Analyzing the Wage Review Dilemma: Organizational Behavior Case Study

This case study examines the organizational behavior challenges faced by House, Hearth & Home, a furniture and hardware store, due to an economic downturn and frozen wages. The case explores issues such as employee absenteeism, demoralization, and the dilemma of how to address the upcoming wage review process. It analyzes the symptoms, causes (inflation and economic downturn), and proposes solutions, including a hybrid payment system with a base salary and performance-based commissions. The analysis references relevant literature to support its findings and suggests implementation strategies, considering potential challenges. The assignment emphasizes the importance of fair treatment, employee motivation, and effective managerial roles in resolving the wage crisis and improving overall organizational performance.

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Summary
House, Hearth & Home is large furniture, hardware and building store owned by Mark
Coglin and is facing several challenges due to the economic downturn, especially the
upcoming wage review process. The business employees have already experienced two
consecutive years of frozen wages making them much more impatient. Mark would like to
increase the salaries of the employees, but the report by Aaron shows that the company
doesn’t have spare money. However, the business could generate some funds to increase
wages from savings from the upcoming process enhancement projects, but Mark is reluctant
to use money that has been made through hard work to award underperforming staff.
Conversely, he wishes to reward the devoted employees, a move that will naturally lead to an
angry backlash. So, the owner is faced with a dilemma of deciding on the most effective
strategy to deal with the upcoming wage review process.
Symptoms of the Major Problem
The signs of the significant problem in the case of “Zero Wage increase again?” are
significantly evident among the employees and in the financial performance of the company.
There are frequent cases of employee absenteeism. In the conversation between Simon (the
floor manager) and Mark, Simon says that Dougie in addition to other four employees had
called with the same excuse of having a flue, and when they report on Tuesday they give
stories of the long weekend of trips they had enjoyed. Studies have shown the existence of a
significant relationship between job satisfaction and employee absenteeism. Ybema,
Smulders, and Bongers (2010) carried out a longitudinal study on the association between
job satisfaction and burnout and found out that lower job satisfaction increased absenteeism.
The other evidence symptom in the study is demoralized employees. It is clear from the case
study that the employees of the business are discouraged. For instance, the behavior of Ann

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and Marie who willingly neglect a customer that is waiting at the counter to be served while
they discuss on a TV program they had watched. Furthermore, Wesley observes that Kyle (a
fork lifter) who has only been in the organization for two months is far much better than other
employees who have served the business for over five years. Mark indicates that 15% of the
employees added no value to the company and that it would have been far much profitable if
they left. A study conducted by Danish and Usman (2010) on job satisfaction and motivation
showed that different elements of work motivation affected employee’s attitude and
commitment towards work.
Major Problem
The major problem in the case study is the frozen wages for two consecutive years which
have resulted in impatient employees. The organization has been promising employees of
wage increase for the past two years, and yet this promise is, however, to be fulfilled. Mark
tries to figure out how he will approach the upcoming wage review process, this being the
third year and the employees have been eagerly waiting for the owner to increase their wages.
He walks around the different sections of the company while trying to figure out the source of
money to raise salaries. During these times he meets various employees such as Simon the
floor manager, Marie and Anne among others and is impressed with those who are committed
and displeased with others who do not work hard. Mark then remembers that he was to meet
Aaron in his back office. All this long Mark is nervous. Aaron had been assigned by Mark to
look for ways to raise money to increase the wages of employees even though he was quite
aware that the company had no extra sources of capital.
Aaron recommends some ways through which the company could raise money to increase the
wages. He proposes the company to cut on expenses that are not rewarding such as
advertising, lower inventory, profits from process improvements among others. Aaron argues

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that if all his proposals were acted upon, then employees will receive a wage increase of 2.5
to 3.0 percent, a rate higher than the yearly rate of inflation. But still, such a significant
increase would not be adequate to cater for the past two years nil wage increase. Mark also
considers rewarding the committed employees only who are termed as the ‘bloodlines’
instead of increasing wages of employees that do not add value to the business or disengage
almost fifteen of them. According to Güngör (2011), rewarding employees on the basis of
merits is not always active, and downsizing has malign long-term impacts such as reducing
creativity. Li and Cropanzano (2009) also assert that organizational justice relates to how the
employees are treated and it promotes cohesion at work. Thus, Mark should be cautious about
how he approaches the major problem of frozen wages.
Cause
The cause of the significant problem in the case study is the inflation rate or economic
downtown. Inflation is the general increase in prices and decline in the cost value of money,
in other words, it is caused by an increase in the supply of money faster than economic
growth (Barro, 2013). House, Hearth & Home Company is currently under a crisis of frozen
wages due to the economic downturn, which has also affected the company in several ways.
This is a situation that is out of its control, and the best the organization can do is try to make
internal adjustments to accommodate it. The inflation rate has led to a decline in sales by
approximately Cnd $4 million, and the profit margin has also decreased significantly. Aaron
indicates that the company has written off some of the old inventory and the small profit was
further consumed by the unplanned expenses. The inflation rate is so dire that even a proposal
to increase the wages by 2.5 to 3.0 percent will be higher than the rate of the economic
downturn, but still, this will not be enough to make up for the previous two years of nil wage
increase. The effects of the inflation rate such as low-profit margins and sales have made it

