A Zero Wage Increase Again: Analyzing Symptoms, Causes, And Alternatives

Symptoms of the Major Problem

The signs of the significant problem in the case of “Zero Wage increase again?” are significantly evident among the employees and in the financial performance of the company. There are frequent cases of employee absenteeism. In the conversation between Simon (the floor manager) and Mark, Simon says that Dougie in addition to other four employees had called with the same excuse of having a flue, and when they report on Tuesday they give stories of the long weekend of trips they had enjoyed. Studies have shown the existence of a significant relationship between job satisfaction and employee absenteeism. Ybema,  Smulders, and Bongers  (2010) carried out a longitudinal study on the association between job satisfaction and burnout and found out that lower job satisfaction increased absenteeism.

The other evidence symptom in the study is demoralized employees. It is clear from the case study that the employees of the business are discouraged. For instance, the behavior of Ann and Marie who willingly neglect a customer that is waiting at the counter to be served while they discuss on a TV program they had watched. Furthermore, Wesley observes that Kyle (a fork lifter) who has only been in the organization for two months is far much better than other employees who have served the business for over five years. Mark indicates that 15% of the employees added no value to the company and that it would have been far much profitable if they left.  A study conducted by Danish and Usman (2010) on job satisfaction and motivation showed that different elements of work motivation affected employee’s attitude and commitment towards work.

The major problem in the case study is the frozen wages for two consecutive years which have resulted in impatient employees. The organization has been promising employees of wage increase for the past two years, and yet this promise is, however, to be fulfilled. Mark tries to figure out how he will approach the upcoming wage review process, this being the third year and the employees have been eagerly waiting for the owner to increase their wages. He walks around the different sections of the company while trying to figure out the source of money to raise salaries. During these times he meets various employees such as Simon the floor manager, Marie and Anne among others and is impressed with those who are committed and displeased with others who do not work hard. Mark then remembers that he was to meet Aaron in his back office. All this long Mark is nervous. Aaron had been assigned by Mark to look for ways to raise money to increase the wages of employees even though he was quite aware that the company had no extra sources of capital.

Major Problem

Aaron recommends some ways through which the company could raise money to increase the wages. He proposes the company to cut on expenses that are not rewarding such as advertising, lower inventory, profits from process improvements among others. Aaron argues that if all his proposals were acted upon, then employees will receive a wage increase of 2.5 to 3.0 percent, a rate higher than the yearly rate of inflation. But still, such a significant increase would not be adequate to cater for the past two years nil wage increase. Mark also considers rewarding the committed employees only who are termed as the ‘bloodlines’ instead of increasing wages of employees that do not add value to the business or disengage almost fifteen of them. According to Güngör (2011), rewarding employees on the basis of merits is not always active, and downsizing has malign long-term impacts such as reducing creativity. Li and Cropanzano (2009) also assert that organizational justice relates to how the employees are treated and it promotes cohesion at work. Thus, Mark should be cautious about how he approaches the major problem of frozen wages.

The cause of the significant problem in the case study is the inflation rate or economic downtown. Inflation is the general increase in prices and decline in the cost value of money, in other words, it is caused by an increase in the supply of money faster than economic growth (Barro, 2013). House, Hearth & Home Company is currently under a crisis of frozen wages due to the economic downturn, which has also affected the company in several ways. This is a situation that is out of its control, and the best the organization can do is try to make internal adjustments to accommodate it. The inflation rate has led to a decline in sales by approximately Cnd $4 million, and the profit margin has also decreased significantly. Aaron indicates that the company has written off some of the old inventory and the small profit was further consumed by the unplanned expenses. The inflation rate is so dire that even a proposal to increase the wages by 2.5 to 3.0 percent will be higher than the rate of the economic downturn, but still, this will not be enough to make up for the previous two years of nil wage increase. The effects of the inflation rate such as low-profit margins and sales have made it impossible for the company to increase the wages of its workers thus making them demoralized and further affecting its productivity. The increase in prices and food commodities due to inflation increases the cost of living and conducting business. As a result, employees expect an increase in wages, and the company attempts to meet this demand by further increasing the prices of its products which further destabilizes the equilibrium (Rangarajan, 2012). This requires the management to brainstorm on the most appropriate strategy to generate more income while remaining competitive in the market. For instance, Aaron proposes to Mark that the company should cut on unrewarding expenses among others.

Cause

Mark’s company is not in an unredeemable state, and therefore I believe that three significant resolutions that can positively impact; a change in the company’s corporate culture, adoption of a hybrid system and useful managerial roles. The company has a culture which doesn’t appreciate committed employees like Kyle, who when approached by the well-paying business they are likely to leave. The company should invest time, money and effort in developing specific talents. Cropanzano and Stein (2009) note that a just business is one that rewards and trusts its employees enable them to foretell what they expect to gain from the business. According to the “group-value model, equality in the treatment employees is an indication of respect and appreciation. Mark should, therefore, learn how to treat all employees justly (Meeussen, Delvaux, & Phalet, 2014). This will ensure that they are not distressed and ready to commit themselves to work. However, the execution of this approach may be challenging especially for employees that are not productive. The second alternative is to pay the workers a basic minimum pay and then some additional commissions based on performance. Ederer and Manso (2013) argue that such a hybrid system encourages workers to work beyond the minimum targets and thus to increase productivity. This approach will be of importance to discouraged staff like Wesley who is the ‘blood liners.’ However, this approach may affect the health of the employees due to overworking to raise more bonuses, thus negatively affecting their productivity (Eijkenaar, Emmert, Scheppach &Schöffski, 2013).

Regarding managerial roles, the application of Mintzberg’s roles will be of benefit (Nothhaft, 2010; Tsai, 2011). Mark should foster to develop interpersonal roles by promoting good associations with the staff, allow for the reception and feedback. Since Mark is dealing with human resource, he should encourage equality in the way he associates with the team. A good relationship with management increases trust, commitment and organizational business behavior among employees and leads to job satisfaction (Mohammad, Quoquab Habib, & Alias, 2011). The associations can be accomplished through team building activities, sharing information on the current state of the business regarding profit production. However, this approach is usually limited by the personality of the employees and the owner, thus making it subjective.

The most appropriate solution to the challenge of increasing wages of employees by Mark is to adopt the hybrid system of payment in which each worker is paid a basic minimum amount. In addition to the fixed base, there is a commission which is paid based on performance. This approach has been adopted and proven to be more effective because it guarantees equality and motivates workers to work hard (Hameed, Ramzan, & Zubair, 2014; Larkin, Pierce, & Gino, 2012). The hybrid system is better than changing corporate culture and managerial role because both processes are likely to take long and are subjective to the temperaments of employees and management. Additionally, the hybrid payment system is preferable to the change of managerial roles approach because the benefits may not be realized immediately, thus worsening the wage increase crisis.

Alternatives for Resolving the Problem

The solution of a hybrid system of payment should be implemented at the same time to all the employees. The employees should first, however, be informed of the possible changes and the benefits clearly stated to them. They should also be allowed time and freedom to express their opinions on the same, and the views analyzed and changes made accordingly. Due to the existing financial constraints, the organization can begin by setting a maximum level of bonuses. The challenge of implementing the hybrid system of payment is that most of the employees may decline the changes and decide to quit work including the most committed ones. This will lead to a loss of innovation and incur additional expenses of hiring other qualified staff (Hausknecht & Holwerda, 2013).

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