Managing Pay Cuts and Compensation Amid Recession: A Case Study Analysis

Hello

Can someone help me with HR case study...

I have prepared a cse study on Recession -
The case discusses the compensation management practices at ABC based on the EVA model. With the implementation of Economic Value Added (EVA)-based compensation, the salary of employees comprised of two parts – fixed and variable. The variable part of the salary was arrived after considering business unit EVA, corporate EVA, and also individual performance EVA.

During the fourth quarter of the financial year (FY) 2007-2008, ABC announced its plans to slash 1.5 percent of the variable component of employee salaries since its EVA targets for the third quarter of FY 2007-2008 were not met.

The company came in for severe criticism and it was accused of not being transparent with respect to EVA calculation. However, some analysts felt that the pay cuts were a result of the macroeconomic challenges that the Indian companies were facing.


Question) What do you think how the situation could have been managed better if you have been the HR manager in the ABC company during this time?

Regards,
Taru

Dear taru2001,

You have not provided the full details of the salary of ABC employees. Notwithstanding, the company should have been more transparent on the issue of where exactly they have cut 1.5%. There should have been no cut in individual performance EVA as it would have affected morale. Steps affecting morale should only be taken in the most extreme contingencies. From your brief, it appears that the company has not pink-slipped any employee; that, in itself, would be a plus for the company. Many were not that fortunate! Cuts in manpower during a recession were commonplace. Not diverting from the topic, more transparency could have been exercised.