Hostess: Compensation and Benefit Challenge
Compensation and benefit is a subject under Human Resource Management that is made up of tow concepts applied in the definition of the total reward and remuneration that any given company can offer to its employees. As outlined by Purcell (2010), the disciplines of compensation and benefit have become quite significant in the current business environment due to the increasingly urgent need of attracting and retaining a productive workforce. It is important that proper consideration is enhanced during the development of a company’s management plan because organization should be able to integrate its financial needs with the requirements of the workforce. Thus, following this system helps in hindering the jeopardy of an organization’s success. Hostess is an ideal example of a company that is currently experiencing significant challenges with its compensation and benefit system, and this significantly affects its ability to pursue the overall success of the company.
This paper is aimed at identifying and analyzing the various challenges that is faced by Hostess with regards to its compensation and benefits program so as to formulate the appropriate recommendations based on the situation of this organization.
Historical Overview of the Organization
Hostess Brands Limited Liability Company (LLC) is a food company based in the United States. It is renowned for the production of a wide range of snacks under the brand name; Hostess. The company was established in 2009 as a New HB Acquisition of Hostess Brands Inc whose name was later changed to OLD HB Inc. The new acquisition on the other hand, was renamed Hostess Brands LLC. Harris (2009) points out that Hostess has been facing severe financial crisis since 2004, and this has impacted its overall performance and subsequent ability to keep up with the changing trends in the demands of consumers. The overconcentration of the company in the management of its bankruptcy situation at the expense of its workforce saw the employees stage a strike in 2008, which significantly impacted the overall operation of more than 36 plants owned by the company. The financial crisis experienced by the company led to the breach of its union contracts before the pursuance of legal actions that would protect the organization from abiding by the requirements outlined in the contract. Gordon (2005) says that Hostess has filed for bankruptcy on several occasions under the claim that it is not competitive enough to meeting the increasing demands of its clientele. This has mainly been blamed on the restrictive rules imposed by the pension and medical benefits acts. Hostess Brands has therefore received bids from various companies willing to purchase its snack cake business upon the declaration of bankruptcy. According to recent surveys, Hostess Brands has planned on resuming its operations; however, it is going to deal in just a small number of its product brands.
Challenges Facing the Compensation and Benefit System of Hostess
The inability of Hostess to balance between the needs of its employees and those of the larger company has contributed to a significant level of challenges on its compensation and benefit structure, and the subsequent inability to attract and retain employees who are productive. Martocchio (2011) argues that hostess has pointed out that compensation and benefit system is the main contributor to its bankruptcy, and the company has come up with a strategy aimed at imposing a significant cut on the wages and benefits that are impacted by unionized employees. While it is clear that the organization has been making the same losses for several years, studies point out that its bankruptcy status has not resulted from the compensation and rewards obligations. Thus, the company’s attempt to reduce the wages and benefits of employees has impacted high rate of labor turnover.
The company has also halted the pension plan contract that was negotiated earlier on with the unionized workers on grounds that its bankruptcy situation cannot allow it to make contributions to the plan. The fact that the workers have been left without means of obtaining their retirement benefit is also a source of demoralization. Research has showed that it is only the employees who are unionized that have suffered as a result of the terminated pension plan contracts since senior employees in high ranks have not just been receiving high remuneration packages but also increased contributions from the employer to their pension plans (Dinkin, 2009).
Hostess Brands has given employees, who were former workers at the OLD HB Inc, as well as relatives of the top managers the positions in senior ranks without considering their professional or academic qualifications. As a result of this, highly qualified employees have been forced to serve in lower ranks where they are given low wages that do not meet their qualifications. This has resulted into continuous protests that have induced the company into introducing upgraded-middle class jobs for employees with high qualifications or hands-on experience. However, the company has failed in adjusting salary remunerations or other rewards to meet the requirements for the middle-class jobs, and the persons promoted to these positions have continued to get equal wages with those serving in lower ranks.
Shelton (2008) argues that there is significant level of income inequality between workers in similar positions based on whether they are members of the union of employees. Hostess has pointed out that its financial situation has been impacted by protests from the union of employees and the body’s consistent struggle to enhance its economic status. Because of this, unionized employees continue receiving high salary packages. Even though this strategy has been applied by the company in order to discourage the participation of union members in protests and strikes, it has significantly contributed to the demoralization of employees thereby resulting into a high rate of labor turnover.
Henderson (2005) says that Hostess has heaped blames on the union of employee for the financial crisis that it is facing and subsequent filing for bankruptcy. It is without doubt that the union has embarked on protecting employees from suffering as a result of the consequences of the economic crisis facing the organization by having their wages and rewards cut down so as to enable the company to get back on its feet. While the company has suffered a debt crisis of more than a billion dollars, more than 19,000 workers have experienced the consequences of this situation by having their jobs put at risk while their wages are significantly reduced with the aim of recovering from the inflated costs of raw materials. Despite the fact that the organization has been in crisis since 2004, it has continuously offered hefty remuneration packages to the senior employees while seeking to terminate the wage and remuneration contracts that it had earlier on negotiated with the union.
Due to this, the union has sought ways of fighting the deceptive claims that compensation and benefits challenges have emerged as a result of the downfall of the company. The organization has further claimed that it is unable to afford financing an estimated $700 million in pension, thus, its plan to end the pension plan contract. However, the participation of the union in protests is grounded by the fact that a lot of funds that could be used by the organization in covering up the pension plan has already been spent on the ‘long-term compensation’ package negotiated between the company and its executives so as to restore trade relations with the OLD HB Inc.
