The owner of a large hardware, furniture and building centre faced a dilemma regarding how to manage

the upcoming wage review process. After two consecutive years of frozen wages, employees were

impatient for financial progress, but there was no spare money in the budget. It was possible to pump

savings from upcoming process improvement initiatives into wage increases; however, the owner had

limited motivation to channel hard-won funds to underperforming employees. On the other hand, he was

eager to reward the people who added value. A plan that rewarded only some employees could result in

an angry backlash. He had to decide if he wanted to divert the savings into compensation and if so, he

needed an effective distribution plan.

As store owner Mark Coglin walked up to the service desk, he heard Simon, the floor manager, finishing

a phone conversation. Mark paused at the counter as he listened to the tail end of the interchange. Simon

said, "Are you sure you can't make it in? This is kind of leaving me in a bind, Dougie. Yeah, I get it.

Okay. Hopefully we'll see you tomorrow." Replacing the receiver into the cradle, Simon glanced up,

shrugged in response to Mark's raised eyebrow, and said, "That was Dougie Suzor calling in again. He

thinks he has the flu." Mark rolled his eyes and the two men started walking towards the front of the large

home hardware and building centre.

Once they were out of earshot of any customers or other staff members, Mark commented under his

breath, "It's funny how that flu bug always seems to hit Dougie the Monday following a long weekend."

Simon nodded, and said, "He's not the only one. Four other employees called in before him, and I have a

feeling there will be a couple more calls from people whose shifts start in the afternoon."

Mark sighed loudly in exasperation. "What is it about us that makes people think we are dumb, Simon?"

He pointed to his freshly-pressed button-up shirt with the company logo embroidered on the left side, and

said, "This says the name of the store is 'House, Hearth & Home,' not 'House of the-ones-who-will-

believe-anything,' right?" Simon chuckled, but didn't comment or break stride. This wasn't the first time

he had heard this joke. Mark continued, "Do they think we're not going to notice that they miss every

Monday after a long weekend? Especially when they come in on the Tuesday talking about the great road

pg 1

Watching Simon's retreating back, Mark was impressed once again by the dedication he had to doing

things right, even though it had unfortunately interrupted his venting. As the floor manager, Simon never

had a shortage of issues clamouring for his attention. Somehow he managed to juggle a lot of balls at the

same time, very rarely dropping any of them. As one of the owners of House, Hearth & Home, it was very

reassuring for Mark to have Simon on the job. He was a key employee.

Mark knew a business as big as his needed employees like Simon. As he made his way to the front of the

store, he was able to glimpse only part of the 39,000 square feet devoted to hardware, houseware, and

building supplies. An additional 12,000 square feet were filled with home furnishings, leaving 8,000

square feet as warehouse space. No one person could manage the one hundred staff members, the

truckloads of inventory, and the annual sales of more than Cdn$20 million. Although every employee

could make a difference in the success of the establishment, there were certain employees who would be

very hard to replace and Simon was one of them.

After delivering the papers to Donna and chatting with her for a few minutes, Mark walked towards the

kitchen department to check out how the new displays looked. Customers really seemed enthusiastic

about the kitchen displays, but they took up a lot of valuable floor space. Mark wanted to reassure himself

that the new ones were as nice as or even better than the old ones. As he came around the end of an aisle,

he noticed Marie and Anne, two employees from the flooring department, talking and laughing as they

stocked a shelf. He could hear they were talking about a television show that had been on the night

before. Part way down the aisle, a customer was looking perplexed as she scanned the upper shelves.

Annoyed, but trying not to show it, Mark smiled as he paused beside Marie and Anne, and said, "I think

you have a customer, ladies." Looking around, they acted as though they hadn't noticed her before. Marie

mumbled an apology and jumped up to ask her if she needed assistance.

Mark shook his head as he walked away. He thought, "We have trained our employees to make customer

service a priority, yet those two acted like that customer was invisible. Why will certain employees not do

the right thing unless someone is standing over them? And why do they think I would be so gullible as to

believe they hadn't seen her?"

Before he could find an answer to this question, Mark was distracted by the sight of the new kitchen

displays. They looked very impressive and he stopped to congratulate the kitchen designer for her good

work. Glancing at his watch, Mark realized it was almost time for his meeting with Aaron, the company

controller. As he excused himself and started heading towards Aaron's back office, Mark thought about

the reason for this meeting and felt a little nervousness in his stomach. He had asked Aaron to figure out

if there was any money for wage increases this year. Mark knew enough about the balance sheet to

suspect the news would not be good.

