Bus 2880 (Fall 2021) Case Competition

COMMUNICATING PAY CUTS IN GLENWOOD

Case prepared by R. Blake Jelley and Tina Saksida, UPEI (last revised 2021-10-20).

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

Introduction

Dr. Gina Gallant, Assistant Professor of Organizational Behaviour, was thrilled. She had just

finished a virtual meeting with Kent Auburn, CEO of Aerospace Inc., a manufacturing firm

headquartered in Glenwood, Washington (near Seattle). Auburn had told Dr. Gallant that he

would give her students the opportunity to conduct a field experiment to test aspects of

organizational justice/fairness theory in exchange for helping the company with communicating

a pay cut. Such opportunities were rare, and as an emerging researcher on workplace justice,

Gallant could not help but be excited about this opportunity. Soon, however, Gallants

excitement turned to tension. Her Business 2880 student team now had to develop a design for a

field experiment (or quasi-experiment) that satisfied both her high academic standards and the

companys objectives.

Employee Theft

Employee theft is considered a serious problem among HR managers. While it is difficult to

establish exact figures for employee theft (for example, in stores, it is not easy to distinguish

between shrinkage due to employee theft versus customer shoplifting), losses attributed to

employee theft have been estimated at $40 billion per year in the U.S.,1 though other estimates

range from $6 billion to $200 billion annually.2 The results of a 1997 study suggest that about

50% of all employees engage in some form of employee theft.3

Aerospace Inc.

Aerospace Inc. produces small mechanical parts mostly for the automotive and aerospace

industries. The company has three manufacturing plants in the Northwestern United States,

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), but operate independently of each other. Each plant employs about the same number

of people (i.e., 64, 53, and 66, respectively), most of whom are hourly-wage semiskilled and

unskilled production workers. The remaining employees are low-level managers and hourly

wage clerical workers. For instance, in one plant, among the 64 employees, 47 are production

workers, five are managers, and 12 are clerical workers.

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 (in comparison with

others outcomes and inputs). Organizational scholars have built on equity theory to develop

organizational justice/fairness theory. According to this theory, organizational justice has three

main components distributive justice, procedural justice, and interactional justice.

1 Camera & Schneider (1994); Lipman & MacGraw (1988)

2 Green (1997); Jones, Ash, & Soto (1990); Miner & Capps (1996); Murphy (1993)

3 Wimbush & Dalton (1997)Bus 2880 (Fall 2021) Case Competition

Assistant Professor Gallant

Dr. Gallant has recently started a program of research in organizational justice theory. On the

basis of this theory, she knows that the detrimental effects of a pay cut are not only a function of

the size of the pay cut (i.e., the actual outcome), but also of the process through which the pay

cut 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.4 In other words,

if employees feel that they have been treated fairly, they will not react as negatively to a pay cut

(e.g., engage in fewer counterproductive behaviours).

The Situation

Aerospace Inc. has lost two large manufacturing contracts that affect two of the three plants.

Auburn has been forced to reduce the payroll. He considered two options for the two affected

manufacturing plants; namely, a layoff of employees or a pay cut of 15%. Auburn decided that

he would not lay off employees, because he wanted to implement a solution that would have the

least devastating effects on the employees. He felt that if he lays off some employees, it will

profoundly affect them and their families. This means that he must cut employee pay. He fears

the employees will perceive the pay cuts as extremely unfair and might get back at the

company by, among other things, stealing inventory, tools, and supplies. He also fears they could

withdraw their efforts in other ways that could hurt the company and its culture of helping one

another. In his two-decades as a manager and senior executive, this is the first time that he has

faced a situation where he has to reduce employees pay. Hes not sure how to go about it, but he

expects that employees will not be happy. He decided to seek advice from Prof. Gallant and her

students to execute the pay cuts and assess the impact of pay cuts on key metrics, including

employee theft. The accounting department, which is located at the company headquarters, has

kept records for computing plant-level shrinkage (i.e., the percentage of inventory, tools, and

supplies unaccounted for by known waste, sales, use in the conduct of business, or normal

depreciation). In other words, Auburn views shrinkage as an indicator of employee theft.

The Task

Professor Gallant knows that she has a unique opportunity. She cannot afford to mess up. Her

2880 students have a chance to demonstrate, in a field setting, that adequate explanations of a

bad outcome (e.g., a pay cut) reduce negative reactions to it. Furthermore, she has to consider the

concerns of Aerospace Inc. and its employees. Finally, as a scientist (and with an eye on

producing a top-level research paper), she must try to draw defensible causal inferences, which is

typically a challenge in field studies. Arsenault assigns her research team to learn about

organizational justice and design an experiment or quasi-experiment with these thoughts in mind. Mr.

Auburn is expecting the team's research proposal by the deadline. You are that team good luck!

4 Bies (1986), Bies & Moag (1986), Greenberg (1986), Lind & Lissak (1985), Shapiro & Buttner (1988), Tyler

(1988) NOTE: Full references are not provided for the case. 2880 students should search academic databases for

updated literature.

use the EBMgt) framework Complete and supplement the following articles. Make sure the article is long enough

Because employee retention and loyalty are crucial to any company, companies must consider how their actions will affect their firm and employees. Zach was adamant about which approach would cause minimum damage to both parties.

Suggest:

Jones may recommend that the firm go from a defined benefit to a defined contribution plan over time and explain the implications. Employees are affected by changes in pension plans, but explaining the positive impact on the company may persuade them to change their minds and avoid unnecessary activities because the defined benefit plan will expose the company to more significant risks and may impact future business performance.

• They may also be eligible for stock-based remuneration, which is favoured to attract people and nurture loyalty in the tech industry, particularly for startups with limited funds. This is a valuable tool for both the corporation and its employees. When they pay employees, consultants, and consultants in stock or options rather than cash, their company saves money for other expenses. The core notion is that due to employees' efforts and dedication, the company's and stock's value will rise, allowing employees to earn higher returns in the future.

Specific actions:

The organization must devise a strategy for providing a venue for employees and management to express their views. If you choose a fixed payment option, the management can then convey the company's overall benefits to the employees. This is not only for the good of the company but for the benefit of everyone because if the company has a risky and volatile database plan, future problems will be remedied sooner than current problems. Most of the company's expenses will be directed to staff if the DB plan is implemented, and operating expenses for business continuity will be lowered.

• The corporation may also include conditions that are appealing to employees while minimizing the company's risk. They might have an incentive system to encourage staff to work hard and treat the firm as a whole rather than just as a source of income. At the very least, they will have the mindset of developing with the company because as the firm grows, they will feel protected, and their business will not suffer.
• Employees should witness the manifestation of authentic leadership, trust their leader, and choose to stay if the organization sets a trusting tone at the top. They can have faith in the company's leadership to be people-focused and goal-oriented, allowing them to choose to contribute to the company's success while avoiding counterproductive behaviour. Tell them to think twice about stealing from the company's assets.

Please don't plagiarize. Please mark it out if you have any references. I will like it