Your company is in a dilemma; it needs to reduce payroll costs by ten percent in order to boost the firms’ cash position. Members of the executive committee have suggested a number of alternatives that the corporation can use to achieve this objective, but all of them have undesirable outcomes. The organization needs to choose a strategy that would cause the least amount of damage.
None of the policy suggestions are perfect, but I believe Sushil Bathia’s submission would be the most effective. He suggested a 5% pay cut across the board. Astrigo holdings would benefit from pay cuts across the board due to the following reasons:
- It will neutralize prevailing tensions that were caused by the fear of layoffs.
- The company would also keep its new and old employees so that they can secure long-term success.
- Everyone will have a renewed sense of trust and respect for the firm because the pay cut affects all members of the company.
- This may inspire increased productivity and better profits.
Company strategy and pay cuts across the board
Astrigo is a home-improvement chain store; as a result, employees play a large role in delivering high-quality service. If the company lays off workers, then it could risk losing even more sales owing to diminished service levels. The organization’s founder, who was your deceased father, believes that great customer service is only possible through proper treatment of employees so layoffs would contravene this principle.
Impact of pay cuts on the company and its stakeholders
A 5% pay cut would not be as dramatic as a 100% salary reduction. Astrigo’s administrators need to explain to the employees why they are taking this cash position, and chances are that most of them will support the company. The corporation will create a sense of solidarity among workers who can then increase their input. People tend to prefer risk aversion to reward maximization. Taking a pay cut is a perfect example of risk aversion on the part of the employee while quitting a low-paying job for a high-paying one is a case of reward maximization. Staff members are likely to take a smaller pay hit rather than face the unpredictability of unemployment.
Top managers and executives are expected to support this decision, since they are aware of the organization’s weak cash position. These are highly paid members of the organization, so a five-percent decrease will not affect their paychecks considerably. Customers will keep buying from the stores because service quality will be maintained. The company will minimize payroll costs and thus enhance its cash position.
How the choice was made
Any other approaches would be detrimental to the company; layoffs, should only be done as a last result. If Astrigo took on Morris’ position of getting rid of the ‘deadwood’, it could face age discrimination litigations and would be acting unethically by eliminating loyal employees. If the business took on a rank-and-yank system, it would create a hostile working environment full of backstabbing and office politics. The last-in-first-out option is not any better because Astrigo could lose some of its best employees. A layoff would create a lose-lose situation for the firm whichever way they chose to go.
Closing remarks
A 5% pay cut would reflect company values and position the organization for greater success through maintenance of valuable employees. It would reduce company tensions and boost organizational solidarity. This is the least destructive option as all other suggestions could backfire on the organization.