QUESTION 1 Read the following case study and then answer the questions that follow. RESPONDING TO CHANGE: A CHALLENGE FOR HRM LIFE Insurance is an established company offering personal insurance including death cover, disability cover, critical illness cover, and other niche insurance products. The company has been in business for more than 50 years and is a well-known insurance provider among most South Africans. It employs about 500 people, who are based in its Johannesburg office. Thobekile has been the HR manager at LIFE Insurance for the past five years. During that time, she has introduced several initiatives designed to enhance attraction and retention. These initiatives have been successful. The company has a turnover rate substantially lower than the average in the insurance industry, and with these initiatives she, is able to attract strong applicants when vacant positions are advertised. LIFE Insurance has a reputation for being an excellent employer offering great working conditions, opportunities for training and career development, competitive salaries and benefits, and a high quality of work life. As a result, it has a stable and experienced workforce. One of Thobekiles initiatives has been an annual employee survey. These have revealed increasing levels of job satisfaction and, overall, a positive organisational climate. Employees have indicated a strong commitment to the organisation and an appreciation for the culture and level of support. However, as a result of the COVID-19 pandemic, competition in the insurance industry has increased, with several new competitors entering the market. In addition, the economy has experienced a period of reduced growth. Both of these factors have had an impact on LIFE Insurances bottom line, and while it is still profitable, the outlook is less than encouraging given that economic conditions are tipped to worsen in coming months and are expected to be depressed for some time. In response to these external factors, management commissioned a review of the organisation by an independent consultancy firm. The firm analysed the companys operations to identify potential cost savings and improvements to assist the company in remaining competitive. The consultants report has been released and copies have been circulated to the organisations senior managers including Thobekile for comment. The firms recommendations include: reducing the staff complement by 20% through restructuring and streamlining of the business processes reducing expenditure on non-essential training and development programmes reducing expenditure on employee wellness initiatives, such as regular health screenings, stress management programmes and healthy lifestyle programmes HRM2605: Assignment 07 Semester 02 (2022) 4 reviewing the pay structure of the employees, including reducing performance bonuses and merit increases, and withdrawing benefits such as travel and transport allowances and study bursaries outsourcing the payroll and recruitment function so that the size of the HR department is reduced. Thobekile is concerned about these recommendations, as they seem to signal a very different approach to managing the workforce. At the same time, she recognises that the company must respond to its changing context or risk of becoming uncompetitive. Source: Adapted from Nel, P. & Werner, A. 2016. Human Resource Management in Australia. 2nd edn. South Melbourne: Oxford University Press Australia & New Zealand.

1.1 How might the recommendations made by the consulting firm affect the psychological contract between the insurance company and its employees? (5