Question

You are the CEO of a widget manufacturing company. The company is experiencing financial trouble, and needs to produce more widgets in order to stay in operation. In order to encourage your employees, you declare at a meeting that “if everyone works really hard this year and we meet production standards, I’ll give every employee $100.” Employees work unusually hard in response and by the end of the year the firm meets the expected standards. It is also in much better financial condition. Considering both the legal and business implications, evaluate whether or not you should make the payments.

Answer 1

The CEO has made a statement to the employees to give $100, if the company is able to meet the production standards. The employees believed in the CEO and worked really hard to make the required number of widgets to meet the expected standards and the company was able to achieve better financial condition. Now if the CEO doesn't pay the employees, it will create a bad name for the management as well as the firm. The employees of the firm would feel demotivated and cheated by the management and would no longer be willing to work for the company.

But before making the payments the CEO must look at the legal and business implications of the payments. The firm was in a financial trouble and thus it is important that first all the necessary payments to the lenders, creditors must be made so that the credit rating of the firm is not affected and the business can continue as usual. After making the required repayments, if there are funds available then the CEO should give $100 each to the employees as promised. Also he should consult with the HR department to formulate proper compensation structure for the employees to keep them motivated and focussed towards achieving targets.