kindly solve question number 2. Shearwater Ltd.: Designing a Reward StrategyShearwater Ltd designs and manufactures a range of electronic and electro-mechanical subsystems for the aerospace and defence industry. It is located in thesouth-west of England, an area with a strong defence tradition. Shearwater is amanufacturing division of the Wilco Group, an American conglomerate mainlyinvolved in the manufacturing of automobile components, which acquired thecompany in 2003. Shearwater employs 120 staff, of which approximately half areskilled and semi-skilled staff directly involved in the manufacturing process, 20engineers and the remainder are spread across various business functions includingsales, finance and procurement. Since the company was acquired by Wilco it hasreduced its workforce by approximately 40 per cent - mainly through voluntaryredundancy and the non-renewal of fixed-term contracts - in response to perceivedovercapacity and reduced demand for its products due to increasing overseascompetition. Shearwater has also responded to these pressures by explicitlypursuing a 'high-quality business strategy as a means of market positioning, incontrast to many of its competitors that tend to focus on cost, and has rationalised itsproduct range to focus on core technologies and areas of expertise.Despite the success of these changes and relatively 'healthy company performanceover the last two financial years, Wilco continues to exert pressure on Shearwater forgreater cost savings and efficiency. These demands have partly been blamed forhigh levels of labour turnover among senior management at Shearwater. Inparticular, in the last six years the company has had three managing directors. Thecurrent managing director has been in the post for only three months and wastransferred from another Wilco company in the USA. In contrast, may workers,particularly on the manufacturing side of the business, have been with the companyfor some time. The average length of service is eight years but many employeeshave been with the company considerably longer. A recent staff attitude survey foundthat whilst many employees remain committed to the firm (and, importantly, the workthey do and the sector they work in) and are proud to tell people they work forShearwater, employee morale was low and intention to quit unusually high. Theturnover of senior management, further threat of redundancy and what is seen as1 'meddling' from its parent company were all cited as reasons why employeesreported having limited faith in the long-term viability of the firm.The new MD has, however, spent the first few months considering how the firmmight make further cost-savings and having reviewed the business and productionprocesses decided that the labour costs is an area that required trimming'. He hashowever reassured staff that, given the relatively healthy order book over the short tomedium term, redundancies are not on the table. Currently, pay arrangements for alstaff are established via a periodic management review following brief consultationwith the company council that is made up of union and non-union representativesfrom across the workforce, Ultimately, it is management who decide on payarrangements. Current arrangements reflect long-existing traditions in the company.Manufacturing staff are paid a basic rate, periodically upgraded to reflect inflation(although this is not done by automatic review and tends to be done at the whim ofmanagement) alongside shift premiums and modest overtime payments, which staffview as a means by which to 'top-up' their basic pay.You have been tasked with advising the new Managing Director of Shearwater Ltd.on how to dovelop a new reward strategy for the firm. In order to providecomprehensive ideas, the MD has asked you to consider the following questions1. What are the business objectives that need to be reflected in the new rewardstrategy? What desirable behaviours should the strategy seek to reinforce? Are thereany undesirable behaviours that the strategy might seek to eradicate?2. How might performance-related pay be an effective way of trimming' the labourcosts - relation to overall company performance?3. What might be the bonofits of consulting staff over ways in which to reduce labourcosts?2

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Performance related pay is more effective because it gives employees an incentive to…

2. How might performance-related pay be an effective way of 'trimming' the labour costs - relation to overall company performance?