Pecos Valley SteakHouse Case
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Pecos Valley SteakHouse Case!
Lee E. Weyant, DBA!
2014©!
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Table of Contents!
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Introduction!
2!
Learning Objectives:!
2!
Overview:!
2!
The Environment!
Pay Structures!
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4!
6!
Bene?ts!
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Pecos Valley SteakHouse Case
Introduction!
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Learning Objectives:!
This case study is designed to address issues of designing organizational
compensation systems. The experiential nature of this case requires students to:!
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communicate effectively,!
use information technology,!
collaborate, and!
apply managerial principles to solve organizational issues.!
Overview:!
SRE, Inc. is a privately owned management ?rm located in Reading, Pennsylvania. The
company has decided to open a full-service, casual-dining restaurant, called Pecos
Valley SteakHouse, in Reading. Conceptually this restaurant is being positioned to
compete with Hoss’s Steak & Seafood.!
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You have recently joined SRE, Inc. as their Human Resource Manager. After last
week’s staff meeting, Sam Snow, CEO SRE, Inc., and Bob Miller, VP Operations, asked
you to join them to discuss the Pecos Valley SteakHouse project. Sam conceded that
the management team had done a good job of creating the concept, building design,
and other “hardware” issues, but he was uncomfortable with the “people” side of the
project. Bob stated that he felt comfortable that the manning levels would be adequate
to handle the initial opening and the ?rst year of operation. As Bob said, “We’ve looked
at other operations and this manning seems appropriate. We’ll start with these numbers
and adjust as needed.” Sam added, “What I’m concerned about is . . . well to be frank,
we’re not sure how much to pay these people? This project is so different from our
other ventures.” Sam continued “I want you to help develop the compensation system
for this project. You should keep in mind that our underlying philosophy is to have
compensation and bene?ts that attract, retain, and motivate employees.”!
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Throughout the ensuing discussions you learned:!
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• there are no job descriptions, and!
• currently SRE, Inc. provides only those bene?ts required by law. Sam
acknowledged that any changes to bene?ts would affect the entire company (i,e.,
100 employees after the establishment of the new restaurant)!
As the meeting ended, Sam added “Bob and I expect to see progress reports along the
way.” On the way back to the of?ce you began thinking about how you could involve the
other members of your HR staff to address the issues.!
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Pecos Valley SteakHouse Case
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Table 1 shows the projected staf?ng levels for the new restaurant.!
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Table 1!
Manning Levels!
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Job Title
Number
Comments
General Manager
1
Overall responsibility for restaurant reports to VP
Operations SRE, Inc.
Assistant Manager
2
1 Back of House (BOH) Manager,!
1 Front of House (FOH) Manager
BOH
30
1, Head Chef reports to BOH Manager!
3, Assistant Chefs that report to Head Chef, have
shift leadership responsibility!
Remaining staff consists of line cooks, prep
individuals, and dishwashers!
FOH
30
1, Beverage Supervisor reports to FOH manager!
1, Lead Host/Hostess reports to FOH manager!
Remaining staff consists of host/hostess, wait staff,
beverage staff, and bussers.!
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Pecos Valley SteakHouse Case
The Environment!
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Compensation systems are used to attract, retain, and motivate employees. The
development of a compensation system must align with the overall strategy of the
organization. As such these systems will be affected by the environment in which the
organization operates.!
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Your ?rst challenge is to understand the external environmental issues affecting Pecos
Valley SteakHouse. The information gleaned from this environmental scan will assist in
the development of the compensation system. As such you have decided on
addressing several issues.!
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1. Industry Pro?le: What are the general characteristics of the full-service, casual
dining restaurant industry? What is the industry’s sales volume? What are the
major economic, technological, and legislative challenges facing the industry?
Organizations, such as the National Restaurant Association (http://
www.restaurant.org), and Hoover’s provides information about the restaurant
industry in general and the full-service, casual dining restaurant speci?cally.!
2. Economics: The rate of in?ation as measured b the Consumer Price Index (CPI)
will assist in determining your pay structure. The US Department of Labor,
Bureau of Labor Statistics (BLS) (http://www.bls.gov) reports monthly on changes
to the CPI. The CPI is reported monthly as an index number (i.e., 227) and a
monthly percent of change in the index number. While this information about the
change in the CPI is an important metric, most managers will focus on the annual
percent of change in the CPI. The annual (i.e., the last 12 months) rate of
change in in?ation provides a measure of how in?ation is affecting the purchasing
power of the wages being offered by your company. For example the April 2012
CPI report would show the annual percentage rate of change since April 2011.
As the compensation manager who will interested in knowing the CPI trend for
the last 12 months.!
3. Labor Market: The BLS reports the monthly changes in unemployment at the
national, state, and local (i.e., Metropolitan Statistic Areas (MSAs)) levels. The
national unemployment rate provides a macro view of the US economy and the
availability of the workforce. Some states will also publish unemployment
information through their state level bureau of labor and industry. The state
reports augments the federal BLS by reporting unemployment rates at the county
and/or city level. The MSAs typically focus on major population areas within a
state. As a compensation manager you are interested in the unemployment
trends for the past 12 months in these three major areas – National
Unemployment, State Unemployment, and Local (City) Unemployment.!
4. Competitors: From a compensation perspective your competitors represent
alternative employment opportunities for your employees. If your compensation
system is not viewed by your employees as competitive, then they may seek
other opportunities. An analysis of your competition should involve two major
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Pecos Valley SteakHouse Case
sources of competition – direct and indirect. The direct competitors are those
?rms that are in the same industry, same segment. For example, a direct
competitor of Chili’s is Applebee’s. Another form of direct competition are those
?rms in the same industry, different segment. For example, McDonald’s as a
quick service restaurant (QSR) is in the same industry, different segment
compared to Chili’s. Your indirect competitors are all other ?rms that could
employ your employees. The local hospital is an indirect competitor to Chili’s.!
