Case: A zero wage increase again?

Analysis report by Group 3

Question 1. Highlight the key issues discussed in this case.

Answer:
Mark Coglin, the owner of House, Hearth & Home was under a lot of pressure since the company
was going downhill because of the global downturn and their profits had shrunk by almost Cdn$4
million a year. There has been no increase in the employees' wages for the last two years and
Mark feels it would be hard to sell a zero percent wage increase for the third year in a row even
though there was no spare money in the budget. It also led to inventory loss as employees
started stealing from the company, and he felt that this would only increase further if there was
no wage increase.
Another key issue was that some employees were dishonest, unreliable, incompetent, and
unwilling to earn the money they were already making. Giving them even more money would not
be justified as it would not be worthwhile the amount of work needed to be done. On the other
hand, employees like Aaron, Simon, Wesley, Kyle cared about their work and went that extra
mile. Their hard work should be recognized. 
But Mark also knew that giving a raise to only some employees and not others could further
create more issues. He was in a dilemma whether to give an increase to everyone, no one or
only to the deserving people. He knew whatever he comes up with will have repercussions.
Question 2. What outcomes does Mark seem to want to achieve by addressing
wages/rewards?

Answer:
Mark wants to stimulate the work performance of his workers by increasing wages. He considers
that some of them are unmotivated: they do not fulfill the functions of their position, and he
believes that increasing their salaries, after two years of not receiving increases, can be a
stimulus to improve the performance of each worker. Even though this might be a possible
solution, the economy has affected their sales, making it impossible to raise every employee.
Some economic rewards might increase profit margins as this would lift their general mood
towards positive emotions, which positively impact motivation and results. Furthermore, Mark
noticed that freezing the workers’ wages for the third year could cause many workers to quit their
job, Mark wanted to prevent employees leave their jobs, more inventory to become “lost” and the
morale sunk even lower.
Question 3. Is money important to people? Will money make people work and
put in more effort on a day-to-day basis?

Answer:
Money is obviously important to the people.In simple terms to fulfill their needs, daily
requirements, fulfilling the wishes of loved ones,it plays an important role.
However, as an organization is concerned ,money plays a factor of motivation.Because there is
perception that money can buy the utilities and higher  “utilities value “ tends to bring more
satisfaction in an individual's life.
In this case due to lack of increment in wages of the employees, we see some of  the employees
of the organization are not very attentive towards their work and hence not putting more effort
into the work.Which can result in less job satisfaction and less employee engagement. 
Money works as a motivation factor and it drives the major workforce of the organization.Right
compensation within the organization followed by systematic wages increment definitely results
in more efforts on a day to day basis.
Question 4. Do you think the expectations were different from both sides in
previous years?

Answer:

It’s been the 3rd consecutive year, the employees have not got any increment. Over the last
2 years employees have understood the situation that the company was going through.
Profit margins had tightened or disappeared in several areas. Employees seem to
understand the gravity of this situation and why there had not been an increment in 2009
and 2010. However, expectations this time have increased. As stated by Aaron, the first
sheet was a fair accounting of the business. Nevertheless, distributing that money as wages
among all the employees would not be a smart decision. SO, from employees point of view
the expectation for this year is on a higher side

As an owner, Mark's expectation has also increased. He is expecting his employees to be

(a) Mark uses process improvement savings to give a three percent wage
increase to all employees.

(b) Mark uses the money currently available in the budget to give raises to
Aaron, Simon, and Wesley only.

Answer:
A) Suppose Mark uses the money to improve processes in a wage increase for all his
employees. In that case, there could be a shortage of resources for the company’s
operational strategy, which would further deteriorate income generation and could
become a future layoff of workers because regular wages could no longer be paid. On
the other hand, if it decided to give a salary increase to all employees, this could be good
because it would motivate them to continue performing their duties and even to have a
better performance because they would feel encouraged. This decision might not
improve the workers compromise with the organization to the level expected, for this
reason, other options to have in mind and apply at the same time can create programs
for employee participation and involvement which can motivate the workers to give an
extra mile as well as redesigning the work toward a relational job design where
employees can access to customer stories. Both of these can have a boost in
involvement and consequently on performance as the workers can see the direct results
their actions can have and the decision will be in line with Distributive Justice.

