. A devotee of spa treatments, she noticed that the industry was growing swiftly and, after doing some research, identified an unmet niche: customers who wanted to experience the luxury of a destination spa on a regular basis but were unwilling or unable to devote enough time and money for frequent spa vacations. Vision Chambers sought to establish ARISE as a “destination-for-a-day spa” with exquisite surroundings and an emphasis on the health benefits of spa treatments. To distinguish ARISE from other spas and to build strong customer relationships, Chambers envisioned a staff of full-time specialists (e.g., massage, skin, hair, and nail experts) who would also serve as personal wellness coaches. She anticipated that when the spa was running at capacity, the PWCs would spend about six hours per day delivering specialty treatments and two hours engaged in coaching-related activities. PWCs would need to coordinate with one another in advising clients who booked multiple types of treatments, but Chambers did not expect that to require much time because each PWC would primarily focus on his or her specialty area. Chambers recognized that as the spa was starting to ramp up, PWCs would have some slack in their schedules, so she planned to use that extra time for training and development activities to support the spa’s coaching philosophy. In her words, “By taking time to train our PWCs about new health and well-being practices, we’ll be role-modeling the type of coaching we want them to provide to their clients.” Although less time would be devoted to training once the business was better established, Chambers planned to continue periodic training sessions on new coaching ideas and practices. Her aim was to sustain the ARISE culture and give PWCs new ways to add value for their clients. (See the Personal Wellness Coach Job Design section below for details.) 2 BRIEFCASES | HARVARD BUSINESS SCHOOL This document is authorized for use only in B453c - Compensation Administration by Dev Team at Rasmussen from September 2014 to March 2024. ARISE: A Destination-for-a-Day Spa | 913-521 Facilities and Services In July 2008, Chambers purchased a 23-acre property adjoining the Oak Point Park & Nature Preserve in the prosperous Dallas suburb of Plano, a location easily accessible from the Central Expressway. The 14,000-square-foot main building, a former church camp community center, would be remodeled to house the spa. Chambers hired an elite architectural firm and was heavily involved in design and construction, so when ARISE opened on May 11, 2009, it bore the stamp of her aesthetics and ambition. Clients entered the lobby to view a wall of water flowing behind the reception desk. The receptionist checked in clients and collected payment for services upon their arrival. There were 18 treatment rooms: four for facials, eight for single massage, two for couples massage, and four for body wraps. The salon space included four stations for hair styling, four for pedicures, and three for manicures. Rounding out the main facilities were steam and sauna rooms, hydrobaths, a lap pool, a state-of-the-art fitness center with a space for yoga, Zumba, and other classes, and changing rooms with lockers and showers. Between treatments, clients could relax in a garden atrium, where a bank of skylights mirrored the shape of the Zen garden below. Tea was served at a black lacquer counter set on a raised platform, and a double door led to a café that served organic snacks and spa cuisine. A retail shop sold a variety of spa products. Six rooms were available where PWCs could meet with clients to create personalized health and happiness plans and for private coaching. Back-of-the-house areas included administrative offices, an employee lounge that could be used for training, and storage space. Organizational Structure In January 2009, Chambers finalized her organizational design for ARISE (see Exhibit 2a). The business was structured into two main units. The VP of business operations was responsible for overseeing accounting and finance, food and beverage services, and facilities maintenance. The VP of spa operations was responsible for human resource management (HRM), marketing, product development, and retail sales. Under the VP was the director of spa services, who assisted with recruiting and training and was responsible for approving the PWCs’ work schedules. The director also was expected to provide informal, ongoing feedback to PWCs. Formal performance evaluations for PWCs and for the reception and scheduling staff were to be conducted annually by the VP of spa operations, with input from the director. The director was tasked with reviewing any occasional parttime specialists who were hired, responding to feedback from spa staff, and monitoring the supply inventory. Marketing responsibilities were to be shared, with the VP of spa operations handling advertising and promotions and