According to studies, other companies have also experienced challenges with their compensation and benefit structures, and desired different strategies aimed at coping with these situations. Earle (2010) argues that Abbott Laboratories, that is a pharmaceutical organization, is an ideal example of the major companies that have previously hit by challenges with regards to their compensation and benefit systems. This was stipulated by their act of placing a lot of concerns on ways of promoting their self-benefit while neglecting the need to enhance the wellbeing of their workers. Studies show that the benefit and compensation approach applied by Abbott was based on a biased strategy which mainly aimed at empowering the senior executives who were considered to have an upper hand in enhancing the organization’s productivity. The company obtained skilled manpower from its rivals by giving them high remuneration packages and long-term compensation and pension benefits so as to retain them in the company. The impact of this is that the company would cut down the pension benefits given to lower rank workers in order to recover the losses made in funding the payments to the executives. While this resulted into a high level of labor turnover among the workers serving in lower ranks, the organization ultimately came up with a new strategy that would assist in attracting and retaining productive employees at all the levels of employment. In order to respond to this circumstance, the company adopted a new strategy that would outline the balanced remunerations and pension benefits between the senior employees and those in lower ranks. This enabled Abbott to raise its level of pension contribution for lower rank employees, while rationally adjusting the amount of compensation made to employees serving in highly ranked positions.
Another example of a company that had problems with its compensation and benefit system is Domino Pizza. Richards (2006) argues that the company mainly focused on how to boost its competitiveness by raising the targets of individual employees’ performance without accompanying it by reward or remuneration package increase. Just like it was done in Hostess, Domino Pizza created middle-class positions to oversee quality product delivery by junior employees so as to improve its international growth. The middle-class workers did not receive any increment on their remuneration packages but still continued to get equal pay like the junior employees. Any employee that could make an effort towards engaging in unionized protests would be exposed to reduced wages or termination of employment since the company was on the verge of bankruptcy and could not be able to raise enough finances to cater for increased remuneration packages for junior employees. However, the company experienced significant decline in the level of productivity as a result of high levels of labor turnover. Therefore, it had to come up with a new way that could help in finding a solution to this problem. Richards (2006) argues that Domino Pizza invented a new plan which could make sure that the employees are rewarded for enhanced performance while the promotion to higher ranks would be matched with an increased remuneration package. The unions of employees were charged with the creation of a platform which would enable the organization to negotiate on the right strategy to maintain the compensation and benefits of employees. This impacted high level of productivity and subsequent success of the company.
Theories and Strategies that can be contemplated to address the Issue
In order to assist Hostess Brands in addressing its complex situation and be able to meet its long-term goals, it is ideal to contemplate on particular theories that might prompt the company to come up with suitable strategies for the management of its workforce. According to Douglas McGregor in his Theory X and Theory Y model, Hostess can be able to solve the problem through offering its employees, effective guidance. He argues that the employers trend to apply human resource management strategies that might impact motivation or demoralization of the workers. While the X theory operates on the assumption of autocratic procedure, the employees end up demoralized. The Y theory on the other hand entails democratic approaches that result into the motivation of employees, thereby ensuring productivity. As outlined by Douglas, the leaders who adopt the X theory in management often threaten employees to abide by their orders while neglecting the efforts of promoting their welfare. They do not engage their workers in the processes of decision making and often withhold payment while suppressing remuneration levels. For success, Hostess should adopt the Y theory model of workforce management in order to enhance motivation for its employees. Douglas points out that theory Y allows employees to engage in negotiations with their employers with regards to their remuneration and reward benefits (Gupta & Jenkins, 1996). Managers are focused on how their can enhance their productivity and promote the wellbeing of their employees. The application of this theory to the management strategy of Hostess can assist the organization in integrating its organizational needs with the needs of its workforce for increased productivity.
The Equity theory by John Adams can be used in addressing the complex situation faced by Hostess since it can ensure that employees who are serving in all job ranks are given fair treatment. This theory argues that employees are often motivated by their perceived fair treatment from the heads of the organization, which greatly impacts their commitment to the overall success of the company. However, employees can be demoralized if they are treated unfairly, and this can lead to protests and acts of poor performance which subsequently affects the overall productivity of the organization. The integration of this theory to the approach applied by Hostess in the management of employees can help in making sure that fair treatment is exercised to enhance high performance (Gordon, 2005). The theory can assist the top management in the company to realize that cutting down the remuneration packages and reward benefits can only work towards demoralizing employees, thereby subsequently affecting their level of productivity.
It is without doubt that Hostess is also faced with severe challenges when it comes to its compensation and benefit system as a result of its inability to set an equal balance between the monetary and non-monetary reward strategies with regards to different employees. In order to be successful, Hostess should create a balance between the non-monetary and monetary reward strategy by offering increased remuneration packages to employees who have been awarded promotions. The employees who have earned promotion to middle-level job positions should have better remuneration packages compared to those in lower ranks.
Recommendations on how to Resolve the Concerns
In order to address the complex issues that are experienced by Hostess Brands LLC, it is of great importance that the leadership of the company formulates strategies that would help in facing the various challenges on its compensation and benefit system. The organization should strike a balance between meeting its needs and those of the workers. Besides, it should also adopt effective strategies in improving productivity instead of reducing wages and rewards that should be given to the employees. The need for motivating the executive members of the staff should also be balanced with the need to motivate employees in all positions. The organization should not give high remuneration packages and retirement benefits without proper reasons while withholding similar benefits to the junior workers. Instead of doing this, it should reduce the benefits given to the senior employees to a level that is available to all workers.
It is clear that compensation and benefit programs are important in any serious organization since they can greatly impact the overall performance of the company. Choosing the right strategy while coming up with these programs is important because it can have great effects on the overall performance of employees and subsequent productivity of the organization. Striking a balance between the needs of the first-rate organization and the needs of particular workers is obligatory since the success of a company cannot be achieved without the effective commitment of employees in enhancing productivity.
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