Assignment Case Study: Pure Profit Plc.

Assignment Case Study: Pure Profit Plc.

You are an independent Reward Consultant retained by the Financial Services firm Pure Profits, based in the City of London. Six former university friends who had all read Economics at the LSE established Pure Profits 10 years ago. After graduation they all qualified as Stockbrokers and Independent Financial Advisors. However it was always their intention to form a partnership where they could own and manage the sort of financial services business that really appealed to them.

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Pure Profits provides a “one-stop” ethical investment service. Through Pure Profits clients may purchase individual company shares, unit or investment trusts, pension plans and endowment policies. The six partners also manage a range of in-house unit trusts, covering U.K., European, International and Emerging Market portfolios.  Clients may rest assured that their investments will be subject to a stringent ethical screening.  Pure Profits never invest in enterprises that damage the environment, collaborate with oppressive regimes, exploit their employees or produce unethical goods or services. Not only that, but the firm positively seeks out socially and environmentally beneficial companies, dealing in areas such as new energy, waste recycling and ethical medical research. Pure Profits is particularly keen to invest in suitable enterprises to generate economic growth and social progress in the Developing World. Despite these constraints (or, the partners would argue, because of them) the firm has proved to be very successful with a rapidly growing client base and ever increasing profitability. Pure Profits has a range of corporate clients – mainly charities and trade unions, some very large private investors entrusting six, and even seven, figure sums to the firm, and a large number of small and medium sized private clients with an average of about £40,000 to invest.

The huge growth in the demand for the firm’s services is now putting unsustainable strain upon the partners. They all work fifteen-hour days and six-day weeks and have to undertake a gruelling travel routine. They are fast reaching the stage where there is far more work than they can realistically cope with. Their solution is a bold one. In six months’ time they will launch six regional offices and concurrently they will float the firm on the Alternative Investment Market and it will become a Public Limited Liability Company (Plc). The partners’ own judgement (supported throughout The City) is that upon flotation the share price is likely to show a very healthy premium upon its issue valuation. The six offices will be spread over Great Britain – in Edinburgh, Leeds, Manchester, Nottingham, Cardiff and Plymouth.

The partners have decided to employ five Financial Advisors in each Regional Office. They envisage one Regional Manager in charge of each office with three Advisors reporting to them. They also wish to have a Graduate Trainee in each office. One Secretary and one Clerical Officer should complete each team.

Pure Profits has retained a Recruitment Consultant to recruit and select suitable staff. The consultant’s advice is that recruitment will not be a problem; there are already about ten applicants for each position.

Similarly the firm has retained a Marketing Consultant to research the potential for a sustainable client base. Again, there is no problem here and the market research shows a huge demand for the firm’s services.

Pure Profits now seeks your advice and services as a Reward expert. The range of work to be conducted in the Regional Offices will be the same as in Head Quarters in London (except for the in-house unit trusts, which will still be managed by the partners). The range of clients will be much the same, except that the partners at H.Q will still service corporate clients. It is expected, however, that the Regional Managers will attract corporate clients from their own localities.

The partners are willing to provide for a salary budget of £400,000 to £450,000 per annum for each Regional Office. The budgets for individual offices may need to vary to account for differences in local employment markets and costs of living. The budgets are for basic pay only and do not account for employee benefits or incentive pay.

The partners require your advice on the total range of Reward issues that all this implies. They particularly welcome your suggestions on the following:

•          Pay Structure. They need your recommendations on some sort of “grading system” (loosely defined). They feel quite comfortable with a spot rate for each job, but ask for your advice. Especially, they need advice on how the available work should be divided between the employees and how this should be reflected in pay rates. They want a solution that is fair, orderly and flexible.

•          Rewarding Skill and Responsibility. Pure Profits will be looking for a wide range of skills and expertise from the staff. They have agreed with the Recruitment Consultant that a “Team Approach” is to be taken; i.e. all the required skills and expertise must be available within each Regional Office, with each individual member bringing some, but not necessarily all, of those skills to the team. Similarly, there are different levels of client to deal with and different sizes of portfolio. This will give rise to different levels of complexity and responsibility in Financial Advisors’ workloads and this must be accounted for in the pay arrangements.

•         Incentive Pay. The partners see this as probably the most contentious issue of all. They are conscious of the damage done by the “bonus culture” of The City and have no wish to be part of it. On the other hand, they are adamant that good work should be properly and fairly rewarded. They seek your views on the criteria for incentive pay: obvious factors seem to be, growth and income of clients’ portfolios, ethical requirements being met, growth in client base, fee generation, risk management of portfolios, standards of client care and client satisfaction. They also need some idea of the percentage of overall remuneration that should come from the incentive pay.

•          Employee Benefits. The partners only allow themselves what they see as fairly basic benefits. They have a Money Purchase Pension Scheme (managed in-house), Season Travel Tickets, Expense and Hospitality Accounts, free membership of any clubs which may be useful for forming contacts with potential clients, a clothing allowance and a mere fifteen days annual holiday. They have deliberately avoided company cars. At H.Q. there is also a free corporate bar in the cellar, where the partners often congregate after work for a few drinks and a chat about the day’s proceedings. Pure Profits also has its own Charitable Trust to which it contributes 1% of its annual profits and to which the partners contribute on an individual and ad-hoc basis. The partners are inclined to think that more extensive benefits may have to be offered to the new employees, but look to your advice over the range of benefits, the size of benefits and the mechanics for operating a benefits package.

•          Equal Pay. The Recruitment Consultant told the partners that only 30% of applicants were women and only 15% were from ethnic minorities. The Consultant was instructed to operate on a scrupulous and uncompromising policy of Equal Opportunities. Similarly, the partners seek your advice on identifying any potential Equal Pay issues that may arise here and your recommendation on how to address them.

•          Profit Sharing. The partners are keen that their employees share in the wealth they help to create and therefore invite your views on the viability here of profit sharing and/or employee share ownership. They also require your recommendations on appropriate mechanics for such schemes.

•          Equitable Reward. As befits the ethos of the firm, the partners are anxious that you ensure that your recommendations are for fair and equitable reward systems. Particularly, they insist on fair differentials, ethical incentive systems and ensuring that all employees are adequately paid.

Instructions for Pure Profit Assignment

Please write a report to the current partners of Pure Profit covering the following terms of reference:

  • A critical analysis of the range of performance and reward issues pertinent to Pure Profit as it becomes a Plc and a critical evaluation of their relative importance in the internal and external environmental context.
  • A critical evaluation of conclusions and recommendations based upon logical, focused and sound judgement necessary to bring about successful implementation of performance and reward policy choices. Resource implications of recommendations and awareness of alternatives should be set out and evaluated.

 

 

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