The issue presented in the case study relates to the decision of the management of Circuit City to replace the highest paid employees with lower paid workers in an effort to reduce the labor cost. Because of this decision, the company ended up making losses within the first quarter, and to its subsequent closure. Although some people attributed the company’s financial problems to its decision to terminate the workers, the management did not think that this was the cause. They were of the idea that other factors, other than the termination of the employees, must have contributed to the downfall of the company. Research could have given the management a clear direction regarding how they could have cut costs without causing a negative effect on the company’s financial performance. It could have provided the management with a clear perspective of how the terminated employees contributed to the company, and the value they added. The management could then have learnt whether the contribution of the employees was equal or less to the labor costs they intended to reduce. Conducting research through job analysis and evaluation would have enabled the management to make a better decision.
Many managers make poor decisions because they fail to engage in research. They do not care to know about the latest research in their fields, and are unprepared because of this (Milkovich, et al., 2010). Research could have enabled the managers at Circuit City to realize that money is the most critical incentive for motivating employees. Therefore, the new employees were not as motivated in conducting seeing continuous improvement and success of the company as the others were. The management made the decision of replacing the sales personnel, who are most knowledgeable about the company’s products. Had they conducted their own research well prior to the decision to terminate the employees, they would have realized the benefit of the sales personnel in ensuring customer satisfaction, and thereby increased sales and more repeat customers. Research is essential in determining the causes of certain problems. Although researchers may find correlation among different factors, these factors may not be the cause of problems.
The effectiveness of a pay system depends on its responsiveness to the internal and external factors. Therefore, it is not possible to view it in isolation (Mejia et al., 2010). Conducting a job analysis is important because it is essential in designing a compensation plan for the organization. Data collected through job analysis will enable to know the relevance of the pay that the employees are receiving in context to other employees in the industry. Milkovich, Newman and Gerhart (2010), note that several factors are necessary when designing a compensation strategy. The management should consider the culture and values of the organization, employee preferences, and the social political context.
In determining whether pay is a source of advantage, one has to check whether it adds value to the company, whether it differentiates from other players in the industry, and whether it is aligned with the business strategy, the human resource system, and the social political context. The company dealt with pricey electronic goods. Customer satisfaction was very important in ensuring success. Customers had the option of going to the company’s competitors to purchase their products. The employees who had worked with the company understood the importance of guaranteeing customer satisfaction, and they worked hard at it. They were highly trained in their area of business, and they had adequate customer experience. Some of the employees were above the rest because they understood the company’s product, and they had relevant and up to date information. They not only did their jobs, but they went the extra mile and assisted the customers with any of the questions that they might have had. In other words, they added more value to the company.
When conducting job evaluation, the management looks at the skills required, the value that the employees have to the company, the external market, and the culture of the organization (Milkovich et al., 2010). The management failed to conduct job evaluation, which would have enabled it to determine the contribution of the employees to the company. They showed that they were only concerned with saving money on a short term basis. Terminating the employees in the customer service section was a poor decision on the part of the management. Customers approach the customer service department when they have a complaint, or when they need clarification. The customer service personnel are the first impression of the company. The company might have thought that replacing the highly paid workers was a good idea in helping to reduce the labor costs, but they did not consider the long term consequences of their decisions.
Milkovich et al. (2010) note that employees improve their attitude and behavior towards work and their work performance when the management combines the use of performance based pay with high performance practices. Pay based performance is paramount in enabling the organization to realize its strategic objectives. Employees are more likely to meet their targets when they are rewarded for it. The reward acts as a motivating factor for them. They will do whatever it takes to ensure a realization of these goals. They will be concerned with ensuring that the customers are satisfied and that the company realizes profits because of increased sales (Jackson et al., 2008)
Jackson, E. S., Schuler, S. R., & Werner, S. (2008). Managing human resources. Cengage Learning: New York, NY:
Mejia, G. L., Berrone, P., & Santos, F. M. (2010). Compensation and organizational performance: Theory, research, and practice. M.E. Sharpe: Armonk, NY
Milkovich, G., Newman, J., & Gerhart, B. (2010). Compensation. McGraw-Hill: New York, NY Education