Like many other businesses, the global downturn had negatively affected House, Hearth & Home. Sales

had shrunk by almost Cdn$4 million a year. Profit margins had tightened or disappeared in several areas.

Employees had seemed to understand why there had been no raises in 2009 and in 2010. However, Mark Do

pg 2

As usual, Aaron was behind his desk with a spreadsheet open on his computer and a cup of coffee half-

forgotten amongst the many papers on his desk. With the company for over six years, Aaron adeptly

handled many of the accounting and human resource issues, freeing up Mark to spend more time out on

the floor troubleshooting. He smiled as Mark came in and said, "Hey, you're right on time. Grab a seat.

I'm just printing out a little report for our meeting." The printer behind him started to whirr, and Aaron

rolled over in his chair to pull two sheets as they emerged.

Rubbing his eyes as he handed one to Mark, he said, "You asked me if I could find any money for raises this

year. Well, I've gone over the latest numbers and the quick answer, I'm afraid, is no." Aaron waited a

moment to let Mark scan the sheet before he continued. "As you know, sales have been down, we've written

off some old inventory this year, and there have been a few unexpected expenses that have really cut into

profits. I've laid it out in broad brush strokes in this table. I don't think any of it will be surprising to you."

Mark exhaled loudly as he began to go through each line with Aaron. He was surprised by how

disappointed he was feeling. Listening to Aaron as he walked him through the numbers, Mark let a part of

his brain consider why he felt such disquiet at the idea of another year with no increases. What was he

afraid would happen? A mutiny? A mass exodus? Sabotage?

The sound of the printer running again made Mark realize that he had not been giving the conversation

enough attention. He said, "I'm sorry, Aaron. I didn't catch all of that. What was the last part?"

As he handed Mark another sheet, Aaron replied, "I was saying that the first sheet is a fair accounting of

the business. There aren't more than a few thousand spare dollars to go towards raises. However, there

may be some ways we can 'find' some money in there."

Mark cleared his throat and asked, "Legally?"

Aaron rolled his eyes and said:

Of course. I wouldn't recommend anything the auditors would pull apart. I'm just saying

that if we change what we're spending money on, we might be able to divert some towards

a wage increase. For example, I've heard you say that we're not getting much of a return

from our advertising spending. We could "save" some money there. Or there may be room

to reduce our inventory even further. Of course, you may decide that savings made by

process improvements should go to things other than wages. The downturn isn't over yet. If

we do find some money, there are many other places in this company where you could

invest it. For example, we could use a better security system. Or we could pay down some

of our debt. Or we could do some overdue building maintenance to ensure we look good for

the customers. It's a tough decision. You think about it.

Mark looked at the second sheet with interest. Aaron had listed a number of different areas where they

could cut expenses or save some money. Some of them had been raised before, but they had never been

presented in such a detailed fashion. Beside each he had given an estimate of the dollar amounts that

could be saved. If they were able to implement all of these ideas, there would be enough money to give all

employees maybe a 2.5 to 3.0 per cent increase. This was a little higher than the annual inflation rate.

This type of increase would not make up for the two years of zero increases, but it would be a movement

in the right direction.

pg 3

Mark waited for a sense of relief to wash over him, but for some reason, he did not feel as excited about

this news as he had expected. This didn't make sense. He had been so disappointed the moment before

when he thought there was no chance. Aaron had given him an opening to make this raise happen.

Knowing that Aaron had put a lot of work into this idea, Mark made an effort to show some enthusiasm

and to thank Aaron for his creative thinking. However, he ended the meeting shortly afterwards with an

assurance that he would think about everything Aaron had presented. Mark needed to let his thoughts

settle down before he could sort them out.

Walking back onto the floor, Mark decided that some fresh air might do him some good. He headed

outside to the side yard where the lumber, drywall, and other large materials were transferred directly to

customers or to the delivery trucks. He scanned the yard for Wesley, the yard foreman. An eight year

employee, Wes had the responsibility to keep the yard organized and safe. When things got sloppy in the

yard, accidents increased, people were more likely to get hurt, and inventory was more likely to be lost or

damaged. Like Simon the floor manager inside, Wes was always ready to step up and make sure things

were done correctly.

