Frito lay performance pay scale

PepsiCo Compensation Practice 10

PepsiCo Compensation Practice

Naomia Curtis

BUS409

Professor Chioma Phillips

Strayer University

July 29, 2015

The company I have chosen to research is PepsiCo, on the presumption that this business is well known throughout the US and other parts of the world. I drink Pepsi almost every day (not good at all) and at previous point in my life I wanted to gain employment at PepsiCo, so researching this company’s compensation practices really offered some insight as to would I continue to consider Pepsico as a potential employer. Some thinking points that were cleared up for me personally, were, is PepsiCo a company that would be a good place to work?, and would it be difficult to reach my highest earning potential based on longevity or performance?

Briefly describe the company you researched, its compensation strategy, best practices they are applying, and compensation-related challenges they are facing.

PepsiCo is a multinational food and beverage company with net revenue of over $65 billion with a product portfolio of 22 brands each generating over $1 billion estimated annual retail sales. The company’s headquarters are located in Purchase, New York. PepsiCo’s products are available to its consumers in over 200 countries across the world (PepsiCo, n.d). The main businesses for PepsiCo include Tropicana, Quaker, Frito-Lay, Gatorade, and Pepsi-Cola. PepsiCo Operating Model (POM) comprises of geographical sectors that retain both profit and loss responsibilities, and Global Functions and Global Groups. PepsiCo’s Global Groups such as Global Nutrition, Global Beverages, and Global Snacks provide a consistent framework that allows the company’s brands to grow and create new product sales worldwide. Global Groups are assisted by strategic Global Functions like finance, public policy, government affairs, research and development, operations, communication, and human resources; which help the company to build its brand (PepsiCo, n.d).

PepsiCo is divided into four business units, which include: PepsiCo Americas Foods (PAF), PepsiCo Americas Beverages (PAB), PepsiCo Europe, and PepsiCo Asia, Middle East and Africa (AMEA). PepsiCo’s business units consist of six segments also known as divisions, which include: Frito-Lay North America, PepsiCo Americas Beverages (PAB), Quaker Foods North America (QFNA), Europe, Latin America Foods (LAF), and Asia, Middle and Africa (AMEA) (PepsiCo, n.d).

As an international company, PepsiCo believes in equal employment and does not discriminate any person seeking employment based on their race, color, gender, political affiliation, or religion. However, employee compensation in PepsiCo is varied according to duties and responsibilities, the nature of work, and geographical location. There are workers whose wages are calculated based on hours or number of days worked, like unskilled temporary workers or contract workers. PepsiCo also has a monthly salary compensation system for its permanent employed workers and managers. In this compensation system, the wage level is determined according to the responsibilities held by an employee or manager.

To ensure that the company’s performance improves, PepsiCo has a performance pay system that encourages the workers to give their best in brand quality and service delivery in line with customer preference. As such, PepsiCo provides various benefits to its employees strategically to retain its skilled employees. Also, the company maintains a pay base system informed by an annual review of internal peer data and external market.

PepsiCo also provides monetary incentives to its skilled personnel depending on their level of employment. For example, the company’s personnel in higher positions are provided with vehicles. PepsiCo also offers health benefits like health cover for its employees and their relatives. Employees in the managerial ranks are given life insurance protection and travel insurance. These serve as management incentives, to decrease turnover and enhance the realization of the company’s organizational mission and goals.

Despite PepsiCo's compensation strategy and application of best practices, PepsiCo still faces various compensation-related challenges. PepsiCo faces the challenge of turnover of its skilled employees who leave the company for better compensating companies. As a global company with a goal of widening its business operation to other regions, it faces government policy challenges of such areas related to compensation of employees. Another challenge that the company faces is labor laws and cost of living in its global divisions. To continue operations in such countries, PepsiCo is forced to abide by those countries’ ever-changing legal employee compensation regulations. PepsiCo also has a lot of foreign employees (high-rank managers) managing its global divisions. As such, it incurs a lot of costs when providing these employees on international assignments with benefits such as health insurance, travel allowances, and housing benefits. These compensation challenges have forced the company to develop a compensation committee to design and maintain a uniform compensation policy that will guide how PepsiCo compensates its employees in all its operation regions.

Analyze how your company applies compensation practice to determine the positive or negative impact to the company and its stakeholders.

PepsiCo has various stakeholders, such as, management, company shareholders, and employees who have a high expectation of the company’s employee compensation program. PepsiCo has identified that wages and salaries can function as negative reinforcement of performance instead of being positive. For a compensation program to improve and sustain the performance of its key employees, it must conform to the behavioral principles.

At PepsiCo, the compensation system has been designed in a way that it serves as recognition for performance by paying based on individual performance. At PepsiCo, employees are not just paid wages and salaries for time worked, but the company also pays for results. The concept behind this is that when a person pays for the time, that person gets time. However, a person pays for results that person gets results in return.

To improve pay for performance programs, PepsiCo has replaced the subjective performance measures and replaced them with objective performance. At PepsiCo, the compensation program has replaced bonuses with pay for performance, mainly aimed at improving and sustaining employee performance by giving the employee a direction of what is expected of them.

