World Measurement is the global leader in product testing for safety. The recent problem with Chinese-made toy products (for example, Mattel recalled 19 million toys with evidence of lead paint) combined with the global recession has caused a 7 percent decline in sales and a 12 percent decline in net profits. The president of the company, Lewis Jacobs, is convinced that he must get concessions from the workers if World Measurement is to compete effectively with increasing foreign competition. In particular, Jacobs is displeased with the cost of employee benefits. He doesn't mind conceding a competitive wage increase (maximum 3 percent), but he wants the total compensation package to cost 3 percent less. The current costs are shown in Exhibit 1. Your assistant has surveyed other companies that are obtaining concessions from employees. You also have data from a consulting firm that indicates employee preferences for different forms of benefits (Exhibit 2). Based on all this information, you have two possible concession packages that you can propose, labeled "Option 1" and "Option 2" (Exhibit 3). 1. Cost out these packages given the data in Exhibits 1 and the information obtained from various insurance carriers and other information sources (Exhibit 4). 2. Which package should you recommend to Jacobs? Why? 3. Which of the strategies do you think will require less input from employees in terms of their reactions? EXHIBIT 1 Current Compensation Costs 462 Chapter 12 The Benefit Determination Process 463 464 Part Five Employee Benefits EXHIBIT 4 Analysis of Cost Implications for Different Cost-Cutting Strategies: Lightning Industries