Wesley was in the far end of the yard speaking to a young man on a forklift. As Mark walked closer, he

could hear them discussing the best way to prep large customer orders. Instead of interrupting, Mark paused

to straighten out a pile of lumber that a customer had just finished picking through. At the sound of the

forklift moving off, Mark looked up to see Wes watching him work while leaning against a skid of siding.

With a smirk, Mark asked, "You enjoying yourself over there?"

Wes nodded but stepped over to pick up a few boards that had fallen to the ground. Placing them back

with the others, Wes said, "Hey, it's not every day that I get to see you actually working."

Looking at the neat pile with satisfaction, Mark straightened out his back and replied, "From what I can

see, that young kid is doing most of the work out here."

Wes laughed out loud and said, "Ouch! But good catch, Mark. Kyle is doing a lot out here. I wish I had

10 more just like him. He just brought me another great idea for doing things better. He has only been

here for two months, and he already seems to understand how everything should flow together. There are

guys who have been here for five years who can't do that." As Wes talked, they watched Kyle expertly

maneuver the forklift as he picked an order of drywall for a contractor.

Looking back at Mark, Wes said, "Hey, I don't think you came out here to pick up boards or talk about

Kyle. Did you need me to do something?"

Mark shook his head and replied, "Nah. Just hanging out. Maybe I'm wondering if I could leave my

problems inside and get a job with you cleaning up the yard. Seems like it would be a lot less stressful,

and I could get lots of fresh air. What do you say?"

Wes laughed again, and replied as he looked down at his cell phone, "Sorry, no openings. You don't

really want to work here anyway. Kyle would just make you look bad! Gotta go." Wes turned away to

sort out a delivery problem that was holding up a job on the other side of town, and Mark found himself

on his own again.

pg 4

Realizing the answers he sought were not in the yard, Mark wandered back to his office. Shutting the

door, he turned off his phone and sat back in his leather office chair so he could try again to straighten out

his thinking like he had straightened up the pile of lumber.

Pulling out a blank notepad, Mark wrote down the thoughts that were rolling around his head. He knew it

was probably unreasonable to ask his employees to accept a wage freeze for the third year in a row. A

subgroup of the employees already seemed to dislike their jobs and it was scary to imagine how hard they

would be to deal with if their morale level sunk even lower. There were already issues with "lost"

inventoryperhaps the employee theft problem would skyrocket if there was no wage increase.

Employees who felt cheated might feel entitled to help themselves to a different sort of raise. The store

was full of items that most people would wantit would be easy for a disgruntled employee to smuggle

some of the smaller items out of the store in lieu of a raise.

The ideas for cost savings given by Aaron could probably be accomplished, but it would be a lot of work.

Thinking about the time and effort that would be necessary to make it happen, Mark wasn't sure if he

wanted it bad enough. He already worked long hours, six days a week. If he was honest with himself, he

had to admit that he was not particularly motivated to find a way to give raises to some of his employees.

There were certain employees who didn't even seem to earn the money they were already making. It was

hard to justify giving them even more money.

Mark realized that at least 15 per cent of his employees would probably save the company money if they

left. These were the people like Dougie who were unreliable, dishonest, incompetent, or always in the

middle of the latest workplace drama. It was hard to get motivated to work extra hours for months on end

to reward this behaviour.

Of course, there were twice as many really good employees like Kyle. These were the employees that

cared about their work and went that extra mile, even when no one was watching. They were the lifeblood

of the business. They should be recognized. At the very top of this pile sat Aaron the controller, Simon

the floor manager, and Wesley the yard foreman. Mark jotted down a note that it was imperative to show

at least these three that they were really appreciated. He also knew that giving a raise to only some people

and not others could create new problems.

Mark thought hard about the options scrawled across the page. Should he give an increase to everyone, to

no one, or to the deserving minority? Should he do something else entirely? He knew there would be big

consequences to any decision he made.

Q1:Contrast the outcomes that might be expected in the following two scenarios? (a) Mark uses the process improvement savings to give a three per cent wage increase to all employees; (b) Mark uses the money currently available in the budget to give raises to Aaron, Simon and Wesley only? (25 Marks)