Compensation 11th Edition by George Milkovich,Jerry Newman,Barry Gerhart

Exercise 2

World Measurement
World Measurement is the global leader in product testing for safety. The recent problem with Chinesemade toy products (for example, Mattel recalled 19 million toys with evidence of lead paint) combined with the global recession has caused a 7 percent decline in sales and a 12 percent decline in net profits. The president of the company, Lewis Jacobs, is convinced that he must get concessions from the workers if World Measurement is to compete effectively with increasing foreign competition. In particular, Jacobs is displeased with the cost of employee benefits. He doesn't mind conceding a competitive wage increase (maximum 3 percent), but he wants the total compensation package to cost 3 percent less. The current costs are shown in Exhibit 1.
Your assistant has surveyed other companies that are obtaining concessions from employees. You also have data from a consulting firm that indicates employee preferences for different forms of benefits (Exhibit 2). Based on all this information, you have two possible concession packages that you can propose, labeled "Option 1" and "Option 2" (Exhibit 3).
1. Cost out these packages given the data in Exhibits 1 and the information obtained from various insurance carriers and other information sources (Exhibit 4).
2. Which package should you recommend to Jacobs Why
3. Which of the strategies do you think will require less input from employees in terms of their reactions
EXHIBIT 1 Current Compensation Costs

EXHIBIT 2 Benefit Preferences

EXHIBIT 3 Two Possible Packages for Cutting Benefit Costs

EXHIBIT 4 Analysis of Cost Implications for Different Cost-Cutting Strategies: Lightning Industries