2 Decrease Of Cathy's Salary example essay topic

The Well - Paid Receptionist" (case - study) CONTENT 1. Introduction (backround informations) 2. Current situation 3. Mr Finley's (and also my) point of view 4.

Problem analysis 5. Solution alternatives 6. Final recommendation 1. Introduction (backround informations) The main characters of this case study are Harvey Finley - manager and owner of Troupville Business Systems and Cathy Brannen - his receptionist / assistant. It's been seven years ago that Mr. Finley decided to open his own business in a quit small town - Troupville.

We need to say he was experienced technician and sales representative. But this town had only 35 000 habitats, was located in deep South and has just begin to recover from recession. So the conditions to start up business wasn't favorable, there were many bancrupcies those times. But Harvey despite of all didn't lose his optimism and Troupville Business Systems was born.

He could do any needed services through outsourcing but 1 person he needed immediately - a combination of receptionist / secretary and general assistant. The salary in that area was about $14 000. So he put advertisement in newspapers and during the recruitment he became captivated by one person - Cathy Brannen. She was amazing, possessed both qualifications in office administration and seven years of experience in two employers. She had just moved into Troupville and was unemployed for two months.

She had many positive traits like enthusiasm about assisting to start up company. She was bright, articulate and Harvey knew he wanted her to be his first employee. He checked her references and both were extremely positive. The problem seemed to be her salary. Her previous salary was $15 900 and he could afford to pay her just $14 000. Question was: "will she accept it?" So he made a decision to offer some incentive in addition to her salary and offered her 2% of sales override.

He thought she would be somehow a determinant of the success or failure of the company because she would be a represent person for customers calling and coming to the firm. It seemed to be an appropriate addition and incentive to take an active interest in the company. Cathy accepted immediately saying: "2% of sales may amount to big money someday". The Troupville business systems started as a small distributor of copy machines. But they soon changed offered services as Harvey recognized an increased demand for a lease of copy machines. Customers wanted also to contract with his company for all service needs.

During the first two years the firm experienced a small growth. Third year was a breakpoint - Harvey decided to enter the computer market that was in boom and himself took some courses and became a computer buff. Next years a virtual explosion of the company continued and Harvey hired new people for new positions (for example comptroller). Cathy appeared to be really indispensable.

Her performance exceeded Harvey's best expectations. Her position was still the same but her duties became more complex and she learned voluntarily about all new products and services. Despite of his qualified sales-staff Cathy could replace any of the sales men and respond customers " questions". The customer never realized that the professional young lady capable handling all inquiries was "just" the receptionist". She was still a secretary (with increased amount of duties) and still first to be seen by a customer, she was handling all phone calls. But as well, she took a word processing course and developed into "a computer aficionado" and became the best operator in the firm.

2. Current situation Harvey was shocked when he realized that Cathy was paid $100 000 three years ago, $112 000 two years ago and $127 614, 21 last year. This year her salary was supposed to be 10 - 15% higher. He was thinking if anything should be done about her earnings. There were 17 people working in the company (comptroller, managers and sales representatives) and nobody earned so much. Harvey thought Cathy was lucky to "be on the right place in the right time" but on the other side her contribution was really huge.

Now, they both have a prospering life - Cathy bought new mercedes, mink coat and she was making over twice as much money as anyone else in the firm with an exception of himself. For example, the best salesman earned about $60 000 and top managers $40 - 55 000. The average salary for secretary was $22 - 25 000. A good receptionist could be hired under $20 000. Harvey felt something had to be done.

Some of the employees knew about Cathy's compensation level, but nobody has ever mentioned it. 3. Mr Finley's (and also my) point of view The implications of Mr Finley's decision to give Ms Brannen 2% of sales in addition to her salary caused she was now paid too much - over $127 000 and this year it should be even more. Question is whether Mr Finley should do something, or what is his potential interest to solve this situation and change some things. There are three main reasons why he should change this situation: . Too much money paid to Cathy could be used in other ways - for example they could be invested to support firm's growth, or to hire new employees, or they could be spent to get some benefits for all the employees.