the director maintaining a blog on the ARISE webpage, updating the spa’s Facebook page, and monitoring online review sites. The director was also responsible for responding to customer complaints that were received or posted online. Recruitment and Selection of the Management Team In late January 2009, Chambers hired two VP-level managers to execute her vision: Twyla Thompson, 33, with a masters of management in hospitality from Cornell University and five years of experience with Marriott, became VP of spa operations. Sam Solti, 39, a recent MBA graduate of Texas A&M with a concentration in accounting and finance, became VP for business operations. Before getting his MBA, Solti had spent 10 years in the fitness equipment industry, most recently as a sales representative to spas and fitness centers in the western U.S. (a background that helped him negotiate a favorable deal on the fitness equipment at ARISE). In February 2009, Chambers and Thompson hired a director of spa services: Danielle Dunn, 29, had worked overseas as a massage therapist with the Mandarin Oriental Hotel Group before returning to the U.S. to take a supervisory position at Canyon Ranch Resort in Arizona. HARVARD BUSINESS SCHOOL | BRIEFCASES 3 This document is authorized for use only in B453c - Compensation Administration by Dev Team at Rasmussen from September 2014 to March 2024. 913-521 | ARISE: A Destination-for-a-Day Spa Marketing Strategy and Competition In the U.S., women make up about 70\% of spa customers; the average client is a white college graduate in her forties who earns over $50,000 annually.4 Consumers of spa services are typically grouped into three categories: periphery, midlevel, and core. The periphery consists of first- or second-time spa users who tend to focus on price. Midlevel consumers are more interested in improving their health and lifestyle but are still cost-sensitive when it comes to exotic treatments. Core spa consumers (under 10\%) are the least price-sensitive and can be the most demanding.5 During strategy sessions in March 2009, Chambers, Solti, Thompson, and Dunn agreed that although luxury was an important element of the service mix, ARISE’s marketing should emphasize the health benefits of regularly re-energizing body and spirit to turn periphery customers into midlevel clients. Given the strategy—including ambiance, as well as range and quality of services— and the target market, the team decided that the primary competition was high-prestige hotel-based spas in the greater Dallas area. To encourage more frequent bookings of multiple treatments, Thompson and Dunn argued that ARISE’s prices should be slightly lower than the competition’s. They proposed, for example, that prices for basic, advanced, and ultimate facials be set at $110, $185, and $275, respectively—compared with typical competitors’ prices of $125, $210, and $325. Solti argued that lower prices did not fit with the type of differentiation strategy that ARISE was pursuing. Initially, Chambers agreed with Solti, but after Thompson prepared a sensitivity analysis showing the impact of extra bookings on revenue, Chambers relented, with the understanding that the issue would be revisited at the end of the first year of operations. Chambers knew that her business strategy, combining differentiation based on superior customer service with a low cost structure, would be difficult to execute. She was confident, however, that the HRM system at ARISE would help resolve this apparent strategy paradox. Human Resource Management System When it came to human resources, Chambers’ mantra was “Hire the best and keep them for less.” Thus, she designed an integrated HRM system so that its main elements (i.e., work system & job design, staffing, compensation & rewards, career development & training, and feedback from employees) were consistent with her goal of having top performers who were committed to ARISE while still controlling costs. Many spas used the independent contractor model of the hair salon industry to control costs—paying contract or part-time employees for the number of treatments they delivered. But Chambers believed that the PWC role, properly executed, could support a full-time, salaried workforce. She recognized that the individuals who performed these services were professionals—they had to be licensed by the state and were required to complete continuing education hours. Many also studied for and obtained multiple certifications in their specialties. “Treat people like professionals,” Chambers said, “and you’ll get professional treatment from them.” To control the spa’s fixed costs, PWCs would be compensated with salaries that were modest, considering their level of skill and experience, but Chambers was confident that, with high-quality service and personal coaching, PWCs would be rewarded with bigger tips from clients. (Chambers herself routinely tipped 25\% at a spa when