978-0538468077 Chapter 4 Solution Manual Part 6

Unlock access to all the studying documents.

View Full Document

80. EXERCISE: EXECUTIVE PERKS

I. OBJECTIVES:

1. To familiarize students with the wide variety of perks often given to top executive.

2. To familiarize students with the arguments for and against various execu-ve perks.

II. OUT-OF CLASS PREPARATION TIME: none

III. IN-CLASS-TIME SUGGESTED: 30-40 minutes

IV. PROCEDURES: See Text

V. DISCUSSION

In recent years, considerable attention has been given by the media to the issue of execu-ve

compensation. The public, investors, and the <rm’s own employees have become much more aware of

bonuses/stock option/ and fringe bene<ts given to executive, and many feel that they are excessive.

This exercise focuses on the issue of whether <rms should grant executive these bene<ts. There are at

least four issues involved. First, what will be the reaction of other employees at the <rm who do not

receive a given perk? Will it oAend them? Will they think it is fair? Will it drive a wedge between

executive and non-executive? This question focuses on equity and morale issues. Furthermore, the

issue of public perception may be important. If investors believe that executive are overpaid, then they

may not buy the <rm’s stock. Likewise, customers may not buy from a <rm if they believe its executive

are scoundrels and overpaid. Third, there is the issue of the need to oAer compensation packages that

are compe–ve. In order to attract and retain high quality executive, <rms must oAer fringe bene<ts

that are compe–ve. This means that <rms may need to oAer bene<ts that may seem extravagant and

excessive to some just because other <rms are oAering them. Fourth, how much will the bene<t cost

the <rm if it oAers a particular perk? Most large <rms have a compensation committee of the Board of

Directors that focuses on the issue of which bene<ts to oAer. In this exercise, the students play the role

of that committee.

VI. DEBRIEFING THE EXERCISE

In debrie<ng this exercise, the instructor may want to ask groups, on a rota-ng basis, to present

their answer to the two questions asked: 1) Should the bene<t be oAered to the execu-ve (Yes or No)?

and 2) What is the reasoning behind your decision? A)er a group has answered, the instructor could ask

the group to defend its answers.

Alternately, the instructor could debrief the exercise by polling the class (by asking for a show of

hands) regarding whether each bene<t should be oAered (Yes or No). Then, he/she could call on various

groups to present their ra-onale (Ques-on 2 above). There are no right or wrong answers here, but the

instructor should remind students that the issue of fairness, public perception, costs to the <rm, and

remaining compe–ve must be considered.

81. INCIDENT: RETIREE HEALTH AND PENSION BENEFITS

I. OVERVIEW:

This incident focuses on a major downside of the restructuring of the U.S. economy which has

accelerated over the past twenty years: re-ree loss of health and pension bene<ts promised to them by

their former employers. As these former employees experience <nancial problems and respond by

restructuring, merging, or selling out to competitor, the new organiza-onal en–es a;empts to reduce

costs in many ways including the elimina-on of re-ree employee bene<ts not required by law.

II. OBJECTIVES:

1. To familiarize the student with some of the problems of bene<t reten-on

experienced by re-rees.

2. To examine the ethical and moral issues associated with corporate promises

regarding re-ree bene<ts.

III. ANSWERS TO INCIDENT QUESTIONS

1. Do companies have either a moral or legal obligation to honor all terms and

condition associated with an employee’s retirement which were in eAect at the

-me of retirement? Why or why not?

The legal obligations depend on a variety of factors too complex to discuss here. The most

important of these are the original agreement (i.e., union contract or company policy) and the speci<cs

of the new structure and whether it validates or invalidates previous agreements with a variety of

stakeholders. Obviously, a company which has gone bankrupt will no longer be able to honor previous

However, all companies do have an ethical obligation regarding previous commitments. Re-ree

2. Does the purchase of the original company by another company obviate the

employer’s obligation concerning re-ree bene<ts? Why or why not?

As noted above, the pension obligation must be met unless the original company goes bankrupt

Companies should also remember that the an-discrimina-on laws also apply to the

administration of bene<t programs. Individuals can <le a charge with the EEOC when they believe they

3. Could Mr. and Mrs. Sears receive any retirement bene<ts as a result of

ERISA?

As noted above, they should contact an ERISA oIce concerning their letter. They should be able

to retain their pension bene<ts. However, their health insurance bene<ts are undoubtedly lost since

82. INCIDENT: THE EDUCATIONAL LEAVE PROBLEM

I. OBJECTIVES:

1. To familiarize students with some of the problems associated with having diAering

fringe bene<ts.

2. To familiarize students with issues surrounding two particular bene<ts-tui-on

reimbursement and education leave.

