Author: Shari Caudron

Question:
What can Granite Rock Co., a 380-employee manufacturer of road-construction materials, teach larger organizations about quality human resources management?

Answer:
Just about everything they need to know. As a 1992 winner of the Malcolm Baldrige National Quality Award, the Watsonville, California-based company knows all about quality and how to obtain it. But as Laura Junod, personnel representative, explains, “We didn’t restructure our personnel policies because of any TQM process. Instead, quality happened because we were people-focused.” In other words, quality was the result of well-designed HR policies, not the motivator for them.

Everything that the quality consultants tell HR people to do, Granite Rock has done and done well. From communication and employee recognition to training and team building, each one of the small firm’s HR practices is a study in perfection.

Employee development:Granite Rock has eliminated conventional performance reviews in favor of Individual Professional Development Plans (IPDP), which may be its most original contribution to HR development. Every year, each worker sits down with his or her supervisor and maps out a series of goals for the coming year in such areas as skill development and actual job accomplishments. The IPDP process is voluntary, but at last count, more than 75% of all employees, including the union members making up two-thirds of its work force, had chosen to participate. Instead of emphasizing past performance, the IPDP allows the employees to set developmental goals in conjunction with the firm’s needs. It’s through this process that the company’s quality plans and HR systems come together.

Once the employee and manager agree on the goals outlined in the IPDP, management reviews the plan confidentially at a roundtable meeting. By reviewing these documents, managers can determine what types of education and training their workers need to reach their goals. The company uses the IPDP strictly for employee and organizational development; compensation decisions are made separately.

This emphasis on employee development would be just talk if it weren’t for the tremendous investment that the company makes in training. Each year, it spends more than $1,000 per employee on various training programs.

Through its Graniterock University, the organization covers the cost of internal and external seminars. These seminars include topics ranging from interpersonal skills to business law. The organization has brought high-caliber business consultants, such as Tom Peters, in to speak to employees.

Granite Rock covers all costs of employee education, whether it involves taking a course at the local community college or attending a professional conference 2,000 miles away. Moreover, employees receive paid time off to attend the courses.

Communication and recognition: Placing so much emphasis on training requires that the company communicate regularly with employees about the developmental opportunities being offered. Granite Rock does this in a variety of ways. First there’s Tuesday Facts, a weekly news bulletin that the company faxes to all 13 locations.

There also is RockTalk, a glossy, three-color employee newsletter that’s published quarterly. Furthermore, the organization frequently mails out letters from the president with employee paychecks.

These are more than just communication vehicles. They serve as a means of worker recognition, which the company takes seriously. Other ways of recognizing employees include:

• Recognition Day—An annual celebration at each location in which individual employees and teams are recognized publicly for their accomplishments

• Incentive Recognition Awards—An annual monetary award for excellence above and beyond normal job duties

• Seniority Recognition Program—A program in which every employee receives a card and small gift on the anniversary of his or her date of hire.

Labor relations:One of the distinctive features of Granite Rock’s human resources program is that the program makes no distinctions between exempt and nonexempt employees. The organization has 15 separate labor contracts, but all employees are able to participate in any human resources program, from the IPDP to training.

The organization surveys union members about their opinions right along with salaried employees. Union members participate in the employee-suggestion program, and they can attend the Front-Line Leadership Training regardless of whether or not they have any supervisory responsibility.

The access to training is especially important, according to the company’s management, because it undermines the us-against-them mentality of employees and management in many union shops. White-and blue-collar workers attend the same training sessions, hear the same ideas and live in the same lodging when they travel. This way, it’s easier for them to identify and solve problems together.

Skeptics might disregard Granite Rock’s success in human resources as the luck of a small organization. As Junod explains, however, “We’ve done all this with just a three-person personnel department. A larger company with more staff and resources could do even more.”

Personnel Journal, August 1993, Vol. 72, No.8, p. 48N.

Aid Association for Lutherans (AAL), a fraternal-benefits society, leaves nothing to chance when it comes to compensating members of its insurance-service teams. The company, which is based in Appleton, Wisconsin, has devised a four-legged compensation stool, which allows the company to:

• Recognize individual achievements
• Reward team productivity
• Compensate employees for the acquisition of new skills
• Remain competitive with its salary structure.

AAL has 15 service teams, organized geographically, that perform all services necessary for the company’s insurance products. For example, a team, comprising 25 employees, can underwrite a policy, pay a claim, change beneficiaries and modify coverage levels. Furthermore, team members can provide these services for any product, be it life insurance, health or disability insurance.

Before developing the team structure in 1987, the company had organized these services functionally, according to the type of product. Service requests traveled from unit to unit, increasing the amount of time needed to service a customer, and boosting the chance for errors.

“By moving to teams, we were challenging employees to see the whole job, rather than just the piece they performed individually,” explains Jerry Laubenstein, vice president of insurance services. “But we also wanted them to learn additional jobs that could help the team as a whole, and we wanted the team to find ways to boost its overall performance.”

To promote all of these changes, AAL revamped its compensation structure completely to include four main elements.

1. A skill-based pay program:
   The company has implemented a skill-based pay system that compensates individuals for each additional skill they acquire in an effort to help the team. As one of the first organizations to implement skill-based pay for white-collar workers, AAL developed a dictionary that describes all the services performed by team members and lists their associated dollar value. Employees are paid a base wage for the primary service they perform, and they can receive incremental pay increases for each service added to their repertoire of skills.


2. A team-incentive program:
   AAL has implemented a team-incentive program through which the entire team is awarded an annual bonus based on three factors:
• Productivity
• Customer satisfaction
• Quality of work.

This team incentive can be worth as much as 10% of an employee’s annual compensation.



