The Well Paid Receptionist free essay sample

I have also cited any sources from which I used data, ideas of words, whether quoted directly or paraphrased. I also certify that this paper was prepared by me specifically for this course. Student Signature: Amy Bukovich ******************************************* Instructor’s Grade on Assignment: Instructor’s Comments: A Practical Application of Market-Based and Value Driven Management for Tyco International Amy Bukovich Nova Southeastern University Based upon the principles of economics, every firm’s goal main goal is to create long-term sustainable profitability. In order to attain this goal a firm must understand Value Over Time (VOT) maximization and the relationship both short and long-term goals have in profit maximization. In reviewing the Well Paid Receptionist Case Analysis it is evident that Troupville Business Solutions (TBS) misjudged the time horizon when making critical decisions that would affect their future financial obligations. TBS: Background and Problem Identification Troupville Business Solutions was founded seven years ago by Harvey Finley, an experienced service technician and well networked sales associate for copy machines. We will write a custom essay sample on The Well Paid Receptionist or any similar topic specifically for you Do Not WasteYour Time HIRE WRITER Only 13.90 / page At the time Harvey decided to capitalize on his technical competence and sales experience, Troupville was recovering from a severe recession. To many in the small town of 35,000 the business venture was risky but Harvey believed with his comparative advantages in the industry, paired with a competent staff, he could realize his dream. In the beginning, Harvey had a shoestring budget which barely gave him the financial means to higher an employee needed to play both the role of secretary and general assistant. Harvey was looking for someone that not only the held technical skills required to fulfill daily tasks but someone that was just as passionate and in-tune to the vision he had for his company. He found this in Cathy Brannen, an educated administration assistant with seven years experience with two separate companies who both vowed that she was the best employee they have had in any position. Because of Cathy’s exceptional attributes as an employee she earned herself a salary of $15,900, which was higher than both the average salary for the area and Harvey’s budget at $14,000. Harvey was reluctant to guarantee a large salary because of the uncertainty regarding the future of the firm, so to entice Cathy to commit he decided to offer a 2% sales over-ride contingency to her contract that at the time created no substantial financial obligation. In the short-term it provided Harvey with the assets needed to create an opportunity for success; his ideal employee with an incentive based contract that freed up cash for current operations. After seven years and an evolving business plan Harvey had experienced success, unforeseen even to himself. He contributes some of his current success to Cathy, as he recognized she had proven to be a truly indispensable asset. Cathy grew with the company, becoming just as knowledgeable as Harvey in all facets of the company while maintaining her official position as secretary. With the growth Harvey expanded his staff to include 17 employees, including Frank, the company comptroller. Having an increased number of professional salespersons decreased the level of support Cathy was providing to customers and allowed her more time to spend on her expanding secretarial duties. With the seemingly over night success and the expanding business Harvey naturally delegated many functions to his employees, such as financial management to Frank. With this said it was surprise to Harvey to find that Cathy, his secretary, was making twice as much as his other employees earning $127k in the business year, with her salary increasing each year with continued success. Harvey is faced with the dilemma of determining whether the value Cathy has added to his company since its inception warrants her current and future increasing compensation. Troupville Business Solution’s Value Drivers Before we can identify the alternatives to Harvey’s issue we must first examine Troupville Business Solution’s Value Drivers. By examining the values that each party holds we can better understand their current and possible future actions. In the case of the Well Paid Receptionist there are two main Value Drivers: Employee and Owner. Employee’s Values Understanding employee values is extremely important for management as many companies consider employee’s to be their greatest asset. To create value it is important that employees’ values are congruent with organizational values (Pohlman, 1997). Decision makers have to recognize what each employee values and determine ways in which they can be incorporated into the organization to create the most success. Once firms find employees with values congruent to the organization it is a continuous process to ensure employee, customer and the organization’s cultural value remain harmonious. With this continuous harmonization process management will have to make decision but they will have to account for the how they both will impact their employees and VOT (Pohlman, 1997). In the case of the Well Paid Receptionist, the two parties that represent employee values are Cathy Brannen and generalized all other employees in the firm. Throughout the alternative analysis I will examine the affect each option has on these parties and the overall impact it will have on VOT. Owner’s Values Owner’s values have a simpler and more direct focus than those of the employee because they center on one component, the owner. The Owner’s values create the framework for a firm’s success. Based upon basic economic principles every firm’s primary goal is usually to maximize profits, which leads to VOT maximization (Thomas amp; Maurice, 2011). All employees must recognize that they are entrusted with the assets of the organization to reach the owner’s objectives (Pohlman, 1997). In the case of the Well Paid Receptionist, only one party represents the owner’s values, Harvey Finley. Throughout the alternatives analysis I will examine the affect each option has on these parties and the overall impact it will have on VOT. Alternative Analysis with Implementation Plan In order to reach a viable solution to the issue Harvey is faced with he will have to account for all alternatives and analyze the impact they have on the both his companies Value Drivers and on VOT. As stated by Pohlman, â€Å"Most decisions that decision-makers make will not be simple, black-and-white or clear-cut. Instead they will be very complex and will require a great deal of subjective judgment†(p. 9). The alternatives that I think Harvey should examine are taking no action, reducing Cathy’s salary to the market rate, changing the scope of Cathy’s responsibilities to warrant compensation, and change sales based incentive to a profit-sharing incentive. Status Quo When evaluating any alternatives the first that should be examined is taking no action. This would have the greatest impact on owner’s values and a negative impact on VOT. As portrayed in Table 1, over 10 years Harvey would expect to pay Cathy $1. 