B. Suppose Mark only offers a salary increase for certain people like Aaron, Simon, and
Wesley to recognize good performance. In that case, this could motivate workers
because they will understand that they would receive a better payment by doing a better
job. But, on the other hand, this could cause conflict among the other workers because
they would be in an inferior position and could become aggressive or even bullying for
the recognized employees, increase in ‘lost’ inventory cases. 
6.  Managers and employees develop a psychological contract with each other
regarding obligations. The repercussions when the contract is violated can be
influential. When employees do not complete their duties or when the
organization does not acknowledge the effort of an employee, as in this case,
the contract can be threatened. Explore the ramifications to both types of
contract breach (organization to employee; employee to organization) with
reference to this case.

Answer:

In this case we found that the organization does not acknowledge the efforts of employees hence
it is resulting that few employees are not serious about their work.some of the conflicts as
mentioned in the case are: 

i.For instance there were incidents where more than five employees are not coming on Monday
even after a long weekend.
ii.Second is two lady employees of the company Anne & Marrie are talking about a television
show they had last night ,while there was a customer waiting for services to be served.

We observe that there is less job involvement and job satisfaction in the workplace which
results in less Organizational commitment ,that might be also the reason for less customer
satisfaction as mentioned in above second instance ,therefore  that the company is not able to
make sufficient profit.

Since the company's financial condition has not improved during the last two years, it shows that
the workforce of the company is responsible for company growth and sales,which is seen in the
breach of obligation or contract between two parties(Employee and Employer).If we observe
closely that we can observe that this is two way loss ,not only to the employer but also
employees are also not able to make personal growth.
7.  Employees judge the organization in terms of perceptions of both
distributive and procedural justice. Managers strive towards their own
perceptions of organizational justice. Design processes that maximize the
justice perceptions of the employees in this situation. 

Answer:
 In many organizations, employees are always motivated if their interests are been valued
by the organization. If the decisions don’t go in favor of employees, they may leave the
organization, withdraw their attention from work activities, raise questions to the
management and try to make their point, Some will remain unaffected and might try to
focus on self shortcomings and rectify their flaws.
 Here in the case Mark is concerned about the wage increase but is falling short with the
funds to cater to that demand, apart from this he is partially motivated to give raises to all
the workers in the organization. Here Marks’s behavior seems to follow the Contrast
effect of perception due to which he is happy if 15% of employees leave the organization.
 As Aron has come up with a solution to cut the unwanted expenses of the organization
and channel funds for the wage increase for this year Mark should go with that decision
and declare increment for all employees this year, as there might be the possibility that
employees are not working properly because they might not have been satisfied for not
receiving any increment for the past couple of years. This might have been affected the
thinking capability of employees and are Perceiving the organization on the grounds of
their thoughts. Mark needs to understand this threat and try to satisfy their expectations
as early as possible. 
 Mark should follow a performance rating system for giving increments so that everyone
gets output best depending on their inputs. He can set the target points for everyone and
ask themselves to rate accordingly, which will be followed by a review from a supervisor
who knows that employee well in terms of his work. Finalize the rating and discuss with
the employee regarding his satisfaction with the rating. Based on these parameters he
can distribute the increment so the best performers will get benefit and the low
performers will be motivated to perform well.
 In this way he can meet the perceptional judgment without any conflicts within
employees, he should also change himself by getting involved in talks with employees
giving them proper training, allotting the good performers to mentor others.
 If Mark tries to follow the foolproof method there will be less space for injustice perception
to the employees. In brief, he should prefer procedural justice moreover distributive
justice where employees seems to be more convinced with the organization’s judgment.
8.  Do you think the employees are meeting Mark’s expectations? Do you think
it is okay for Mark to make such an important decision by weighing so heavily
his frustration with the employees? What can Mark do to increase the validity
of this decision?

Answer:

As stated in the beginning that employees are underperforming according to mark and thus they
are not meeting Mark's expectations. However, there are some employees like Simon, Wes, Kyle
and Aaron who are performing very well and have exceeded company's expectations.
I don't think Mark should make such an important decision by weighting so heavily his frustration
with the employees because according to equity theory if employees perceive that their ratio of
inputs to outcome is not equitable with that of their peers, they may become demotivated and
dissatisfied with their job and in this case they may steal from the company, leave the company
or change their inputs by working less hard.
The decision of Mark should be according to Organisational justice and as in this case the
outcome (wage) is already bad, so procedural justice  becomes even more important. Also he
should maximize the productivity of individual employee by increasing their job satisfaction and
providing motivation to work upto the company's expectations.
9.  Highlight the limitations that can affect the decision-making process (theory
of bounded rationality and biases in decision-making) with regard to this case.

