Pecos Valley SteakHouse Case-

The Environment

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.

Your first 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.

1. Industry Profile: 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 specifically.

2. Economics: The rate of inflation 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 inflation provides a measure of how inflation 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 sources of competition - direct and indirect. The direct competitors are those
firms 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 firms 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 firms that could employ your employees. The local hospital is an indirect competitor to Chili's.