9 million which would represent a 239% increase in compensation based on current growth rates of 15%. Also, her current salary is XXX% higher than Harvey’s highest paid manager. Based upon Cathy’s current responsibilities that have shifted towards a secretarial focus, the magnitude of compensation does not coincide with the value she adds to the company. Based on the owner’s values, Frank should have recognized that assets were misappropriated and notified Harvey prior. Harvey would still be facing the dilemma he is currently in now but he could have corrected the issue earlier, allowing him the possibility of harmonizing the companies Value Driver’s to maximize VOT creating both short and long-term value. There would also be an effect on employee’s values if there were no change, more so for all other employees. Cathy’s personal VOT would increase based on projected growth and most likely her values would remain congruent with those of the company due to her incentive based compensation. The other employees could be adversely affected if compensation based on merit and responsibility is valued to them. As stated in the case, many employees were aware of Cathy’s compensation and thus could have feelings of resentment towards the company leading to less productivity. Ultimately, this would have a negative impact on the company’s VOT because with less productivity from employees, Harvey should expect a decline in profit. Compensation Based on Market Salary As stated by Pohlman, â€Å"Organizations should not be committed to long-term rigid budgets or strategic plans especially those that are created at the top of the organization†(p. 11). In this case, Harvey misjudged the time horizon for his company’s success which Cathy’s compensation was based upon. With his success it has allowed him the opportunity to hire staff that he could assign to positions in which they have a comparative advantage. Since Cathy spends a majority of her time focused on secretarial tasks Harvey could reduce Cathy’s salary to match the market rate of $25,000. From an owner’s values perspective this would create the most value in both the short and long term time horizons. As portrayed in Table 1, if Harvey would change Cathy’s salary to the Market Rate in the current year he would save $121,756. 34 in the first year alone, which almost matches the amount her salary was in the previous year. In addition, within the table’s time frame it would save Harvey almost $1. 5 million and decrease his average expenditure by 88%. From an employee’s values perspective, Cathy would be impacted the greatest with a possible small effect on all other employees. As portrayed by the Table-1, Cathy would experience an 83% decrease in salary in the first year alone. Based upon Value Based Management principles, it is the employee’s responsibility to maximize their VOT. From a knowledge standpoint Cathy has maximized her VOT by becoming knowledgeable in all facets of the company as it grew which also allowed her to benefit financially due to her incentive based contract up to this point. As stated by Landsburg, â€Å"People respond to incentives† (as cited in Pulman, 1997). If Cathy’s incentive is taken away, her personal VOT is adversely affected, so much so that it could lead to a decrease in productivity if monetary compensation was a personal value. Her decrease in productivity would also have a negative impact on the company’s value since she is the first to greet clients both in the office and over the phone. With a decrease in Cathy’s compensation Harvey now has the option to invest the savings back into his company or invest in his employees in the form of bonuses, including Cathy. This would have a positive impact on employee moral that could possibly lead to higher productivity and thus would have a positive affect on VOT. Change In Responsibilities Cathy has become an indispensable asset to the company as she has gained both tacit and explicit knowledge since she became the company’s first employee. Although Harvey had the vision for the company, Cathy could arguably be equally as responsible for the success and $1 million in equity that Harvey has built in the company. As stated by Pohlman, â€Å"For knowledge to create value is must be properly used† (p. 8). From an Owner’s Values perspective, Harvey is limiting the value added to the company by restricting Cathy to her to a secretarial role and thus misappropriating her as an asset. If Harvey were to create a role in the company that would exploit the knowledge Cathy has accumulated and allow her to utilize it to benefit the company it could warrant the magnitude of her salary. This would create no relative change for the company’s financial obligations as 2% of sales have always been earmarked for Cathy’s salary, but it could increase the company’s long-term VOT based upon Cathy’s knowledge being properly applied. From an Employee’s Values standpoint, changing Cathy’s scope of responsibilities is beneficial to both Cathy and all other employees. Cathy would be empowered with greater responsibilities, as well as, maintaining her incentive based contract that should compel her to maximize her personal VOT, thus increasing the value added to the company. In Cathy’s new role, other employees could have the opportunity to learn from her experiences and apply that knowledge to their tasks to increase their productivity. This will also increase the company’s VOT, both in the short and long term. Profit-Sharing The last alternative presented still keeps Cathy’s salary as incentive based but its applied on profits instead of sales. According to Thomas and Maurice, â€Å"Increasing revenues does not necessarily increase profit and may even lower profit†(p. 19). Although Harvey has experienced success with using a sales based incentive it could have been adversely affecting his net profit. If a profit-sharing incentive plan replaced Cathy’s current compensation plan it would compel her to be more diligent in maximizing the value for all facets of operations and not just sales. This will also harmonize owner and employee’s values, as they would both be focused on maximizing their bottom line, which again is affected by all aspects of operations. With the information provided it is difficult to measure the value that can be added because the COGS was not a figure provided in the case. Without this line item on the financials Cathy’s compensation cannot be calculated, but if the 2% incentive basis is still applied it can be assumed to be much lower than that if compensation was based on sales Implementation Plan As stated earlier, decisions are not clear-cut and require a great deal of subjective judgment. With this said I believe Harvey’s best alternative is a hybrid of the last two options: Change in Responsibilities and Profit-Sharing Incentives. ***Check paper for comparative advantage References Cousins, R. B. (1992). The well-paid receptionist. La Grange College: Case Research Journal, 12(1), 1-5. Pohlman, R. A. (1997). Value Driven Management, Faculty Working Paper 97-01, School of Business and Entrepreneurship, Nova Southeastern University. Thomas, C. amp; Maurice, S. (2011). Managerial economics: Foundations of business analysis and strategy (10th ed. ) New York, NY: McGraw-Hill