Nuon Chheang Eng

TFBS, MA scholarship student

Chapter 9 Managing Compensation
Case Study 2 An In-N-Out Pay Strategy: Costa Vida’s Decision to Boost Pay

After studying this chapter, we will learn about the distinguish a strategic compensation
program from one that is non-strategic, we can determine how to design pay systems and we
will be able to estimate whether or not a payment system is consistent within the firm as well as
comparable to industry standards and government laws. To make sure of what we have been
studying, I would like to provide a discussion through the case study about “An In-N-Out Pay
Strategy: Costa Vida’s Decision to Boost Pay”.

With this case, we should have looked at the company, Costa Vida, a fast-food restaurant
in Mexico that is growing rapidly. 13 years after started in 2001, Costa Vida has more than 50
franchises in Arizona, California, Colorado, Florida, Idaho, Illinois, Nevada, New Mexico,
Missouri, Oklahoma, Oregon, Texas, Washington, Wyoming, and Utah, and as of 2017, 3
locations in Canada. One of the main challenges Costa Vida faces is the fierce competition for
customers as well as employees. As a primary stakeholder and former CEO of Costa Vida,
Nathan Gardner knew he was competing against some restaurant chains with competitive
compensation systems. Nathan pointed out that a strong benchmark for them has been In-N-Out
Burger. In-N-Out started in California, known as a great compensation package. They start out
all their new associates’ employees at a minimum of $10 an hour and offer flexible schedules
to accommodate school and other activities, paid vacation, free meals, and a 401k retirement
plan. For full-time associates they provide medical, dental, vision, life, and travel insurance
coverage. We can say it is a great idea, but the main reasons will be discussed through the 6
questions below:

1. Why is it important for pay to be externally fair?

In the case we see that many businesses in today’s belt-tightening economy, decisions
on pay need to be strategic to ensure that employees are treated fairly and to ensure that
businesses can remain viable. This requires knowing what your competitors pay their employees
and knowing your own salary budget. This fair external payment is really important as a
competitive payroll system, external equity can be carried out with companies conducting salary
surveys on the labor market periodically. External equity guarantees that work is compensated
fairly in comparison with the same work in the same labor market.

2. Why is it important for pay to be internally fair?

From the case we see that Nathan believed that “For the fast-casual food industry, you
are dependent upon your people. If you don’t treat your people well, they won’t treat your
customers well. If your customers aren’t treated well, you have no business.” This show about
how important of internal payment, the payroll system that must be felt fair for employees. For
that every position must have a weight and value of their position according to a certain rule and
between positions with one another. In connection with this, the company must have a position
evaluation system, where each position must have a good job description and terms of reference
in order to be evaluated with the existing system. The result of the weight and value of the
position obtained is used to determine the salary level of existing positions. This system ensures
that positions that are more challenging or people who have better qualifications in the
organization are paid higher.

3. What should Costa Vida’s compensation strategy look like? Hint: What are the
company objectives and how can employee pay help to achieve those objectives?

For what we see in the case, Nathan has commented that “What In-N-Out does for their
employees is truly amazing,” the reason for paying so high is based on a strategy to make lower
turnover and more committed workers, who will lead to better service. So, if we talking about
what should Costa Vida’s compensation strategy look like, that may be a list of salary options
available for the management under some conditions, have an influence on the performance of
the organization and the effectiveness of the use of its human resources. The level of success is
associated with variations in salary choices depending on the situation and conditions faced by
the company so far. And to achieve these compensation objectives, the company must link it
with the business strategy to be achieved and the culture that exists in the company. So there is
harmony between what the company wants to achieve and the climate in the company with the
compensation strategy that will be applied.

4. What should the pay structure look like? What pay mix would you recommend?

The Payment systems should be following the structure of the company and employee’s
positions in the company include:

 For the top-level management, it doesn’t need to be included in the salary structure
because there are separate provisions based on the agreement between the Board of
Commissioners and the shareholders regarding the distribution of company profits.

 For the level below the board of directors usually referred to the general manager or
can also the level manager. This needs to be made clear salary structure because this
level there are at least elements of basic salary, operational allowances, job
allowances, food allowances, transport allowances, and bonuses.

 For the level of section chief, the supervisor, the salary components can be added to
various types of benefits such as medical expenses, medical benefits, overtime pay,
and so forth.

 nd the last for the technical implementation level or workers, there is no need for a
position allowance but still has the right to receive overtime pay or any incentive or
packages from the company’s profit as possible.

5. How should Nathan communicate a new compensation strategy to his franchisee

owners and managers?

We see that Nathan had faced a tough challenge in trying to convince his franchise
owners and managers to think more strategically about their pay systems. In this case he has to
convey messages or aspirations, and try not to give the impression that managers are harassing
their subordinates, this is important to give high empathy so that employees or subordinates will
feel cared for and appreciated by their existence and proposals. He needed to help them realize
that paying wages and offering other compensation benefits that were better than their
competitors may mean lower profit margins upfront, but that the returns would be greater in the
long run. He also needed to show that this was not just about being fair, but it was about being
strategic.

6. What effect will be paying higher wages have on Costa Vida in the short term? What
effect will it have in the long term? Explain.

In optimistic ideas, setting minimum wages allows workers to increase their nutrition so
that in the long run they can increase their productivity. Paying higher wages also allow workers
to send their children to school and provide better nutrition for their children. Both, in the long
run, will have a large impact on increasing productivity. But for the pessimistic ideas, with the
different situations of the companies, paying higher wages can harm the development of that
company due to the lacking of funds whereas they have spent much on wages but less than in
research and development.