United Alliances Limited is a major cement producer in the country with its subsidiaries located in different regions of the country. The current products of this company are 43 and 53 grade cements, bulk cement and ready-mix concrete. It has an annual turnover of Rs 65 billion and enjoys a significant market share in the industry. This company has a diverse workforce numbering about 7,500 employees and is known for its discipline.
The HR department of United Alliances Limited is managed by Mr Suresh Kumar, who is well-known for his acumen and foresightedness. The company believes strongly in identifying, recognizing and encouraging efficiency. Its compensation policy is predominantly a performance-based one. Consequently, it accords minimum importance to fixed compensations, be it a direct compensation like basic salary or an indirect one like in employee welfare schemes.
Recently, the management of United Alliances Limited has drawn up an ambitious diversification plan to enter into the fields of chemical, metal and machine tool production. Since the chemical industry is poised for a sharp growth within a decade, United Alliances decided to concentrate first on the chemical industry in its diversification bid. As a start, it has taken over Vijay Chemicals, one of the leading chemical units in the country. Vijay Chemicals is engaged in the production of various chemicals like coal tar, creosote, pitch, anthracene, naphthalene and coat enamel. It has a workforce of 3,200 employees and state-of-the-art tar distillation plants in three places. The compensation plan of this company is unique and different from that of United Alliances. While United Alliance focuses more on performance-linked pay, the compensation package of Vijay Chemicals has fixed compensation with items such as basic salary and welfare schemes as its major component. In fact, the latter has been very liberal in employee welfare schemes. This is because the founders of this company strongly believed that its employees must not have any worry on the back of their mind while performing the job. According to them, provision of adequate welfare facilities is an essential prerequisite for achieving the required level of employee efficiency, quality and loyalty. The important welfare facilities of this company are transport, education, recreation and insurance facilities.
However, the management of United Alliance Ltd views the employee welfare facilities of Vijay Chemicals differently and deems it to be a big financial burden. It also views it as a stumbling block to the process of achieving cost efficiency in production. It wants to streamline the compensation package of Vijay Chemicals in order to make it identical to its own compensation package. However, its HR manager, Mr Suresh Kumar differs with the contention of his management and has suggested to the management to continue with the compensation policy of Vijay Chemicals. He has long believed that welfare facilities alone can create long-term commitment and involvement among the employees. In fact, he has gone a step further and recommended Vijay Chemicals’ compensation model for his company. However, the management of United Alliance remains unconvinced by its HR manager"s suggestions.
Questions for discussion
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