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impossible for the company to increase the wages of its workers thus making them
demoralized and further affecting its productivity. The increase in prices and food
commodities due to inflation increases the cost of living and conducting business. As a result,
employees expect an increase in wages, and the company attempts to meet this demand by
further increasing the prices of its products which further destabilizes the equilibrium
(Rangarajan, 2012). This requires the management to brainstorm on the most appropriate
strategy to generate more income while remaining competitive in the market. For instance,
Aaron proposes to Mark that the company should cut on unrewarding expenses among others.
Alternatives for Resolving the Problem
Mark’s company is not in an unredeemable state, and therefore I believe that three significant
resolutions that can positively impact; a change in the company’s corporate culture, adoption
of a hybrid system and useful managerial roles. The company has a culture which doesn’t
appreciate committed employees like Kyle, who when approached by the well-paying
business they are likely to leave. The company should invest time, money and effort in
developing specific talents. Cropanzano and Stein (2009) note that a just business is one that
rewards and trusts its employees enable them to foretell what they expect to gain from the
business. According to the “group-value model, equality in the treatment employees is an
indication of respect and appreciation. Mark should, therefore, learn how to treat all
employees justly (Meeussen, Delvaux, & Phalet, 2014). This will ensure that they are not
distressed and ready to commit themselves to work. However, the execution of this approach
may be challenging especially for employees that are not productive. The second alternative
is to pay the workers a basic minimum pay and then some additional commissions based on
performance. Ederer and Manso (2013) argue that such a hybrid system encourages workers
to work beyond the minimum targets and thus to increase productivity. This approach will be

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of importance to discouraged staff like Wesley who is the ‘blood liners.’ However, this
approach may affect the health of the employees due to overworking to raise more bonuses,
thus negatively affecting their productivity (Eijkenaar, Emmert, Scheppach &Schöffski,
2013).
Regarding managerial roles, the application of Mintzberg’s roles will be of benefit (Nothhaft,
2010; Tsai, 2011). Mark should foster to develop interpersonal roles by promoting good
associations with the staff, allow for the reception and feedback. Since Mark is dealing with
human resource, he should encourage equality in the way he associates with the team. A good
relationship with management increases trust, commitment and organizational business
behavior among employees and leads to job satisfaction (Mohammad, Quoquab Habib, &
Alias, 2011). The associations can be accomplished through team building activities, sharing
information on the current state of the business regarding profit production. However, this
approach is usually limited by the personality of the employees and the owner, thus making it
subjective.
Solution
The most appropriate solution to the challenge of increasing wages of employees by Mark is
to adopt the hybrid system of payment in which each worker is paid a basic minimum
amount. In addition to the fixed base, there is a commission which is paid based on
performance. This approach has been adopted and proven to be more effective because it
guarantees equality and motivates workers to work hard (Hameed, Ramzan, & Zubair, 2014;
Larkin, Pierce, & Gino, 2012). The hybrid system is better than changing corporate culture
and managerial role because both processes are likely to take long and are subjective to the
temperaments of employees and management. Additionally, the hybrid payment system is

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preferable to the change of managerial roles approach because the benefits may not be
realized immediately, thus worsening the wage increase crisis.
Implementation
The solution of a hybrid system of payment should be implemented at the same time to all the
employees. The employees should first, however, be informed of the possible changes and
the benefits clearly stated to them. They should also be allowed time and freedom to express
their opinions on the same, and the views analyzed and changes made accordingly. Due to the
existing financial constraints, the organization can begin by setting a maximum level of
bonuses. The challenge of implementing the hybrid system of payment is that most of the
employees may decline the changes and decide to quit work including the most committed
ones. This will lead to a loss of innovation and incur additional expenses of hiring other
qualified staff (Hausknecht & Holwerda, 2013).

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References
Barro, R. J. (2013). Inflation and economic growth. Annals of Economics & Finance, 14(1).
Cropanzano, R., & Stein, J. H. (2009). Organizational justice and behavioral ethics: Promises
and prospects. Business Ethics Quarterly, 19(2), 193-233.
Danish, R. Q., & Usman, A. (2010). Impact of reward and recognition on job satisfaction and
motivation: An empirical study from Pakistan. International journal of business and
management, 5(2), 159.
Eijkenaar, F., Emmert, M., Scheppach, M., & Schöffski, O. (2013). Effects of pay for
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Frey, B. S., Homberg, F., & Osterloh, M. (2013). Organizational control systems and pay-for-
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