Question

Conflict Case

You are employed by a Fortune 500 company, based in Austin, working in their HR department. The company makes toys. Your specific role is to aid managers who are having difficulties. The CEO of the company has told one of the supervisors to come see you, because there is an issue with his department.

James comes to you because many of his employees have transferred out of the division or quit. When you ask James if anything has changed in his division to cause this, James tells you that he is not sure of the cause. If anything, he thinks his employees should be even more satisfied than before. James tells you that last month he decided to implement a new pay system for all his teams and also the team leaders. He decided that the workers in the teams would get 80% of their base pay from the year before, but would get a bonus for every 1000 toys they made beyond what they produced last year. By his calculations, if his division produces the same number of toys as last year, the bonuses will put the teams at 100% of their pay. If they produce fewer toys, they will make less money--but if they produce more, they will make more. In order to keep teams from competing against each other, the bonuses will be paid out according to how well the entire division does, not on how each individual team does. James decided to do this on a Monday and had it implemented on that Tuesday, with a memo sent out explaining the change.

So far as the team leaders are concerned, James decided to give them 80% of their pay but, instead of more money, the team leader bonuses would consist of company-paid trips to Europe. James thought that this was a great idea, as everyone likes to go on trips. Furthermore, the trips are actually worth more than the team leaders would be able to make if they were just being paid cash, even if the division suddenly became the top producer in the company. So they are worth more than the money they would get, but the system still saves the company money because the company owns a travel agency, meaning that they are able to get the trips at a huge discount. This new policy is the only change that James can think of that might have affected the teams in his division.

Both James and the CEO are looking to you for answers. And once again, the CEO wants a memo about the situation, and what you are going to do about it in the next two hours.*

*Note: As the CEO wants the information in 2 hours (although, obviously, you have until the assignment is due to turn in your memo), you are not expected to do any sort of advanced research. No citations are needed. Furthermore, as you are given no further information about the situation, your “plan” will be viewed in such a light.

You are to write a 1+ page, formal memo (the text needs to go onto the second page, even if it is a single word) addressing this situation. The memo should be single spaced, with a full space between paragraphs (like this document).

**There is no additional reading for this case.

Answer 1

Solution:

Following is the structure of the memo from HR to CEO:

MEMORANDUM

------------------------

Date - Jul 09, 2020

To - The Chief Executive Officer

From - Mr. XYZ, HR Officer

Subject - Personnel issues in Department ABC

Dear Sir/Madam,

I am writing to apprise you about the employee attrition issue currently being faced at the Department ABC. Upon investigation, it has been found that the division has introduced a radically different compensation structure without undertaking necessary deliberations either at the department or the corporate level.

The changes in the department's compensation structure are as follows:

1. At the team member level, a variable compensation structure has been introduced where 80% of the compensation is based on fixed pay from the past year while the remaining 20% is based on the department's overall performance.

2. At the team leader level, a variable compensation structure has been introduced where 80% of the compensation is fixed component while the remaining 20% (and bonus) will be covered by a company-paid trip to Europe. The company-paid trips would be organized through the company's in-house travel agency.

Upon due consideration to the company HR policy and industry best practices, the following are the issues and their possible remediations:

#	Issues	Remediations
1	Lack of Due-diligence	There should be thorough deliberation between department, HR, and CEO before arriving at any compensation decision.
2	Violation of Corporate HR policy	All compensation-related decision should be formalized and communicated through HR to ensure consistency in policy at the enterprise level
3	Improper Performance-based compensation structure	For a team member, 20% variable compensation is purely based on division performance - There is no linkage with individual performance. Our recommendation is to incorporate both individual performance and department performance as part of the variable component. For a team leader, 20% variable compensation is a 'forced' company-paid trip to Europe. There is no flexibility being offered to the leaders in terms of choosing what they want to do with their pay. Our recommendation is to make 20% variable pay based on individual and department performance. The bonuses can be offered in various forms such as company-paid trips, cash, employee stock, etc.
4	Unfair approach to variable pay structure	The fundamental basis for the new variable pay introduced for team leaders is to use the company's in-house travel agency to save costs. So, employees will technically never receive the 20% variable pay and forced to undertake the trip. Hence, the variable pay structure is unfair and should be nullified.
5	Lack of employee feedback	Since policy decisions are for the employees, it is critical to take direct feedback from them before formalizing the same. Else, even a good decision will be met with severe criticism.