Recommendations and specific action plans

PENSION PROMISE IN PERIL

(Adapted from J. Dietz (2013), University of Lausanne. Used with author permission.)

Introduction Professor Jane Jones was thrilled. She had just finished a phone conversation with Tim Zucker, CEO of Professional Packaging Inc., an Ontario packaging firm. Zucker had told Professor Jones that he would give her the opportunity to conduct a field experiment to test aspects of organizational justice/fairness theory in exchange for helping the company with communicating a change to its pension plan. Such opportunities were rare, and as a renowned expert on workplace justice, Jones could not help but be excited about this opportunity. Soon, however, Jones's excitement turned to tension. She now had to develop a design for a field (quasi-) experiment that satisfied both her high academic standards and the company's objectives.

Pension Plan Problems

A company pension plan is an attractive but elusive component of an employee's total compensation package. Based on Statistics Canada data, it appears that only about one-third of Canadian workers have an employer-sponsored pension plan1 and the number of Registered Pension Plans is shrinking. In particular, the number of defined benefit (DB) plans decreased by almost 18% between 2011 and 2015. DB plans are designed to provide retirees with a set income for life (e.g., a monthly benefit) based on a formula that considers their length of service and average employment income. If a DB plan's investments don't make enough money, the employer must make special payments to top up the fund. In an era of low interest rates and poor investment returns, many employers are finding the cost and risk of DB plans to be too much. Some switch to defined contribution (DC) plans or stop offering pension benefits (e.g., existing employees get no new employer contributions, and new employees get no pension at all). Under a DC plan, the contributions made to the fund (usually by both the employer and employee) are the employee's responsibility to invest. If those investments offer losses or low returns, the employee may not have enough money to fund their retirement plans.

Many private sector workers are reported to have "pension envy" when they look at the pension plans provided to people working in the public sector. Relatively few private sector employees have employer pensions. Professional Packaging is different in that respect. Its employees, until now, have enjoyed a generous DB plan - the benefit calculation has used the average of an employee's best three years of earnings and is fully indexed to inflation. After meeting with the firm's actuaries and lawyers, though, Tim Zucker realizes that this has to change. The current system is simply too expensive and too risky for the company. Zucker has decided that, effective next year, they will switch to a DC plan.

Zucker knows this is going to be bad news for employees. The DB plan has been a recruitment and retention tool in the past. Although he's been assured that Professional Packaging is within its legal right to change to a DC plan going forward, he's worried that employees are not going to take the news well. They are likely to perceive it as a pay cut. Zucker did reject a recommendation to stop offering a pension plan altogether since that would profoundly affect employees and their families. He wants to implement a solution that will have the least devastating effects on the employees. Nevertheless, Zucker fears the employees will perceive the pension plan change as extremely unfair and might "get back" at the company by, among other things, stealing (e.g., inventory, tools, and supplies), withdrawing effort, coming in late, or missing shifts. Although he's been CEO for almost

1 Statistics Canada (2016) http://www.statcan.gc.ca/tables-tableaux/sum-som/l01/cst01/labr66a-eng.htm and http://www.statcan.gc.ca/tables-tableaux/sum-som/l01/cst01/famil120a-eng.htm

Bus 2880 (Fall 2020) - Case Competition

five years and has been with the company for more than a decade, Zucker has never before managed a change of this magnitude to a compensation system. He decided to seek advice from Professor Jones about executing the pension plan change and assessing its impact in several key areas, including employee theft (counterproductive behaviours) and absenteeism (withdrawal behaviours). The accounting and human resources departments, which are located at the company headquarters, keep records for computing plant-level "shrinkage" (i.e., an indicator of employee theft) and attendance. Beyond that, the company doesn't have expertise or ideas about how to measure counterproductive behaviour or employee withdrawal.

Professional Packaging Inc.

Professional Packaging Inc. produces packaging (e.g., boxes, labels) for various consumer-goods clients. The company has three plants in Ontario, which are highly similar in terms of organizational features (size, physical layout, organizational design, operations) and employee profiles (gender, age, level of education, tenure with the company). The plants operate independently of each other and are in different areas of the province. Each plant employs about the same number of people (i.e., 164, 153, and 166, respectively), most of whom are hourly-wage semiskilled and unskilled production workers. The remaining employees are low-level managers and office staff. In one plant, the 164 employees include 142 production workers, 10 managers, and 12 office staff.

Equity Theory and Organizational Justice Theory

The basic idea of equity theory is simple. The assumption is that people consistently judge whether the outcomes that they receive are fair in relation to their inputs. Organizational scholars have built on equity theory to develop organizational justice/fairness theory. According to this theory, organizational justice has three main components; namely, distributive justice, procedural justice, and interactional justice.

Professor Jones

Professor Jones has an extensive record of research in the area of organizational justice theory. Based on this theory, she knows that the negative effects of a benefit decrease (or pay cut) are not only a function of the size of the decrease (i.e., the actual outcome) but also of the process through which the change is implemented. For example, decision outcomes and procedures are better accepted when a) people are assured that higher authorities are sensitive to their viewpoints, b) the decision is made without bias, c) the decision is applied consistently, d) the decision is carefully justified on the basis of adequate information, e) the decision makers communicate their ideas honestly, and f) persons influenced by the decision are treated in a courteous and civil manner.2 In other words, if employees feel that they have been treated fairly, they will not react as negatively to bad news.

The Task

Professor Jones knows that she has a unique opportunity. She cannot afford to mess up. Jones also knows that she wants to demonstrate, in a field setting, that adequate explanation of a bad outcome (e.g., a pension plan change) indeed lessens negative reactions to it. Furthermore, she has to think about the concerns of Professional Packaging Inc. and its employees. Finally, as a scientist (and with an eye on producing a top-level research paper), she has to make sure that she can draw defensible causal inferences, which is typically a challenge in field experiments. With these thoughts in mind, Jones meets with her research team to design the experiment