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VII. Your Turn: Communication by Copier
Summary of Case
The case is concerned with an employee discovering that a noted screw-up was making
Learning Objective
Analyze the importance of communicating the pay structure to employees within an
organization and understanding the reasons behind structuring pay in a particular manner for
individual employees.
Teaching Guideline
Use this case to highlight the issues regarding communication of pay information to
employees.
Discussion of Case Questions
1. How would you have reacted if you were Ms. Allen? Explain why.
the concerned management/supervisor. One must consider dimensions such as interest in
2. Put yourself in the place of the compensation director at Ms. Allen’s company. Based
on the pay model and what you now know about compensation, are there any
possible business- and work-related explanations for what Ms. Allen observed (i.e.,
the screw-up getting $65,000 more; new hires earning $200,000 more than
more-experienced employees; and Ms. Allen making less pay than others)?
As a compensation manager, it would be imperative to remember that pay is an important
other jobs held prior to this job, market rates, etc., at the time of the new hires joining the
company are factors that can influence the pay of these employees.
3. As the compensation director, what would you do if Ms. Allen had brought you this
document, and asked for your help in understanding what was going on. (Firing the
person who left it on the copier is not an option. It may have been you.)
the reasoning behind the pay differentials needs to be strategically provided. Ms. Allen
needs to understand the logic behind the differences in pay, vis-à-vis why her pay is lower,
VIII.Still Your Turn: Managing Compensation Costs, Headcount, and
Participation/Communication Issues
Summary of Case
do not appear to have cut wages or benefits even in years when sales have declined
significantly (and have not gone through bankruptcy).
Learning Objective
Teaching Guideline
Use this case to discuss the importance of managing compensation costs, headcount, and
participation/communication issues.
Discussion of Case Issues
1. What is the difference between these two sets of companies? Is it simply that one set
of companies care more about its employees than the other set of companies? Or, is it
also the case that Southwest, Nucor, and Lincoln Electric have set up their
compensation strategies in a way that makes them more able (than Cisco, HP,
American, and GM) to cut labor costs when times are tough? (For more background,
go to google.com or another search engine and conduct a separate search for each
company using its name and the term “layoff.”) What about protecting investment in
employees and employee relations?
2. What can an employer do to make labor costs flexible so that profits do not take as
much of a beating during difficult economic times and so that fewer employees need
to be laid off?
Students’ answers to this question will vary.
may be an advantage for managing labor costs, it may be less appealing from the
standpoint of managing effective treatment of employees. The inherent financial insecurity
3. If you were in charge of designing a compensation system for a company that is fairly
new, but is now reaching a stage and size where it needs a formal compensation
system, how would you design the compensation system to have labor cost flexibility?
To what degree would you have others at the company participate in the design of the
new compensation system? Who would participate? Would you follow a policy of pay
openness in communicating your compensation system? Provide a rationale for your
decisions.
in each business unit. Typically, corporate will retain some number of compensation
compensation strategies.
Answers to Review Questions
1. How can employers control labor costs?
The emphasis on managing and controlling compensation costs enables managers to
in its product/service market. Budgets reflect what an organization has deemed important
2. How does the management of the pay system affect pay objectives?
Management of the pay system helps in meeting pay objectives by guiding and regulating
decisions about pay, so that they are consistent with the system’s objectives.
3. Why is the structure of the compensation function important?
objectives. The compensation function should be structured to be compatible with
done if outsourced. Overall, a firm should balance flexibility and control to ensure that pay
4. Give some examples of how employers use inherent controls.
external competition.
Compa-ratios assess how managers actually pay employees in relation to range
5. What activities in managing the pay system are likely candidates to be outsourced?
Why?
Benefits management is the prime candidate due to the complexity of regulations plus the
amount of clerical work involved. Other activities that can be outsourced include:
6. Use Exhibit 18.14 to explain how the research on individual decision making can be
used in pay communication.
unintended messages transmitted through the pay system, factual or non-factual data
transmitted via the rumor mills.
