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42 assignment 04 study units 2 7 and 8 this

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42 Assignment 04 (Study units 2, 7 and 8) This assignment must NOT be sent to the University! COMPENSATION DECISIONS AT XYZ POWER UTILITY XYZ Power Utility faced one of the biggest changes in its history when government announced that it intended deregulating electric utilities in South Africa. The major challenge this announcement posed was increased competition. Unfortunately, the company’s compensation programme was appropriate for a monopoly, but not for operating in a competitive environment. Dennis Spry, the compensation manager explained: "Well, all our programmes were designed for the old kind of company — our employee benefits and all our HR programmes. The organisation has been hard at work trying to align its business structure and systems to support the new changes. We had to look at our compensation programme to see what we could do to help it better support the goals that the corporation is striving to achieve." One change XYZ Power Utility made in 1996 was to introduce the compensation integration programme (CIP). Part of CIP involved eliminating the company’s traditional salary grading system, which had 3 200 job titles, and replacing it with a salary system with only 170 job titles. This system was organised in fewer but much wider salary bands. The salary bands allow greater flexibility in paying employees. Another compensation strategy they implemented was to begin a gain-sharing programme called results sharing. In return for their agreement to return five per cent of their base pay, employees had the opportunity to earn as much as 10 per cent of their annual pay if cost savings could be affected or profits made. In the first year under the results sharing programme, XYZ Power Utility generated R96 million in savings. With a payout of less than R40 million, Spry noted: "The way I see it, the company’s about R60 million ahead of the game." QUESTIONS 4.1 The first step in the development of a total compensation strategy is to assess the total compensation implications of the strategy. Briefly describe the five factors in the organisation’s business strategy that contribute to its success. Use examples from the case study to illustrate the discussion. (20) 4.2 With broader salary bands, will salaries not rise greatly as employees move to the top of their respective bands? Substantiate your answer by discussing the advantages and disadvantages of broad-banding. (12) 4.3 Differentiate between gain sharing and profit sharing as incentive systems. Explain what Denis Spry should do to ensure that the results sharing programme will continue to motivate both managers and non- management employees. (18) TOTAL [50] Guidelines on answering this assignment are provided in appendix F of this tutorial letter.
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43 MNH306K/101 APPENDIX E GUIDELINES FOR ANSWERING ASSIGNMENTS AND EXAMINATION QUESTIONS 1. Essay-type questions In answering assignment and examination questions your train of thought should be logical and systematic.
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