Upon deregulating the pharmaceutical industry, Mr. Kitobbe, then Chief Government Pharmacist was offered the job of Managing Director of Country Medical Supplies (CMS). Previously the overseeing Ministry of Health had subsidized a portion of the budget of CMS to run her operations. With these developments CMS was not only expected to be self-sustaining but also deposit a dividend to the government from its annual sales of medical supplies.
As a public servant Mr. Kittobe had no background in business management and one of his first decisions was to hire a marketing professional, Mr Mugerwa, from the private sector. After familiarizing himself with the industry, Mr. Mugerwa, presented a proposal to Mr Kitobbe how to turn around CMS into a self-sustaining parastatal.
“We need to change the salary structure and peg bonuses on individual performance,” suggested Brian. “As well you should hire sales and marketing staff on commission basis. Though they will be paid a retainer fee they will be given a commission based on monthly sales.”
“Bonuses and Commissions!” the Managing Director exclaimed. “Don’t forget this is a government organ where people come to serve and are paid for just that.”
“My friend,” Brian smiled, “if you want to run a profitable enterprise one proven way is to motivate your staff with incentives. I do not know much about public service but I am sure most human beings are motivated by self-interest. As a manager you should take advantage of this desire for selfish gain.”
“But even if I agree,” the Managing Director argued “I doubt the rest of the managers would warm up to your suggestions of commissions and bonuses. People here prefer straight salaries based on seniority.”
Indeed, when the proposal was brought to top management that comprised of the heads of Finance, Human Resource and IT, it met with outright skepticism. “If you give the sales guys commission what of the rest. Some junior officers will now have a larger take home pay than their bosses. In any cases those sales people cannot perform without our support.”
Brian decided to clarify. “We can work out formulae where for every sale closed a certain percentage is shared with other departments but with sales taking a lion’s share as a motivator.” Reluctantly he was tasked to work out that formula which was passed to the Board for approval.
But once the Board Chairperson, Mr Wadri, a former head of the public service had gone through the proposal, he swiftly pushed it aside. “You mean to suggest we shall start giving bonuses to people for doing their work. The next thing you will be suggesting is that doctors should be paid bonuses for seeing so many patients. Forget it.”
Attempts by a Board member from the private sector to argue that times had changed and the competition in the new liberalized economy necessitated motivating even public servants with incentives fell on deaf ears. “Those who cannot work without commission and bonuses should quit and look for work elsewhere,” the Chairman argued. “They should already be motivated for having a job and a salary.”
When Mr. Mugerwa heard that his proposal had been rejected he decided to quit CMS and form a competitor company where he established a performance pay. His company did well and over time took the market leadership from CMS. Eventually due to its stagnant performance CMS was sold by government to a consortium of investors who included the former Marketing Manager of CMS.
Question:
- Identify the reasons why companies like CMS are found opposed to a performance management system
- What steps can you take in such an organization to create a performance culture
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