Business Case 6

A Decision-Making Dilemma

Belford Inc. is a large consumer products company that has operations in Canada and the United States. It has approximately 23 000 employees. This week, the executive team at Belford Inc. is meeting to discuss a high-profile issue that is currently very much in the news: salary disparities between newly hired men and women. The meeting is particularly important because top management was informed last week that a female employee (who was hired last year) is suing the company for pay discrimination. At this early point in the process, the company does not know the name of the employee, but it is known that she is suing on the grounds that (a) her starting salary was lower than the average starting salary paid to newly hired male employees and (b) newly hired female employees on average were being paid about $2000 less than newly hired male employees. The meeting of the executive committee has been called to work proactively on this potentially difficult situation and to see if a decision can be reached. The members of the executive team are as follows:

• Gerald Jones (CEO)
• Chi Kim (vice presidentFinance)
• Marilyn Trent (vice presidentHRM)
• Dan Schultz (vice presidentManufacturing)
• Tyann Choudry (vice presidentMarketing)

The meeting began with CEO Gerald Jones commenting that this was a critical issue that had to be decided properly, both for external public relations reasons (the company did not want to get a reputation for pay discrimination) and for internal reasons (a bad decision could negatively affect employee morale and productivity). To get the discussion started, he asked Marilyn Trent to provide some overall salary data on people who were hired last year. She reported that the average salary paid to new male employees was $63 817 and that the average for new female employees was $61 706. After hearing these numbers, the following exchange took place among the members of the executive team:

Choudry:Well, it looks like female employees really are paid less than male employees.

Schultz:Well, on average, yes, but averages are pretty meaningless. Just because there are differences in the average doesn't mean there is actually pay discrimination. There are good reasons why the salaries of new hires in our company differ. For example, one very obvious explanation is different educational qualifications. We pay higher salaries to those with MBAs.

Trent:That's true. The average for males with MBAs is $70 970 and for females with MBAs it's $70 200.

Schultz:Is that difference big enough to conclude that there is pay discrimination?

Choudry:That sounds pretty dismissive of the employee's claims in her lawsuit. We are being sued on the grounds that the female employee's starting salary was less than the starting salary of her male counterparts. In any case, how does the MBA data bear on this issue? We don't even know how many male employees have MBAs and how many female employees have MBAs.

Trent:Yes, we do. There were 54 male employees hired with MBAs and 18 females hired with MBAs.

Schultz:I don't see how those numbers help us make a decision.

Kim:How about looking at the total number of male and female employees hired last year? Will that help?

Trent:I don't know if it will help, but I can tell you that there were 184 males hired last year and 206 females.

Jones:I'm not sure what all these numbers imply for our decision. Let's hear some analysis.

Schultz:OK. I'll take a run at it. If we employ more males who have MBAs, and MBAs get higher salaries than non-MBAs, it makes intuitive sense to conclude that an overall statistic like the average salary would mean that men in our company will have higher average salaries than women. But that doesn't mean there is pay discrimination. It simply means that more men have the higher qualification, that is, an MBA.

Choudry:You can't just assume that a person with an MBA is more valuable than a person who doesn't have an MBA. I also think we have to look beyond the specific female employee's case and remember her claim that femaleson averageare being paid about $2000 less than male employees. That is a very negative fact, and it will make us look bad in terms of public relations.

Kim:I don't think we should get into a debate about whether or not an MBA-qualified employee is more valuable than a non-MBA-qualified employee. That's not the issue here.

Schultz:I agree. I also repeat my earlier objection to the argument about using average salaries to make a decision regarding this lawsuit. We can't just make a decision to give money to a certaingroupof employees based on some overall average. We've got to do a more systematic analysis of the data that we have so we can logically determine whether pay discrimination really exists. If the analysis shows she is being discriminated against, then we'll move forward with a solution. But if we don't do a proper analysis, we won't know whether she is being discriminated against in terms of pay. Also, we may damage the logic of our entire pay structure, as well as the morale and satisfaction levels of our most highly qualified employees if we don't do a proper analysis.

At this point, CEO Gerald Jones intervened in the discussion. He said it was obvious that the issue was more complex than he had originally thought, and he felt that a subcommittee of the executive team should systematically analyze the relevant data before a decision was made. After some further discussion, Schultz, Choudry, and Trent agreed to serve on the subcommittee. They committed to making their recommendation in three days at the next meeting of the executive committee.

1. Do you think that the female employee's claim that she is being discriminated against is accurate? To make your decision, use the data presented at the meeting and clearly indicate (quantitatively) how it does, or does not, support the employee's claim of pay discrimination.
2. Are there data that are missing that would be useful in this case? Explain.
3. To what extent do the discussions of the executive team follow the six steps of the rational decision-making process that are presented in this chapter? If you decide there are differences, explain why those differences exist.