she received top-notch service.) Because she also was committed to offering benefits, which other spas rarely provided, Chambers fully expected that PWCs would end up with a higher level of total compensation than they could earn in other similar establishments. Plus, they would have the added bonus of a stable, full-time job with some benefits, rather than an uncertain stream of temporary contracts. By late March 2009, Chambers and her team had developed a special Mutual Commitments Contract and job description for the PWCs. 4 BRIEFCASES | HARVARD BUSINESS SCHOOL This document is authorized for use only in B453c - Compensation Administration by Dev Team at Rasmussen from September 2014 to March 2024. ARISE: A Destination-for-a-Day Spa | 913-521 Mutual Commitments Contract. The PWC contract covered terms and conditions related to pay, benefits, training, and other basic job elements. What made the contract distinctive was its emphasis on empowerment and trust in the employment relationship: ARISE uses positive reinforcement to achieve positive outcomes. Because we hire only the best, we trust your professional judgment. If you have suggestions or questions, speak up! Unlike some organizations, ARISE values your input and wants you to contribute your ideas for improving service quality. Chambers anticipated that PWCs would be excited about having a chance to voice their opinions. However, Thompson believed that employees were often reluctant to speak up, so she reminded Dunn that she would need to solicit employee opinions proactively. Personal Wellness Coach (PWC) Job Design. A PWC’s two primary job responsibilities were providing specialty treatments to spa clients and maintaining an ongoing “coaching” relationship to build a loyal following. PWCs were expected to advise clients when they were at the spa and also between spa visits. Chambers believed that this would encourage clients to view booking treatments at ARISE as a necessary part of their personal wellness program, rather than as an indulgence. Coaching responsibilities were intentionally left open-ended, both in recognition of differences in clients’ needs and preferences and to demonstrate respect for the PWCs’ professional judgment. The Mutual Commitments Contract also encouraged PWCs to get training in complementary wellness services such as guided meditation, biofeedback, nutrition, juice cleanses, and fitness. Chambers felt this was critical for three reasons: (1) the spa would save money by not hiring counselors in specialties with limited client appeal; (2) employees could develop new skills and earn bigger tips; and (3) clients would receive more-extensive coaching to help them achieve their goals. The contract also empowered PWCs to use their personal discretion about how and when to interact with clients: “Some of your clients might be more inclined toward handwritten personal notes, while others may prefer instant messaging. Some may want to friend you on Facebook or follow you on Twitter. Be sure to ask clients for permission to contact them by phone or Skype. You may even want to give your clients your cell phone number.” The PWC contract went on to state: Coaching is not about selling services; it’s teaching clients how to achieve their health and happiness goals. A massage specialist might create a customized tip sheet for a client who wants to reduce stress. Skin care specialists can remind clients to have any irregular moles examined by a doctor. All PWCs can use what they learn at our training sessions to help clients set and achieve personal wellness goals. Remember: Success is contagious—if you help your clients achieve their goals, they will help you achieve yours! In addition to providing treatments and coaching, PWCs also were asked to help keep the facilities clean and restock supplies in the various areas of the spa. Compensation and Rewards. PWCs received a modest wage and benefits package (see Exhibit 3a). Solti had wanted hourly wage rates to reflect the median for each specialty, as reported by the Bureau of Labor Statistics for the region. Chambers wanted to increase Solti’s numbers by 15\%, which she still felt was modest for attracting the highest-quality employees. They ultimately compromised on pay levels 8\% higher than the median. The most expensive benefit was health insurance. Even though it was a barebones package, just having access to health insurance was a major draw for many job applicants. Other benefits included passes for free spa treatments (which also served as training opportunities for other PWCs), discounts at the spa’s café, in-house training opportunities, and up to $300 in financial support for coursework required to maintain licenses. Bonuses for being named PWC of the month or year were $250 and $1,500, respectively. PWCs also could earn commissions if HARVARD BUSINESS SCHOOL | BRIEFCASES 5 This ... Purchase answer to see full attachment