A ZERO WAGE INCREASE AGAIN?

Assignment

In partial fulfilment of the course

Managerial Communication

By

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Letter of Transmittal

Date: 20th May 2011

To: Mark Coglin

From: XYZ
Summer Intern, House, Hearth & Home

Subject: Suggested approach for reviewing employee wages.

With respect to your request, I am submitting a report containing a complete analysis of the

situation of managing wage review process of employees, plausible options evaluated against

business criteria, the recommended decision and the action plan. It is suggested that a

performance based wage increment system should be implemented to motivate the

employees.

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Executive Summary

Mr. Mark Coglin is facing a dilemma while overlooking the wages review process, in the lieu

of global slowdown and wage freeze for past 2 years. Though he wants to reward employees

who are adding value, he is not inclined to divert scarce funds for benefiting non-performing

employees.

The options suggested include i) uniform raise ii) zero raise iii) performance based raise.

Based on the criteria of meeting employee expectations, improving work culture & getting

returns on investments, the recommendation is to implement a performance based appraisal

system and give a variable pay raise.

Word count: 95 words

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Table of Contents

Letter of Transmittal ..................................................................................................................................... 2

Executive Summary....................................................................................................................................... 3

Situation Analysis .......................................................................................................................................... 5

The Problem .................................................................................................................................................. 6

The Options ................................................................................................................................................... 6

Criteria for Evaluation ................................................................................................................................... 7

Evaluation ..................................................................................................................................................... 7

Recommendation........................................................................................................................................ 10

Action Plan .................................................................................................................................................. 10

Contingency Plan ........................................................................................................................................ 11

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Situation Analysis

Mr. Mark Coglin is considering the option of increasing wages for his employees after two

years of freeze during the global downturn.

‘House, Hearth and Home’ has lost Cad$4 million in sales this year and profit margins are

low. However, expenditure and inventory cuts can release funds to bring a 2.5-3% wage

increment. Employees are impatient and their moral levels are low, hence a pay hike will

assuage any propensity for mass mutiny, exodus or theft. Mr. Mark is also equally inclined to

reinvest the surplus in business operations, which includes renovation, security system up-

gradation, and debt repayment. Since the markets are still gloomy, a growing business may

ensure a good wage raise in the coming year.

At House, Hearth and Home, employees frequently take leaves on false medical pretences

and are distracted during work hours. Since there were no layoffs even during the slowdown,

employees are relaxed about their jobs. These characteristics resemble a lax working

environment. Mr. Mark and Mr. Simon are well aware of the situation, however, no measures

have been taken to either check incompetent behavior or dismiss underperforming

employees. Hence, employees consider management as gullible and non-authoritative. Since

Aaron individually handles HR issues, there is also a constraint on employee communication.

There is a need for more customer oriented employees like Kyle; however, the current work

culture may even degrade the work ethics of dedicated employees.

Mr. Mark is keen about retaining his key employees and rewarding them for their value

addition. However, personal encouragement cannot reach all the employees and there is a

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need for better reward system like monetary awards and group acknowledgements to

motivate employees.

Mr. Mark’s interaction seems to be limited to individuals who have direct visibility in the

organization- floor manager, accounts personnel, yard foreman, kitchen designer etc. There is

a possibility that he has not effectively communicated with more than half of his employees.

This inhibits him from making accurate judgment about their performance and redressing

their grievances. The fact that he believes 15% of his employees are undeserving may be

based on mere assumptions. Though he has a lot of expectations from his employees, he has

not been able to convey them or bring corrective changes till now.

The Problem

How should Mark Coglin implement the wage review process to motivate his employees?

The Options

Options into consideration

i. Uniform wage raise to all the employees

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 ii. Zero wage raise for the current year

iii. Variable wage raise by implementing performance based appraisal system

Criteria for Evaluation

Criteria in descending order of importance

i. Meeting employee expectations

ii. Changing work culture

iii. Business returns from the investment of funds

Evaluation

1. Uniform wage raise to all the employees

i. Meeting employee expectations

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 A 2-3% uniform wage increase will alleviate financial distress among employees, but

it will not add much value to their incomes in the face of current inflation. At the

best, it will only prevent theft or sabotage from disgruntled employees.

ii. Changing work culture

A uniform wage raise will disappoint key employees who are putting extra effort into

their work and are still not being recognized. They may resort to the substandard

performance prevalent in the organization; thereby further decreasing the

productivity.

iii. Business returns from the investment of funds

Uniform wage raise has little organizational gain on the grounds of employee

satisfaction or productivity. On the other hand, it will exhaust the availability of

funds in the existing or upcoming business activities during the period of recession.

2. Zero wage raise for the current year

i. Meeting employee expectations

Not giving a wage raise may be acceptable to a considerable proportion of

employees who accepted the freeze for even last two years. However, many

employees may start disliking their jobs even more and take recourse to unethical

means for financial gains.

ii. Changing work culture

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 It will neither increase employee commitment towards the organization nor assuage

their discontent.

iii. Business returns from the investment of funds

Investing money into core business development activities instead of wages will

help in retaining margins and increasing customer base in economic downturn. This

may increase profits and enable higher wage raise next year.

3. Variable wage raise by enforcing performance based appraisal and reward system

i. Meeting employee expectations

Performance based wage raise will boost up the confidence of employees who are

committed and efficient. It may also stimulate lousy employees to be more focused

and customer oriented. However, a fair and open approach would be necessary to

gain employee trust in the process and establish non-favouritism in the organization.

ii. Changing work culture

Implementing a productivity-based assessment system will stimulate employees to

work in best of their abilities. It will also give them a chance to get guidance and

implement their feedback. It will help Mr. Mark to understand employee issues,

deal with them proactively and identify non performing members. In the long run, if

implemented correctly, it will develop a dynamic work environment and increase

overall productivity.

iv. Business returns from the investment of funds

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 Implementing the assessment system will increase financial and work burden on

Mr. Mark. It will not help bottom line operations for the coming year, but will

increase organizational efficiencies. Variable pay will also help him to cut down the

reimbursement amount and invest these savings into business operations.

Recommendation

Mr. Mark should introduce a system of variable pay raise linked to performance in order to

motivate his employees.

Action Plan

Following series of actions are proposed to follow up on my recommendation.

1. Allocate an HR team under Aaron to deal with employee issues on a full time basis.

2. Convey about the 360 degree performance appraisal and variable pay raise system to

the employees. Chalk out the timeline for its implementation. Accommodate

employee resistance and concerns through the human resource personnel.

3. Implement process improvements to release funds for the new system and pay raise.

4. Carry out wide scale employee assessment and give pay raise. Formulate a team to

look into the issues like favouritism, faulty grading etc.

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 5. Implement new ideas like monetary rewards, group acknowledgment, to recognize

employee contribution to the workplace.

Contingency Plan

Employees may feel that the new system is biased and the review is based on visibility rather

than performance. Following series of actions are proposed in such situation

1. Communicate with the employees and take note of their allegations.

2. Address the issues and ensure that it does not impact employee’s work relationship

with his seniors.

Word count: 1088

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