A fear to evoke bad feelings between present employees. They could start to perceive unfairness between Cathy's position and her compensation and their positions and their individual compensations. These feelings of unfairness could cause a decrease in motivation and thus performance, employees could start to ask for more money paid and conflicts between management and sales - staff could persist. Especially, conflicts could occur among sales - staff because these people are directly responsible for sales results and they don't have any % of sales increases (that's my assumption as it wasn't clearly written in the text). Cathy could leave to "spent her money" as she was earning enough during the past years or her performance could be influenced in the wrong way - she would earn the same money whether she would be hard -working or not. So her working potential wouldn't be possibly used on maximum level.

4. Problem analysis The very important question in this case is " what determines an employee's value to an organization?" It is first of all his / her individual contribution to the process of achieving the organizational goals, an individual contribution to an overall performance. Cathy's contribution was enormous - she attracted many customers, her duties were increased, she had more work as the company started to grow and she was still doing more than well. The other determinant of an employee value could be knowledges and experience. As we know, Cathy took voluntarily computer courses, she was developing her knowledges and thus increasing her value to the firm.

Another question is "whether her contribution or value was worth $127 000?" According to an article we could maybe say "yes it was."What could be a reaction of employees - managers and sales representatives if they knew how much Cathy was earning?" Some of the employees knew about her salary but didn't say a word. Equity theory says they would compare their individual work or position with her position and work she was doing and there would be probably a gap. But, why some of them who knew how big money she was earning didn't say anything? Maybe it is an evidence that they perceived it fair or saw Cathy's big contribution, probably, she was a natural informal leader in the firm. Other possible discrepancies could have been caused by the structure of pay system.

Cathy was paid an incentives but we don't know how was determined other wages. But I suppose based on the examples of the salaries of manager and best salesman that they had exactly determined salary and no incentives in the form of purcentage of the sales or profit existed. "Does Mr Finley have a moral or ethical obligation to fulfill his commitment and keep his word to pay Cathy 2% of the sales override?" I think Harvey should be an example to other employees and prove that he always keeps his commitments. If he didn't do so, it could lead to unethical environment in the firm between all employees. But does he have this obligation forever? " Or, can Harvey justify in some way the reason why he pays his secretary such a big amount of money, mainly among his subordinates?" I think he could do so, because Cathy's contribution in the past and in the present was obvious, she was standing beside him from the very beginning and still enthusiastic ly hard working.

She accepted to take a risk of the new start up of the company without any secure future and she should be adequately compensated for it. To avoid this complex situation, Harvey should have included into Cathy's employment agreement at the beginning some clauses like maximum amount of incentive she could be paid, or lenght of the period for which this contract would be valid and so on. So now, he wouldn't have problem to pay $127 000 to his receptionist. 5. Solution alternatives Based upon the previous analysis I formulated these possible solution alternatives. Firstly, I described the concrete alternative and than the impact that could this concrete solution could have on each of the interested parts.

1) "Do nothing" solution alternative - this is the alternative you have almost always and which is rarely the best one. If Harvey wouldn't do anything about Cathy's salary, it could have these implications inside the company: Cathy could lose motivation to improve her performance - she would earn big money whether she would increase her effort at work or not. She could also decide to leave the company, having saved enough money from the previous salary. Other employees could find out so nner or later how much Cathy gets and thus the feelings of unfairness, loss of motivation and requirements on salary increases of others could arise.

2) Decrease of Cathy's salary that would mean breaking of the contract for the pay of 2% of the sale override and determining new salary, or exact sum of how much will he pay her. This would probably cause Cathy's dissapointment and loss of motivation, she could even decide to leave. It would be also an unethical act in the eyes of other employees, beacuse it means their manager has no problem to break the contract and not to keep the commitments. The impact on organizational culture could be enormous, employees could lead an " example" and start to act this way, so in general, the company culture and values would change and had impact also on the attitude towards customers, external environment etc. 3) Increase the scope of Cathy's responsibility - that means to give her a promotion, put her into new position, increase her responsibilities and thus by this higher position defend her high salary before others. On her position hire a new receptionist.