3. The use of market data:
   The company now relies heavily on market data to ensure that employees are paid competitive wages.


4. An individual-incentive program:
   AAL has added an incentive component that recognizes outstanding achievement by individual employees. This lump-sum incentive is paid once a year only to those employees who are already paid at market value. This incentive is worth as much as 6% of an individual’s compensation.

AAL’s compensation structure didn’t change all at once, Laubenstein says, and there were several problems along the way. “We went to teams in 1987 and didn’t put any incentives in place until 1989. Then we moved entirely to team incentives, where we didn’t recognize individuals at all. This caused a lot of problems with employees who were used to being recognized individually. Finally, in 1991, we modified the program to recognize both individual and team achievements.”

Is the program working? “We’re on a journey, and we haven’t reached the destination yet,” Laubenstein cautions. “But in the five years that we’ve been in teams, we’ve increased our productivity by 40%. Surveys reveal that more than 90% of our customers are satisfied with the level of service they’re receiving. I’d say things are coming along well.”

Personnel Journal, June 1993, Vol. 72, No.6, p. 64L.

Like many large companies, Aetna Life and Casualty Co. in Hartford, Connecticut, always has relied on a highly stratified job-classification system. Everything is connected to job class, from salary levels and promotional opportunities to job descriptions and supervisory responsibility. “You know your job class, you know everything,” explains Mary Fitzer, Aetna’s director of base-salary development.

But this system no longer is working. As a diversified financial services company, Aetna operates in a fast-moving and increasingly competitive business environment. The existing job-classification and compensation system, however, doesn’t encourage employees to work any harder or respond any faster to market changes. Why not? Because if a task isn’t written into a job description, what incentive is there for an employee to take on added responsibility?

“There’s too much work to be done to spend our time continually rewriting 7,000 detailed job descriptions,” explains Fitzer. “We need to look at work in a much broader sense.”

For this reason, Aetna is in the process of identifying the major skills and competencies that are needed by employees, and grouping those skills into a broad job-family structure. “The entire point is to define work, not by what class it’s in, but by the actual functions performed,” Fitzer says. “Then, we will look at how the market prices that work, give that information to managers and let them make pay decisions based on an individual’s performance.” When Aetna completes this process, the company expects to have just 200 job families representing all of the company’s 42,000 employees.

Managers always have made the pay decisions at Aetna, but through this new structure, the compensation department will be able to provide them with more-specific information about what the market is paying for certain jobs. “Instead of saying to them, ‘Here’s a salary minimum and maximum and you shouldn’t pay above or below that,'” says Fitzer, “we’ll be able to give them some market guidelines that they can interpret in light of their own budgets and performance levels.” This effort, in turn, will force managers to clearly define employee performance expectations at the start of each business cycle.

With fewer promotional levels, the primary way for employees to get ahead at Aetna will be to earn bonuses by performing better. The company isn’t eliminating promotions altogether—there still will be layers, such as entry-level underwriter, underwriter, senior underwriter and underwriting manager, for example—but compensation decisions will be based on performance and market pricing, not job title.

Aetna realizes that not all employees will do well under the new system. Fitzer explains, “If employees have high security needs and are focusing on the old ways of doing things, it will be difficult for them in the new environment.”

Not only will the job-family structure change the ways in which employees are evaluated and managers set salaries, but it also will change the relationship between the HR department and line managers.

“With the job families, we’re trying to get rid of all the extraneous details and allow managers and their employees to do what is needed to serve their customers extremely well,” says Fitzer.

Personnel Journal, June 1993, Vol. 72, No.6, p. 64D.

Compensation isn’t just a force that reacts and responds to cultural change. It also can drive that change as well, as Westinghouse Furniture Systems discovered in 1991, following its aggressive acquisition of three other companies.

According to Anthony D. Greco, the company’s director of executive resources and development, within two years, Westinghouse had acquired three other office-furniture manufacturers, renamed itself The Knoll Group, and found itself with a diverse work force of 4,400 employees worldwide. Not only were the employees accustomed to the culture of their previous employers, but they also were accustomed to their compensation practices.

“One big step in unifying these very different organizations during these difficult times was the introduction of a new compensation system,” Greco explains in Rethinking Corporate Compensation Plans, published by The Conference Board. “We couldn’t establish a unified strategy if salespeople from the four companies were compensated in four different ways,” he writes.

The company began by developing a cross-functional team of individuals to review the four existing compensation plans and combine the best elements of each into one overall program. “We decided against any one plan, because that could create additional conflict and resentment,” Greco explains.

Throughout this process, The Knoll Group solicited extensive feedback from sales employees. This not only helped employees become familiar with the compensation plan as the company developed it, but it also allowed the company to achieve the necessary buy-in. Greco says that the communication effort was successful because the sales managers—not the human resources department—were responsible for communicating the changes to their direct reports.

The second step undertaken to unite the four cultures was an overhaul of the company’s benefits plan. This included shifting all hourly workers to a salary-continuance program. This means that exempt employees are paid even if they’re ill and miss work.

With the new benefits and sales compensation plans nearly complete, the company now is dismantling the rigid salary-grading systems that existed in each of the four companies and is implementing a single broadband structure. By doing this, “we hope to encourage more movement within the company, so individuals will expand their knowledge and develop new skills,” says Greco. When complete, the company hopes to have condensed approximately 30 grades for exempt associates into just five bands.

The process of creating a unified compensation structure has been slow, but The Knoll Group expected a transition period. Extensive employee communications are helping ease the process considerably. In the long run, if these efforts are successful, employees will forget about how things used to be done in the old companies and realize that they’re united under one common vision.

Personnel Journal, June 1993, Vol. 72, No.6, p. 64J.