Question

World Measurement is the global leader in product testing for safety. The recent problem with Chinese-made toy products (for example, Mattel recalled 19 million toys with evidence of lead paint) combined with the global recession has caused a 7% decline in sales and 12% 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%), but he wants the total compensation package to cost 3% less. The current costs are shown in Exhibit 1 (attached). 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 (see Exhibit 2 attached). Based on all this information, you have two possible concession packages that you can propose, labeled Option 1 and Option 2 (see Exhibit 3 attached). Please analyze and answer each of the questions below. It is not necessary for you to type the question itself. Your assignment should be 3-4 pages long, double-spaced, using 12-point font, excluding cover page, attachments, etc. 1. Cost out these packages given the data in Exhibit 1 and the information obtained from various insurance carriers and other information sources (see Exhibit 4 attached). 2. Which package should you recommend to Jacobs? Why? 3. Which of these strategies do you think will require less input from employees in terms of their reactions? Why?

Exhibit 1: Current Compensation Costs

Average yearly wage $27,290.00

Average hourly wage 13.12

Dollar value of yearly benefits, per employee 16,904.00

Total compensation (wages plus benefits) $44,194.00

Benefits (by Category) Dollar Cost/Employee/Year

1. Legally required payments (employer’s share):

a. FICA taxes $2,088.00

b. Unemployment compensation 434.00

c. Workers’ compensation 546.00

Answer 1

To cost out the concession packages, calculate the changes in each category of benefits. Option 1 should be recommended to Jacobs due to the 3% decrease in total compensation cost while providing a competitive wage increase. Option 2 is likely to require less input from employees due to the reallocation of benefits.

Step-by-step explanation:

Cost out the concession packages.

To cost out the concession packages, you need to calculate the changes in each category of benefits for both Option 1 and Option 2. Start by determining the dollar value of each benefit for the current compensation package. Then, apply the changes specified in each option to calculate the new dollar value. Finally, add up the new values for each benefit category to obtain the total cost of the concession package.

Package recommendation

Based on the data provided, I would recommend Option 1 to Jacobs. Option 1 offers a 3% decrease in the total compensation package cost while providing a competitive wage increase of 3%. By reducing the cost of employee benefits, World Measurement can mitigate the decline in sales and net profits caused by the recent problems and economic downturn.

Employee reactions

Among the two strategies, Option 2 is likely to require less input from employees in terms of their reactions. While Option 1 reduces the overall cost of the compensation package, it also includes the reduction of some benefits that employees value. Option 2, on the other hand, maintains the same total compensation cost but reallocates benefits to provide more desirable options, such as higher healthcare coverage and retirement savings.