Please see the attachment carefully.
EXERCISE: ETHICAL AND PRACTICAL COMPENSATION DILEMMAS
I. OBJECTIVES:
1. To familiarize students with a variety of different compensation dilemmas and possible solutions to them.
2. To make students aware that some compensation decisions involve ethical issues.
3. To familiarize students with various criteria that can be used to distinguish between ethical and unethical behavior.
DISCUSSION
Much has been discussed about the ethics of advertising, product quality, employee safety, stock trading, and environmental management. However, little attention has been given to ethical issues related to compensation management. In actual work settings, many compensation decisions may be made without a thought given to professional and ethical standards; indeed, decisions are frequently based solely on past practices and continued because “everyone else is doing it” or out of “business necessity.” Yet, many past common business practices such as not granting employees family leave and not allowing women to work overtime are now considered by many to be unethical.
DEBRIEFING THE EXERCISE:
The exercise can be debriefed at both the end of discussing each dilemma and after all dilemmas have been discussed.
· Most compensation decisions have ethical components because they involve issues of fairness and because if compensation is given to one person or group, it can’t also be given to others (win-lose situation).
· Ethical choices are based on the values of the individuals who make the choices. These values are often affected by the firm’s ethical climate.
· Compensation dilemmas don’t just happen. They are often a result of prior decision making mistakes. Today’s mistakes will lead to tomorrow’s dilemmas.
Compensation managers may find it useful to establish pay ethics policies that provide guidelines to reduce unethical acts. A comprehensive ethics policy has at least several parts. First, the firm needs to make general statements about its commitment to ethical compensation practices. Second, the policy should develop a list of behaviors deemed unethical. However, a code of ethics alone will not insure proper behavior. Employees must be given a procedure to report unethical behavior or to discuss ethical problems. Merely suggesting that employees report problems to their immediate supervisor may be ineffective because the boss may be the source of the problem. Thus, a confidential ethics hotline may be warranted. To avoid the negative connotation of “hotline,” firms have adopted names such as “Helpline” (Waste
Management, Inc.), “We Care Hotline” (American Greetings Corporation), and simply “the 800 number” (Raytheon Company). A hotline has the added advantage of putting everyone on notice that ethical behavior is expected and that wrongdoing will lead to disciplinary action.
A more recent development is the position of an ethics officer who is responsible for the creation and maintenance of a firm’s ethics program. Her or his duties include meeting personally with employees or top management, dissemination of a code of conduct, creation of an anonymous confidential service to answer questions about ethical issues, and investigating adherence to laws and internal codes.
VII. ANALYSIS OF DILEMMAS:
DILEMMA 1:
Based on an evaluation of SKA’s,(knowledge, skills, and abilities) a company has determined that two jobs (job A and job B) are equal. However, when the firm studies the labor market, it finds that applicants for job A are plentiful whereas those for job B are very scarce.
Should the firm offer less to those who apply for job A or should the pay be equal?
DILEMMA 2:
Assume that the supply of electrical technicians is low, so a firm hires a group of them at $18 per hour. Two years later, due to a recession, the supply of technicians is high, so the market rate for them is now $15 per hour.
Should the firm pay new hires $18 or $15? Should it lower the pay of existing technicians to $15?
DILEMMA 3:
Jim is given an extremely large raise because of his superb work record one year. As a result he is currently earning $50,000, whereas others at the firm holding the same job are earning $45,000. Everyone expects Jim to continue to excel and enhance the entire unit’s productivity. Unfortunately, Jim’s performance drops off after the first year, and his performance is now just average.
What should be done about his pay? Should it be reduced to reflect his current performance?
DILEMMA 4:
One year, Ethan’s performance is truly spectacular, just as good as Jim’s had been in the previous case. Moreover, let’s further assume that the company has no raise money available that year so no employee, including Ethan, receives a merit raise
. Is this appropriate?
D
ILEMMA 5:
Mary and Sue both work in the same department. Mary believes that Sue is being paid considerably more than she is. In fact, both employees are being paid about the same amount. Mary complains to her boss and the compensation manager and wants a pay raise.
What should the compensation manager say, assuming the firm follows the policy of not revealing the pay of individual employees? Should Mary be told the amount of Sue’s pay? Or, should Mary only be told that there is a “misunderstanding” and that her belief is incorrect? Or, should some other approach be taken?