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You are to write an environmental scanning report addressing the four issues above. !
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Pecos Valley SteakHouse Case
Pay Structures!
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As we have seen the goals of a compensation system is to attract, retain, and motivate
employees. Implied in these goals is the issue of competitive wages and bene?ts.
Organizations must have a sense of the wages and bene?ts being offered in the locale,
(i.e., “the market”). Some organizations will take a very formal approach by conducting
wage surveys. These activities may be done by a third party consultant for an individual
company, industry, or region. Some organizations will use a less formal approach. For
example, throughout the year HR managers may gather newspaper clippings of any
article that discusses union contract settlements, proposed health insurance changes,
or plant closures. Another informal approach is to use the resources of the Bureau of
Labor Statistics (http://www.bls.gov/bls/blswage.htm). The BLS will list wage data by
occupation and industry at the national and regional level. Some states through their
department of labor and industry will publish wage data. Likewise many trade
associations will publish wage data speci?c to that industry.!
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After gathering the data HR needs to establish the pay ranges for each job family. The
pay range consists of a minimum (i.e., entry level) pay, middle (i.e., relates to the market
wages), and maximum (i.e., the top level of pay). The range spread (i.e., the difference
between the minimum and maximum rates of pay) is normally expressed as a
percentage. Compensation managers must establish their midpoint for the pay range
based on their compensation goal. If a company follows the market, the midpoint will
represent the median market pay for that particular job family. If a company has a lead
or lag wage policy, they adjust their middle point accordingly. For example if your
research shows the median salary for the occupation is $30,000 and you want to lag the
market by 10%, then the midpoint salary for this occupation would be $27,000 or 10%
below the median market. Similarly, leading the market by 10% would mean a $33,000
midpoint for your base pay.!
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After establishing the midpoint, Compensation managers must calculate the minimum
and maximum pay rates based on the given midpoint. One method calculates the
minimum and maximum rates based on the range spread. Another method calculates
the minimum and maximum rates as a percentage of change from the midpoint. Both
methods are acceptable, but the calculations provide slightly different results.!
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Using the data collected in the previous Pecos Valley SteakHouse projects combined
with the BLS, state online resources, and news article wage data, determine the salary
structure for the General Manager and Assistant Manager jobs.!
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1. What will be the compensation goal relative to the market? Will Pecos Valley
SteakHouse lead, follow, or lag the market in terms of pay for these occupations?
What is the rationale for this decision?!
2. Pay systems normally are a combination of base pay, incentive pay, and pay-forperformance. What will be the combination at Pecos Valley SteakHouse for
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Pecos Valley SteakHouse Case
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these occupations? If you are using incentive pay as part of your plan, then you
must decide on the combination of individual, group, and company-wide
incentives that be used in your pay structure. You will need to provide details
and a rationale for the various incentive plans used in your pay structure.!
3. Assume a 40% range spread for each occupation. Calculate the midpoint,
minimum, and maximum salary points for each occupation’s pay grade.!
4. Using the pay range calculated in number 3 above, what is the salary for a
General Manager at a 87% compa-ratio level? What is the salary for an
Assistant Manager at a 105% compa-ratio level? !
5. Calculate the pay overlap between these two pay grades.!
6. Referring to your CPI analysis earlier in this project, what is your estimated CPI
rate for 2015? Using this estimate recalculate the midpoint, minimum, and
maximum points for each pay grade to re?ect this in?ationary salary increase.!
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Pecos Valley SteakHouse Case
Bene?ts!
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Many of the fringe bene?ts we have in today’s organizations are a result of the wage
systems established in the United States during World War II. At that time wages were
tightly controlled to help with the overall war effort. Companies were able to grant
bene?ts in lieu of wages. After the war, these bene?ts were continued through the
collective bargaining process and became “norms” for all companies.!
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Today, we have two broad categories of bene?ts – mandatory and discretionary. The
mandatory bene?ts are established by legislative action – Social Security,
Unemployment Compensation, Workers’ Compensation, and Family and Medical
Leave. Discretionary bene?ts are established by the individual company. Over time the
competitive forces have created a system where many of the discretionary bene?ts are
considered the “norm” by employees.!
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Discretionary bene?ts may be funded solely by the employer. These bene?ts are
considered non-contributory since the employee does not contribute or pay a portion of
the cost. Discretionary bene?ts may be funded through employee contributions to pay
the bene?t costs. These contributory plans may range from 100% employee
contribution to a near zero percentage. A company may use a contributory plan for one
bene?ts and a non-contributory plan for other bene?ts.!
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You need to recommend a discretionary bene?t system for Pecos Valley SteakHouse.
This recommendation should consider: !
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1. Bene?t Eligibility!
a. Which employees are eligible for bene?ts?!
b. When do employees become eligible for bene?ts?!
2. Paid Time Off Bene?ts – Identify the paid time off plans offered by the company.
Be sure to identify the details on how many days an employee is eligible for paid
time off. For example, Vacations – 2 weeks after 1 year of service.!
3. Retirement Plans!
a. Will the company offer a de?ned bene?t or a de?ned contribution plan?!
b. What is the rationale for this recommendation?!
c. If a retirement is offered, will it be a contributory or non-contributory plan. If
contributory, what is the rate of employee contribution to the plan?!
4. Health Insurance Plans!
a. What type of health insurance plan, if any, will be offered by the company?
Example – HMO, PPO, CDHP.!
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Pecos Valley SteakHouse Case
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b. What is the relative cost of offering health insurance? Do not consider the
impact of the Patient Protection and Affordable Care Act, 2010, on this
decision.!
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