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30 Apr 2014, 06:37
The following appeared as part of a memorandum from the vice president of Nostrum, a large pharmaceutical
corporation:
“The proposal to increase the health and retirement benefits that our employees receive should not be implemented
at this time. An increase in these benefits is not only financially unjustified, since our last year’s profits were lower
than those of the preceding year, but also unnecessary, since our chief competitor, Panacea, offers its employees
lower health and retirement benefits than we currently offer. We can assume that our employees are reasonably
satisfied with the health and retirement benefits that they now have since a recent survey indicated that two-thirds of
the respondents viewed them favorably.”
The vice president of Nostrum argues that an increase in health and retirement benefits that Nostrum employees receive is currently financially unjustified due to a decline is profits in the previous year and unnecessary since their chief competitor provides lower benefits than Nostrum does. Furthermore, the author asserts that a recent survey indicated that Nostrum employees are satisfied with current benefits. While the vice president’s argument has merit, it is lacks much substantive support.
Most conspicuously, the vice president argues that a decline in year on year profit in the previous year makes an increase in benefits financially unjustifiable. However, it is entirely possible that an increase in health and retirement benefits might lead to increased satisfaction among employees and in turn motivate them to work harder, improving worker productivity and thus revenue more so than the increased cost of benefits. Moreover, the author makes a gross indication that a decline is previous year’s profit compared to the preceding year indicates that the financial condition of the company is too poor to be able to justify increased benefits. It is possible that the reason for a decline in profit level was simply that the year preceding last was an exceptionally high profit year.
Secondly, the vice president argues that an increase in benefits in unnecessary because Panacea, Nostrum’s chief competitor, provides lower health and retirement benefits. This argument makes a number of glaring assumptions, including that Panacea is directly comparable in terms of company size and overall employee benefits package. It is possible that Panacea provides a much higher salary to its employees than does Nostrum, therefore making it justifiable to have lower health and retirement benefits. Without further analysis of Panacea’s other benefits, this piece of evidence fails to provide any substantive support to the vice president’s claim.
Lastly, the vice president assumes, based on the results of the recent survey, that Nostrum’s employees are reasonably satisfied with the health and retirement benefits. This assumption is questionable for several reasons. Firstly, there is no indication of the sample type or size of respondents to this survey. It is possible that only a small percentage of employees responded to the survey, making the result less than representative of all employees. Next, it is possible that employees who are not satisfied with the current benefits were less likely to complete the survey due to apathy or other reasons. This would make the survey result more positive than the true situation. Accordingly, the survey result cannot be used to reject the proposal to increase health and retirement benefits until it is shown to be valid and representative of all employees.
In conclusion, the vice president’s rejection of the proposal to increase benefits is unjustifiable and his line of reasoning questionable. To make a better case for rejecting the proposal, the vice president needs to show that the cost of increasing benefits truly outweighs its financial benefits, that the benefits provided by competitors are in fact comparable and that the survey result showing satisfaction with current benefits is indeed valid.