Solution to a Harvard Business School Case Study: How to design an effective compensation system? This term paper is an analysis of the Case Study "Marshall & Gordon: Designing an Effective Compensation System (A)" by HEIDI K. GARDNER and KERRY HERMAN.
Putting myself in the shoes of Kelly Browne, CEO of the PR agency Marshall & Gordon, I believe it is nearly impossible to design something like the „ideal compensation policy“ fitting everyone’s needs. However, I know that there are several recommended guidelines with fundamental properties for compensation systems that should be taken into serious consideration by executives while creating such systems.
A compensation system should consist of: a statement of overall objectives, the relative importance of compensation, general performance measures, competitive reference points, competitive positioning, internal equity and consistency, communication and involvement of employees, and governance.
As for the category of „involvement of employees“, Herzberg’s motivation theory stipulates that factors such as recognition, achievement, increased responsibility and opportunities to learn (within the company) are extremely important factors for employees, besides payments and benefits.
In the following case study I will attempt to analyse the current incentive system with respect to the given questions using numerous quotations.
Table of Contents
1 Case Study M&G
1.1 Challenges and Changes
1.1.1 Goal Definiton
1.1.2 Current Compensation System
1.1.3 Performance Measures
1.1.4 The Economic Turndown
2 Recommendations and Consequences
3 Bibliography
Objectives and Core Themes
This case study analyzes the existing incentive and compensation structure at the PR agency Marshall & Gordon to identify systemic inefficiencies and propose structural reforms. The primary objective is to address internal conflicts, improve employee motivation, and ensure long-term firm stability through a more transparent and objective compensation framework.
- Analysis of the existing compensation policy and its impact on employee behavior.
- Evaluation of "origination" versus "execution" credit structures and internal conflicts.
- Development of objective performance metrics and benchmarking strategies.
- Strategic recommendations for aligning individual interests with company-wide goals.
- Assessment of risks associated with organizational and compensation reform.
Excerpt from the Case Study
1.1.2 Current Compensation System
One of the main occuring challenges mentioned in the text is how the company assigns credit for successfully carried out projects. It appears that a perceivable tension springs from rewarding origination in the same way as execution. The projects are „double-counted“ both for origination (O) by the partner and the execution (E) by the partner or principal (cf. p.4, l.39ff.). Partners and principles are compensated with a combination of a salary and annual premiums (cf. p.8, l.31ff.) depending on the the number of originated and executed projects (cf. p9, l.3).
Moreover, the salaries of the partners and priciples vary substantially (cf. p.8, l.32ff.), which can lead to internal conflicts. These conflicts can also arise while handing over projects and during the negotiation of bonus splits by allocating „O“ and „E“ credits (cf. p.8, l.2). So there seems to be a bias in terms of how these bonuses are calculated, which makes it even more difficult to structure fair compensation.
As for the target achievement, some consultants might tend to focus rather on the quality of the project results than on the number of generated projects, which are mostly used for tallying individual success (cf. p.9, l.11f.). Most of the consultants are afraid of decreasing their fees by handing over project execution (cf. p.7, l.3f.), mentoring junior consultants or doing non-client-related work (cf. p.8, l.28ff.).
Chapter Summaries
1 Case Study M&G: This chapter introduces the agency, outlines the theoretical framework for effective compensation, and identifies the core challenges regarding internal incentives and goals.
2 Recommendations and Consequences: This chapter provides actionable strategies to simplify the payment structure, unify origination and execution processes, and mitigate the risks associated with structural organizational changes.
3 Bibliography: This section lists the academic and professional references used to support the analysis of leadership and management practices.
Keywords
Compensation System, Human Resource Management, Marshall & Gordon, PR Agency, Performance Measures, Incentive Policy, Organizational Structure, Employee Motivation, Origination and Execution, Internal Equity, Client Relationships, Strategic Reform, Bonus Allocation, Leadership, Stakeholder Trust.
Frequently Asked Questions
What is the central focus of this case study?
The study examines the compensation structure at Marshall & Gordon and its detrimental effects on internal collaboration, employee motivation, and long-term business performance.
What are the primary themes discussed in the paper?
The main themes include the conflict between individual gain and company goals, the lack of transparency in bonus distribution, the impact of internal competition, and the necessity for objective performance benchmarking.
What is the main objective of the proposed analysis?
The objective is to identify flaws in the current "double-counting" credit system and to propose reforms that foster cooperation, align employee interests with firm strategy, and improve overall transparency.
Which methodology is applied to the analysis?
The author uses a qualitative analysis approach, applying compensation theory and Herzberg's motivation theory to evaluate organizational practices based on internal company documentation and specific case-related observations.
What is covered in the main body of the text?
The main body investigates specific challenges like goal definition, the mechanics of the current bonus system, performance measurement inefficiencies, and the financial impact of the 2009 economic downturn.
Which keywords best characterize this work?
Core keywords include Compensation System, Performance Measures, Internal Equity, Organizational Structure, and Incentive Policy.
How does the author propose to resolve conflicts regarding project "origination" and "execution"?
The author suggests eliminating the separation of these credits, equalizing variable fee percentages, and establishing a unified process where roles are defined clearly at the beginning of each project.
How should the company manage the risk of top performers leaving during a compensation system remodel?
The author recommends benchmarking the company's reward package against industry standards and clearly communicating the advantages of the new system while simultaneously introducing broader motivational factors like improved employee recognition and internal development paths.
- Quote paper
- Dominik Ulrich Hoppe (Author), 2015, Analysis of "Marshall & Gordon. Designing an Effective Compensation System", Munich, GRIN Verlag, https://www.grin.com/document/300245