In order to enhance employee performance, the company has removed the annual performance measurement and replaced them with frequent measurement, which allows supervisors to rate an employee’s performance based on objective data or feedback provided at least on a monthly basis. PepsiCo has replaced the large group measures and in its place established a personal performance measure and small team measure to ensure that payment to an employee is based on individual performance.

Examine the ways in which laws, labor unions, and market factors impact the company’s compensation practices. Provide specific examples to support your response.

There are various federal, state, and local employment laws that affect PepsiCo’s employee compensation practice. These laws affect the company’s compensation system by defining the aspect of pay, influencing the amount of pay an employee receives, and shape the company’s benefits plan.

The Fair Labor Standards Act (FLSA) is identified as the most significant compensation legislation. FLSA has five primary compensation laws that govern overtime pay, minimum wage, recordkeeping requirement, equal pay, and child labor. Another law that affects compensation practice of PepsiCo is the Equal Pay Act of 1963. This Act is an amendment to the Fair Labor Standards Act, which prohibits companies from having differences on the basis of gender for men and women working in the same organization or company whose jobs are the same.

The Equal Pay Act does not prohibit a company from compensating using seniority systems, but must be equal systems that also focus on compensating performance, and merit. In addition to these laws, the Unite States government has developed various laws that affect the practice of compensation in one way or another. Such laws include the Consumer Credit Protection, which focuses on wages garnishments, and Employee Retirement Income Retirement Income Security (ERISA). These laws form the basis for various companies’ benefits programs.

Labor unions have also had a significant impact on PepsiCo’s compensation practice. Labor unions have played an important role that has helped to secure legislated rights and protection, such as overtime, medical and family leave, safety and health, and enforcing these rights and protection on the job. Since workers belonging to labor unions are informed, these workers benefit a lot from social insurance programs like workers compensation, and unemployment insurance. As such, labor unions serve as an intermediary institution that provide PepsiCo employees with the necessary complement to legislated rights, protections, and benefits. Through labor unions, the wages of unionized workers has been raised, wage inequalities reduced, pay standards have been set for nonunionized workers such as part-time workers who are mostly students, and also better pension plans.

There are various market factors that affect how PepsiCo compensates its workers. These can be categorized into external and internal factors (Martocchio, 2013).

i. Internal factors

The following are some of the internal factors affecting employee compensation in PepsiCo:

Ability to pay - as a company that is successful and able to pay its workers higher than the competitive rate, PepsiCo has managed to attract and retain more superior personnel as a result of its compensation package.

Employee - various factors associated with employees influence on how a company compensates workers. These factors include performance, experience, seniority, and potential

ii. External factors

External factors determining how a PepsiCo compensates its workers include the following:

Law and regulation: - these affect the compensation practice of PepsiCo in 3 main areas, which include minimum wage, overtime, and paid work hours

Labor market: - they include official laws on labor contracts, salary, wages, and average salary rate of similar work in the labor market.

Economy - affects how PepsiCo employees are compensated by affecting the salary and wage fixation. Salary rate increase in a stable economy and decreases in an unstable economy.

Technological changes: - as a result of advanced technology, the number of skilled manpower in the company is small. As such, the organization gives high wage and salary to its experienced technical personnel.

Evaluate the effectiveness of traditional bases for pay at the company you researched.

The objective of any compensation system is to attract skilled personnel, motivate the staff and retain them (Martocchio, 2013). A lot of organizations including PepsiCo utilize the combination of two models of compensation namely, paying the person and paying for the job. Although the use of the traditional pay model can lead to unintended and counterproductive outcomes many times, it provided consistency and perception of fairness within the company (Shimko, 2000).

Most people are familiar with the traditional model paying for the job. While using this model, PepsiCo had to grade and weigh its positions according to a person’s education and experience as required by the job, and also the number of workers that directly report to the person in that position. However, there were various advantages associated with the use of traditional bases for pay in PepsiCo, which include:

• It enhances centralized control

• It is an effective tool for conducting evaluations of internal pay equity.

• It facilitates the testing of pay scale competitiveness

• It possesses the look of objectivity

Considering the numerous challenges that the model presented at PepsiCo, it can be summed that the traditional bases for pay model was not a success as a result of various disadvantages it has on the compensation practice or program, which include:

• It inflates the operating costs of a pay system

• It enhances inefficiency and point grabbing

• Honesty is compromised in job description

• It rewards job changes instead of outstanding performance

• It facilitates vertical career orientation leading to staff taking roles that they are not effective

• It reinforces bureaucracy and hierarchy by valuing jobs based on their hierarchical position or control level.

In summary, the traditional bases for pay can benefit a company or organization by being consistent and offering the perception of being fair within a compensation system. However, this model when implemented can dominate a section of an organization’s compensation practice culture and lead to unintended counterproductive outcomes (Shimko, 2000).

References

Martocchio, J. J. (2013). Strategic compensation: A human resource management approach (7th ed.). Upper Saddle River, NJ: Prentice Hall / Pearson.

PepsiCo. (n.d.). Global divisions. Retrieved July 19, 2015, from https://www.pepsico.com/Company/Global-Divisions

Shimko, D. (2000). Choosing a pay structure that works for you. Fam Pract, 7(2), 30-34. Retrieved July 19, 2015, from

http://www.aafp.org/fpm/2000/0200/p30.html