Department of Agricultural Economics and Business, University of Guelph,
Guelph, ON, N1G 2W1, Canada
Take Home Message
Expanding dairy operations requires additional labour, which in turn requires a human resource management plan. Components of a good HRM plan include an organization chart for the operation, job descriptions, and compensation plans with pay grids. Most of all, an expanding operation requires leadership and supervisory skills.
The Human Resources Plan
All the studies report that there are economies of size in larger dairies, and if the changes I see coming do in fact happen, then Canadian dairy farms will have to decide to either phase out or to expand their dairy operations. Many dairy farmers I know in BC and Ontario are positioning themselves to expand. I assume the same is happening in Alberta. A successful expansion requires good planning: a marketing plan, a production plan, a finance plan, and a human resource plan. All resources are important and require good management, but the human resources are the most important. Your human resources will operate and control your other resources. How you manage your human resources will be key to a successful expansion. As with any resource, successful management needs careful planning.
Whether your human resources are all hired employees, a mix of family and hired employees, or all family members, a detailed human resource plan helps you as an owner in planning and controlling your operation, and helps your workers to know what is expected of them and what they can expect from you. A human resource plan tells you your expected staff requirements and includes an organizational chart of who does what, who is responsible for different parts of the operation, and who reports to whom. Each position needs a job description, which outlines the responsibilities of the position, and the training and experience necessary to do the job right. Your compensation and benefits plan should also be detailed, as well as any training and additional skills you want your employees to acquire. Each of these components of a human resources plan is discussed in more detail.
Who's the Boss: The Organization Chart
Most family farm businesses have a loose organizational structure. In many cases a loose structure works well, but as operations become larger and more complex, problems can occur. The standard mistake is to have too many bosses. An example is a dairy farm that was operated in equal partnership by a father and his four sons. This farm had trouble keeping employees. They paid well and had a good operation, but the employees had five bosses telling them what to do, and the orders were often conflicting.
Ownership and management can and should be viewed as separate in a large and expanding operation. Clear cut areas of responsibility and authority separate ownership and management in such a way as to increase efficiency. Setting up an organization chart is the first step.
An organization chart helps you to set up your business so that it is clear who reports to whom. Such a system makes it clear to all included who to go to when a question or problem occurs. People working in the business should clearly understand who the boss is, to whom they should report, and what decisions they can make on their own. It is essential to organize your reporting structure so that each person in the system has only one boss. A situation of two bosses for one employee risks having different orders for the same person or job, which can reduce efficiency, create confusion, and can generate frustration and negative feelings.
No two farm businesses are organized identically because managers, employees, families, and the work involved vary from one business to another. However, certain principles apply to any organization. The keys to effective organizing include:
Charting Your Organizational Structure
If you do not have a formal structure already in place, it can be beneficial to do so. Start with a pencil and paper and draw a box for each person who works on your farm. Sketch out your current organizational structure by connecting the boxes with lines to show who reports to whom. Now examine the structure and ask yourself:
If you answer 'yes' to any of the above, your operation could benefit from a well planned organizational structure. You would gain in efficiency, which results in greater profits.
Who Does What: Job Descriptions
Well prepared, written job descriptions for everyone working in a business is a very important tool for effective management. Roles for all family members, non-family employees, and board members (if applicable) should be clearly defined. Although some people may resist job descriptions in the belief that they act as a straight jacket, job descriptions in fact provide guidelines for how and by whom work gets done. Areas of responsibility are clear. Overlap or disagreements about who is in charge are avoided.
Job descriptions define what the responsibilities of a position are, what qualifications are needed, how the position relates to others in the business, and spell out performance standards. The specific form they take will reflect your particular business and its needs. If there are no job descriptions in your operation, you can develop them by answering the following questions:
Prepare a job description for all positions in your operation. Following are some methods you could use.
If all members of the family and business have a clear understanding of their own and each others' roles and responsibilities, the business is likely to function more effectively and the family more harmoniously.
Designing a compensation plan for a family business is a challenging and critical task. Compensation is at the heart of more family-business concerns than any other topic except succession. Questions such as these are common:
Compensation is a sensitive and complex problem. Mixed messages can easily be sent that can damage the business and the family. It is easy to confuse a pay cheque with parental love and concern, or to use a pay cheque as a method to achieve emotional goals, but to do so invites problems.
One key issue to resolve is to determine what is fair. This is a difficult area because each of us has different ideas of what is fair. A manager operating under a business-first philosophy would say that fair is being paid based on the job that is to be done, at the going market rate for the job. Hiring is based on the skills, experience, and initiative that an individual brings to the job. Under this philosophy, fair is based on concepts of equity.
A manager operating with a family-first approach would say that all members are part of the family and therefore should be paid the same irrespective of the job they are doing. The business is here to serve the family and we will create a job for everyone. Here the criteria for fair is based on notions of equality.
The notion of fair can be interpreted in other ways. If Child B has not done as well as the others, it may seem fair to provide for him or her so he or she can enjoy the same life style as others in the family.
