A Zero Wage Increase Again Case Solution

2. Introduction & Problem Identification

The company is currently going through a dilemma in a recessionary phase that is affecting many companies throughout the world. House, Hearth & Home has not produced enough revenues while expenses are high, and hence the company has not provided any wage increase in the last two years, that is, 2009 and 2010. One of the store owners, Mark, understands that he really needs to give a wage increase this year as employee morale and motivation are already at a bottom low. However, at the same time, Mark knows that there is a pool of employees that are not performing well and should not be entitled to a wage increase. Since giving a wage increase is linked to cutting down on several other expenditures, Mark has to make a decision amongst three alternatives that whether all employees should get an increment, or none of them, or only those who are performing well.

3. Strategic Alternative 1

The first alternative to consider is giving a wage raise to all employees across the board. This means the company will be paying more to over a hundred of its employees who are working in various departments and functions. The benefits of such a strategic move would be that the overall morale and confidence levels in the company would go up. The lack of motivation that is currently prevailing in the workforce would also come down, leading to improved performance at the workplace. Moreover, such a strategy would provide reassurance to the employees that the company is performing at a satisfactory level in these times of recession, and they would not feel threatened about their jobs' security. All of this would be leading to motivating a large workforce and helping them focus on their work and produce an improved performance in anticipation of further wage increases in the future.

However, a drawback of this approach would be that employees who are already not performing well could further be sluggish in their work while assuming that the company will continue to reward them. Secondly, disharmony in the company would elevate as the minority of employees who are star performers of the company will feel that non-performing employees should not have been provided a wage increase. Therefore, conflicts in employee relations are expected to go up with such a strategic alternative. Moreover, a sense of ambiguity will prevail in the organization among the star performers about the next wage increase and its applicability.

4. Strategic Alternative 2

A second alternative that can be adopted is that the company does not provide any wage increase in the current year to any employee. The advantage of such a plan of action would be that those employees who are not performing well may decide to quit the organization; thus, eventually leaving the company in a better state. Although this may initially appear as a pessimistic outcome for the organization, eventually, the benefits in terms of not having non-productive workers shall be reflected in the company's financial statements. Secondly, in these tough economic times, the owners of the company would be able to retain some hard-earned cash as a buffer for more essential expenses as uncertainty prevails in the current economic downturn that the company operates in. The company and its owners can then focus on more strategic decisions involving an investment, rather than a decision only concerning the workforce welfare.

However, not providing any wage increase for a third consecutive year would paint a bleak picture of the company in front of the employees as well as in front of various external stakeholders, including the shareholders. Protests and agitations may result from some corners of the workforce. In the long-run, all of this would be reflecting negatively on the company's financial position. Secondly, even the good performing workers of the company may decide to leave; hence, employee turnover is most likely to increase as the company decides to continue the strategy of no wage increase. Long run repercussions would follow, including uncertainty among new potential people who could be hired.

5. Strategic Alternative 3

The last alternative to consider here is that Mark Coglin as one of the owners of the company decides to raise the wage levels of only those workers who are performing well and hence, actually ‘entitled' to a raise. The company may refer to them as a ‘deserving minority' because such capable and motivated workers are few in the organization. These include, for example, Kyle, Aaron, Simone, and Wesley. The benefits of this strategy would be that the star performers would continue to excel personally as well as professionally in the best interests of the organization. Secondly, a culture would automatically develop that in House, Hearth & Home, wage increases and compensations are linked to performance. Therefore, the employees who are currently taking the company for granted might begin performing while being aware that good performance shall earn them better compensation in the organization. Moreover, this will also be an intelligent allocation of resources and expenditures that is, linking wages to performance as the company's expenditures would not rise exponentially with this approach.