3. To make students aware of the importance of fringe bene<t equity to employees.

II. OVERVIEW:

This incident focuses on some of the problems associated with giving fringe bene<ts to

employees. While the incident deals with two particular bene<ts, tui-on reimbursement and

educational leaves of absence, the principles involved apply to other bene<ts as well. The issue involved

here is that of equity and fair treatment of all employees. However, in most <rms, the nature and

amount of bene<ts varies with one’s position within the <rm’s hierarchy. Supervisors typically receive

higher and more varied bene<ts than non-supervisor personnel. This often leads to conKicts and equity

concerns, as we see in this actual case.

III. ANSWERS TO INCIDENT QUESTIONS:

1. Should Rollermakers corporation allow the two inside sales people to miss work in

order to attend classes? Should it pay for the tui-on? Why?

The answer to these questions typically depends upon the <rm’s values and philosophy

regarding formal education and their view of the costs vs. the bene<ts. Some <rms value formal

education for employees and want them to enhance it and, therefore, provide leaves and tui-on

In the case here, the two employees both want to miss at least six hours of work each week in

order to attend classes. This is a large -me period and could aAect the smooth operation of the <rm.

Most <rms prefer that employees take classes at night or on the weekend, rather than during the week,

to avoid this problem. Furthermore, both employees have numerous courses le) in order to complete

2. Should the <rm continue to allow the Purchasing Manager to attend the evening

MBA program and to pay his tui-on?

Part of the agreement reached when recruiting the new Purchasing Manager was that he could

take MBA classes as long as they didn’t interfere with job duties. The <rm also agreed to pay for these

classes. Since this was part of the agreement, the <rm has an obligation to live up to it. However, an

3. Should there be a formal policy regarding educational leave or should it remain

informal? If the <rm decides to formalize its policy, what provisions should it

contain?

If the <rm decides that educational leaves and tui-on reimbursement will be oAered as a fringe

bene<t to all supervisors or to all employees, then it seems reasonable for it to develop a formal policy.

If the <rm decides to formalize the policy, there are a number of issues that need to be

addressed. Among them are:

Who is eligible? Full–me employees only? Part–me?

83. INCIDENT: THE LOST VACATION DAYS

I. OVERVIEW:

This incident focuses on some of the problems that can develop with regard to the use of a

fringe bene<t, speci<cally vaca-on days. The major issue here is whether the <rm is treating its

employees fairly with regard to taking vaca-on -me. The incident demonstrates that even with a written

policy, unforeseen situations can arise that require policy adjustments. No fringe bene<t policy can

an-cipate every event that may occur. Thus, <rms need to decide what is fair a)er the unexpected

event has occurred.

II. OBJECTIVES:

1. To familiarize students with vaca-on policies and some of the problems inherent in

them.

2. To give students practice in trying to determine what is “fair” with regard to gran-ng

fringe bene<ts (vaca-on days).

III. ANSWERS TO INCIDENT QUESTIONS:

1. What, if anything, should the Ships,Inc. do with regard to salaried personnel who

have vaca-ons planned later this year and now don’t have enough vaca-on -me?

The <rm has several option here. They could do nothing and require that salaried people cancel

their vaca-ons. They could grant all salaried employees two or more extra vaca-on days. They could

allow salaried employees to take their vaca-ons and subtract the days missed from the following year’s

vaca-on days. The <rst alternative is not likely to be viewed as fair by most employees even though the

<rm is within its rights to do so given their current policy. The second alternative would cost the <rm a

NOTE: In this case, the shipyard followed the third alternative. They allowed all salaried employees to

take their vaca-ons and charge the days to the next year’s vaca-on bank.

2. What, if anything, should the <rm do regarding the lost vaca-on -me for all of the

other employees, both salaried and hourly?

As the policy stands now, non-salaried employees can either charge the two days lost to their

vaca-on bank or take -me-oA without pay. Thus, they are stuck with these two una;rac-ve

One of the issues here is what is the fair thing for the <rm to do? Another is can the <rm aAord

to be fair? sometimes fairness takes second place to <nancial issues. In this case, students often argue

that since the <rm shut the shipyard down when it didn’t need to (the <rm misjudged the hurricane’s

arrival) and misinformed individuals regarding how their lost -me would be handled (some supervisors

3. Should the <rm change its current policy that requires salaried employees to charge

their vaca-on bank whenever a shutdown occurs?

The <rm’s present policy of requiring that vaca-on banks be charged has its disadvantages as we

can see in this case. However, the problems that developed in this case resulted from a rare event-a

forecasted hurricane. Most <rms don’t want to change what they believe is a good policy to deal with

rare events. Perhaps the <rm could make a few minor modi<ca-ons to its policy that would satisfy most