Answer:

In a situation such as Marks’, following the rational decision making model is not possible
because
To make a completely rational decision Marks needs complete information on all the
aspects of his employees as well as the store. But such complex information is not
humanly possible to comprehend, that is why we operate in bounded rationality.

When we operate within the confines of bounded rationality, we look for a solution that is
acceptable rather than the one that is the most optimal one because we often lack
information to cover all the aspects.

There is also the fact that Marks already has a bias toward some of the employees who
are slacking and further evidence of his employee ignoring the customer further confirm
his bias.It his human tendency to blame others incompetence as internal factors so any
other incidents like this will add on to the already deteriorating image of employees.

His mood is also affecting his judgment , as he is already stressed out after meeting with
Aaron and seeing his employees chatter during work hours demotivates him to put efforts
for their wages increase.
 10. As a consultant to Mark, would you advise him to give a raise to all, none
or the deserving few employees? Explain your reasoning and how you would
handle possible negative reactions?

Answer:

Problem statement:

We can Infer the problem here is that due to lack of profits, increase in wages to all is becoming
hard to achieve.

Decision Criteria:

·        Employee review – we can get employee rating from immediate supervisor

·        Available funds from optimization – To have the understanding of available amount for
increment.  

·        Results of big five personality traits test – To deal carefully with employee according to score and
there by try to minimize the negative effects likely to occur from individual.

·        Cost incurring to company if people leave the organization – if people are asked to leave the
company not all agree to resign and then we incur cost of firing them. Common cost of medical
insurance for six months or one year can be included for people willing to resign if asked.

·        Cost of recruitment – we need to have an idea about the cost which will incur if new recruitment
is required.

I will suggest to reward the people according to performance and 15% of people whom mark feel
can save company significant cost can be removed and evaluate company’s performance for one
quarter and start recruiting process if required.

Allocate Weights to Criteria:

We consider below weightages to quantify the probability of success of decision taken for each
individual. I’m considering below weightages as Mark wanted to reward the over achieving
employees and not interested to raise wages for under performing employees. As a consultant it
is only ethical to put client’s requirements first and have perspective accordingly.

·   Employee review – 50%

·   Available funds from optimization and cost of recruitment – 20%

·   Cost incurring to company if individual leave the organization – 15%

·   Results of big five personality traits test – 15%

Accordingly, each individual can be ranked and evaluate the options to let go off people to
optimizing the business and save costs to company.

Alternatives:
We can also consider some unconventional factors like individual’s age, marital status, parental
status, recurring medical costs and happiness factor of fame over money. Rationale behind
above factors imply the actual value realization to employee for money. For example, individual
may be happier to be awarded and recognized than giving pay raise. Individual is incurring more
cost for medicines may be due to inflation and pay raise is mandatory. Similarly, age and marital
status is to know the degree of acceptance to wait for pay raise.

Evaluating Alternatives:

Values like good will and Employee loyalty is likely to increase among the individuals if
alternatives are implemented. But it can bring new challenges if individuals perceive things wrong
manner like bachelors may not like if compensated less compared to married people. It also
involves challenges evaluating credibility of recurring medicinal costs or to access data as many
may not be willing to share.

Best alternative:

The time required to get money, from removing the 15% of employees and optimizing costs, can
be confirmed with Aaron and same can be communicated to employee of timeline if timeline is
less than 2-3 months. If timeline suggested from Aaron is more than 3 months then we can look
for debt options to raise the pay for deserved candidates and also increasing the security and
renovating building can also be prioritized if funds are available. Negative responses can be
answered by making the company policy public which is formulated for evaluation to show that
no injustice is made in evaluation.
11. Design a reward system that will improve the behaviour of employees like
Dougie, Anne, and Marie.

Answer:
For Employees like Dougie, to motivate them to avoid extending the leaves and providing
illogical excuses. We can design a credit system for all employees, the credits will be given
to employees based on their punctuality and ethical behavior also for a regular pattern of
unplanned leaves there will be the provision of, deducing the credits from that employee
account. At the end of the year, the employee with highest credits in his account will win a
travel voucher for a family trip and bonus holidays. Contrary the employee maintaining a low
score may face pay cuts as a penalty for his inconvenient behavior

For Anne and Marie:- 

We can have a customer satisfaction rating, after every visit to the store. The attendant who
got a good score will be accounted for accolades and will be awarded in monetary terms as
designed by the organization.

The above rewards may improve the feeling of responsibility and accountability within every
employee. They might start perceiving their work as an opportunity to win the rewards and
as a result, they will start participating proactively in work activities.