Running head: Compensation practice 1
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 a ...
1. Running head: Compensation practice
1
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-
2. 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
3. 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
4. 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
5. 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
6. 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
7. 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