We know that Cathy's knowledges, experience and enthusiasm responded to more than just the requirements for the position of receptionist secretary, she had thus good assumptions to act effectively in higher position, for example as a team leader, or vice - president together with Harvey. The implications would be following: increase of Cathy's motivation, better use of her potential and skills, salary wouldn't be perceived in this position as unfair and she could serve as a good example for others. But the perception of unfairness among employees that aspired to her position could occur as well, maybe some tricky gossips on how a receptionist came to the position of vice president, etc. But we suppose based on article that she was favourite among her colleagues, friendly and obviously did a good job.

Another problem could be Cathy - she could ask even for higher pay incoming from her promotion, or she could have not be interested about promotion. 4) Fire Cathy - that wouldn't be probably a good choice - she was a valuable employee for the company, did a lot of good work and among colleagues and also accroding to Harvey she was indispensable. This act could cause a possible increase in uncertainty among employees (how could he fire one of his best employees for nothing?) and perceived unfairness. Thus I refused this solution alternative instantenously.

5) Establish new compensation system - this alternative solution is based on assumption that just Cathy had in her contract included 2% addition to her sale - a way of profit sharing and not the other employees. So Harvey would establish (after consulting with employees) a compensation system based on profit-sharing, thus every employee would have included in his contract that he / she would receive certain purcentage of the company's profit. Implications: this solution would probably increase an overall motivation among employees, the pay system would be perceived more fair but this wouldn't solve the situation about Cathy's high salary. She would receive still the same money (under assumption she wouldn't agree with lower purcentage of her addition to salary). This could be maybe still perceived as unfair because Harvey probably wouldn't agree with 2% of profit for everybody. If he could afford it it could be quit dangerous because the company would be soon famous about employees earning extremely big money and company wouldn't have any money rest for investing activities.

6) Establish some employee fund - that means after discussion with Cathy, let say 40% of the profit would go to this fund and the money from this fund would be used on some benefits or distributed among employees. Cathy would get 2% from this fund, thus her salary would be finally reduced, employees would perceive it fair and probably would be more motivated to increase their performance and loyalty to the company. The resting 60% of the profit would be used on investment. Problem is that Cathy could refuse to agree with this idea. 7) Combination of the two previous - to promote Cathy and establish a system of profit sharing for all employees (employee fund). This could increase the Cathy's motivation - her promotion could compensate a lower pay resulting from lower profit to be distributed.

According to the theory of needs, Cathy has probably satisfied her social and self - esteem needs, thus a promotion could mean the possibility to satisfy the needs of self - actualization. This alternative solution is compensating some negative impacts of the previous one. 8) Establish gain -sharing system -this assumes also Cathy's agreement and the principle is basically the same as the profit - sharing, but the employees would be induced to come up with some ideas how to improve performance and life in the organization, and the savings that would come from implementation of their ideas would be distributed in the form of payments or benefits to employees. This system would be more motivating because employees would be remunered directly for their effort.

Sometimes even if the employees " performance is at the maximum, the company could earn zero profit (due to some big initial investment pay) and employees finally get nothing for their maximum effort. 6. Final recommendation Based on my analysis and careful consideration of the possible alternative solutions I must say there are many questions that can not be answered. There are still some informations missing, thus the solution I propose could not be the best one, but I would per fer the alternative number 7.

I would recommend to Harvey to promote Cathy, give her possibility to be more independent, to use her potential on maximum and motivate her to stay with his company. From the readings we can conclude this would present a competitive challenge for her. The changes in compensation system would resolve the problem of the equity and improve perception of fairness among the employees, reducing the risk of their dissatisfaction with the pay system if discovered she was paid $127,000. This should also increase motivation of all the employees in the company, thus their performance. Based on the case - study I think Hra vey could build a competitive advantage based on his employees and thus assure a permanent prosper ability of his company. New compensation system based on gain or profit sharing, or similar incentive principle could do a lot - increase motivation and performance of the company and also general satisfaction with a challenging work conditions.