Funds flow from a family to individual family members in a variety of ways. There are dividends, wages, bonuses, merit increases, loans, gifts (housing, school, cars), training, perks (cars, vacations, trips, business/personal expenses), ownership and equity gains in land, inheritance, and bequests. This can quickly become confusing and lead to miscommunication and misunderstandings. Things can become even more complicated when there are some family members outside the family business; i.e., off-farm children. They often see things differently form those operating within the business.
To overcome these complications, you need to develop a compensation system that makes sense and is understood by all. Ideally, a compensation system accomplishes the following:
Designing a Compensation Plan
The first step in designing a compensation plan is to decide what approach to compensation fits best with your philosophy. That is, how do you view the world and your business? For example, do you have a business-first, market value approach to the business, or do you have a family-first, equal income for all family members approach? Additionally, how has compensation been determined in the past and how should changes to the system be introduced?
If you base compensation on market value, the market value for each job in the business needs to be established. Several factors need to be considered as this valuation begins. What is the position and what responsibilities are attached to it? What is the size of this company relative to others in the industry? Does this position have supervisory responsibility and, if so, how many people are supervised? What is the value of the assets managed? Are there any budgetary decision involved?
While a decision may be taken that the compensation system will be based on market value, individual business may choose to pay higher or lower than other companies. There could be sound reasons for doing either, based on the special characteristic and circumstances of the business.
Other things to be considered in the compensation plan are incentives and bonuses. Some businesses choose to base incentives on personal performance or overall performance of the company. Whatever system is agreed upon, it should be accompanied by criteria which will enable the business to assess performance. Once a compensation system has been devised, information about it needs to be communicated to all affected people.
Designing a Pay Grid
What do you do when an employee comes to you, the manager, and requests a pay increase because she feels that she should be paid more than another employee? How do you assess the relative merit of each employee's input and determine what each should be paid? What do you do when one of your two offspring working in the business with you asks for an increase because he and his wife are expecting a child and they need extra income to meet their expenses? These are difficult issues to deal with fairly. Having an established pay grid which provides a range of remuneration for various categories of work done in your farm business can provide a sound framework in which decisions regarding pay can be made.
Pay grids typically spell out what remuneration is given at each step for a specific type of work done. A sample pay grid for a large dairy operation is shown in Table 1.
Within each category of type of work, specific criteria should be spelled out to determine when an employee moves from one step to the next. Progression could be based on seniority, on agreed-upon work goals, or on any other criteria that seems appropriate.
A similar grid can be established for management positions. The advantage of having a pay grid is that everyone in the business understands why they are being paid what they are being paid and why someone else with different responsibilities may be paid more or less.
Table 1. Sample Pay Grid -- Jones Dairy Farms
Suppose that you are ready to expand your dairy operation. Financing is in place, building contracts for your expanded parlour or other buildings have been signed, your breeding and purchase plans are set, and your human resources plan, including your organization's structure, job descriptions, and pay grids, is set. Now comes the hard part: implementing your plan. Often the most difficult aspect of expanding a business is that the owner/operator has to change from being a 'doer' to being a 'manager'. Expanded operations require someone to lead, manage, and supervise family and non-family employees. What is leadership? What is management? What is supervision? Although these functions are interconnected, leadership is considered the foundation of good human resource management. Although you may not think of yourself as a leader, as a manager of people you have a leadership role.
What makes a leader? It is the ability to develop and maintain a following. A study of successful business managers found that effective leadership is based on the following:
Supervision involves getting things done through others. For the person who has been traditionally involved in the operational end of the organization, adjusting to the role of supervisor can be difficult. Yet managers do their business a great disservice by over-involving themselves in operational work. It is especially difficult when it appears to take more time to see that a job is properly done by someone else than to do it yourself. However, doing the work yourself is a short-run solution to a long-run problem. It is better to learn to be an effective supervisor so that the job gets done as you want it done.
The role of supervisor may be easier when it is broken down into its four functions.
Function 1: Deputize: give the worker the job to do.
Function 2: Supervise: develop the worker's ability to do the job.
Function 3: Energize: provide an environment in which the worker will want to do the job and do it well.
Function 4: Advise: provide counselling, corrective action, and when things just don't work, dismissal.
A supervisor gets results through people. Good people relations is the key. Whether you are naturally gregarious and everyone's friend, or have difficulty relating people, there are a few simple things to do that can lay a foundation for good relations:
Good supervision is getting people to do what you want done, when it should be done and how you want it done because they want to do it. The Golden Rule in supervision is to treat employees as you would want to be treated.
There are a number of good resources that can help you to develop your own human resources management plan. The following resources were developed specifically for farm managers, and were made possible by funding from the Canadian Farm Business Management Council.
"Employers' Handbook for Agriculture & Horticulture" Alberta Ministry of Agriculture, forthcoming.
This five-handbook series covers personnel planning & regulations, hiring, supervising, training, motivating & evaluating, communications, problem solving, and discipline. Many blank forms and charts, such as application forms and pay grids, may be photocopied for personal use. These handbooks are also available from the BC and Ontario Agriculture Ministries.
A series of videos that complement the handbooks are available from the Canadian Farm Business Management Council, 75 Albert St., 11th Floor, Suite 1110, Ottawa, Ontario K1P 5E7. The videos are: