Page 395 - Business Principles and Management

C HAPTER 14 A SSESSMENT

CASE 14-2: Cutting Employee Compensation
The TieDown Company has been an established company in the United
States since 1938. It manufactures specialty fastening materials used by
trucking, storage, and construction firms. It is increasingly facing competi-
tion from companies that have manufacturing facilities around the world.
Many of those companies have lower production costs, allowing them to
undercut TieDown’s prices to customers. Several of TieDown’s U.S. com-
petitors have moved manufacturing facilities to other countries where wage
rates are lower, whereas others have faced bankruptcy and have either been
bought out by foreign firms or have gone out of business. TieDown’s man-
agement wants to remain in the United States and retain its loyal employ-
ees, but it has to find a way to reduce costs. Though it is still profitable,
profits have been declining and it is clear the future is not bright unless
major changes are undertaken. After careful thought and study, the com-
pany’s executive team has developed a strategy they believe will allow them
to remain in their current location, become competitive once again, and
return to their previous level of profitability over a period of five years.
As a part of its new strategy, the company will implement a major
change in the way it produces its belts and fasteners. In the past, most pro-
duction was handled by skilled machine operators who completed a three-
year apprenticeship program before operating the manufacturing equipment
on their own. A new computerized manufacturing process will allow the
main production activities to be performed by people with fewer skills who
require only a very short training period. That means the company will
reduce the number of machine operators by 20 percent and will cut the pay
rate for machine operators by $6 per hour. However, the company will need
a number of computer programmers and computer technicians for the new
equipment. Those jobs will pay $5 per hour more than the average skilled
machine operator is currently making.
TieDown will encourage the current operators to switch jobs and will
provide the needed training for the new high-paying computer jobs. It is
expected that nearly half of the current machine operators will be able
to switch jobs if they choose to do so. The rest can be employed in the
new production jobs but will have to take the lower pay rate for the
job. To make the change easier for those operators, TieDown will pro-
vide a one-time payment of $1,500 to help them with the adjustment to
the new pay rate.

THINK CRITICALLY
1. What is your opinion of TieDown’s plans for the change to the new
production equipment and jobs?
2. What would you recommend that the company do, if anything, for
the machine operators who are not hired for the computer positions
and choose not to accept the pay reduction?
3. As the production manager for TieDown, outline the procedure
you would follow to implement the changes described so that
most employees will support them.
4. In small groups, prepare a presentation about the change, using
presentation software. As each group presents, the rest of the class
should play the role of employees and ask questions of the presenters.

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