Question

Human Resources Management: Please read the case and answer the questions at the end.

Joe's Hamburger Grill has been doing business in the same location for the past 20 years. The Grill is located in Phoenix, Arizona, and caters to college students by providing some of the world's biggest hamburgers in a fun and casual dining atmosphere. Joe looks back with fondness on the 20 years that have passed since he first opened the grill. His primary motivation for starting the business was the opportunity to work for himself. When he graduated from college, Joe took a job as an accountant and worked for a number of different companies. When he turned 40, Joe decided he was tired of working for a boss, so he began looking for an alternative opportunity. Knowing his love for cooking and his flair for providing great customer service, Joe's wife and friends encouraged him to open the hamburger stand. After taking some time to decide what he wanted to do, Joe followed their advice and founded the business. By all accounts his efforts can be seen as a success. He has made a good living doing something that he truly enjoys. When Joe turned 60 several years ago, he decided it was time to slow down and let someone else deal with the day-to-day hassles of running the business. He hired a manager to oversee operations at the Grill. After three months, the manager quit and started classes at the local university. Joe was then able to hire a manager who stayed for 18 months but left to work at a bigger store in Dallas, Texas. For the last three months, Joe has been trying to hire a new manager. He hasn't been able to find someone he thinks will be a successful manager. Joe wonders if part of the problem is his compensation package. When Joe hired the first manager, he decided to pay a monthly salary that included full health benefits. He didn't know how much to pay as salary, so he asked the first manager how much she was making. He then offered her a $500 per month increase to work for him. The second manager seemed fine with the amount, but a few recent candidates have told him that he needs to pay more. One day a customer of Joe's told him that she was taking a human resource management class where they were discussing compensation issues. Joe described his dilemma about trying to decide how much to pay a store manager. The customer offered to do some research and learn more about pay levels for managers. A few days later she brought Joe a graph that had information about pay practices. She told Joe that she had been unable to locate specific information about pay for restaurant managers. However, she had found some information about food service supervisors. Just looking at the information she felt that the amount for the supervisor position was probably too low for someone who actually managed the entire restaurant. She thus found some additional information about the wages for general managers. She also looked at compensation figures for people who owned sales-related businesses. Knowing that Joe's had lost one manager to a job in Dallas, she included information about compensation in Dallas and another large city—Los Angeles.

Joe looks at the information in the graph and wonders what to do with it. He wonders how important it is to take into account pay in other cities. Will he need to pay wages similar to what is being paid to managers at larger companies? Joe's goal is to find a manager who will treat the Grill like an owner. He wants the manager to commit to several years of building and maintaining profitability. If things work out, he might even be willing to sell the Grill to a high-performing manager who shows loyalty.

Questions:

1.What are some suggestions that might help Joe as he thinks about changing the way he pays someone to manage the Grill?

2.Do you think Joe's approach to determining how much to pay a manager was successful? Would you recommend that he do something different?

3.How might agency theory guide Joe as he thinks about finding a manager who might someday become the owner of the Grill?

4.How can the concepts of equity theory guide Joe's decisions concerning comparisons with pay in other cities and for other jobs?

5.How might FLSA standards apply to Joe's compensation decisions?

Answer 1

1. We can broadly classify Joe's approach in two parts here - Entry salary and Retention strategy. Now with joining salary, Joe can do an industry bench marking (raw data for which can be easily found through secondary sources) in the nearby areas and do add a factor of purchasing power parity between the states to arrive at the number. Joe can form this basic strategy, although he should be a bit flexible since his plans of hiring a new manager is long term and plans to transfer ownership as well. Hence a right fit is extremely important. Coming to retention, Joe should consider his bonus/appraisal/other benefits in the compensation package. Apart from pay check, there are other reasons because of which employees quit their jobs. To enhance retention, Joe should make sure that his vision of how he perceives the grill and the future for it is aligned with the manager

2. Joe comes from a background where his experience of hiring and retaining employees are not particularly strong. Considering this, his approach to ask for the first employee the base salary and then giving a hike on it wasn't a wrong approach. In the corporate world also, the recruitment team uses the same approach generally except that instead of a certain fixed amount hike they give a percentage hike. Joe should also evaluate what the industry average is while switching and in that hike what the other players out there expect their employees to do. This can be 30% say. This will also act as a psychological victory for a new manager that they managed to boost their salary by 30% and not by x$

3. Agency theory differentiates the employees and the owners of a business as agents and principals respectively. The principals are the ones running the company while the agents are the ones enabling them. The principals aim generally are long term and hence take risks to grow the business. However, the agency theory dictates that the vision and approach of the principals might not always resonate with the agents. The agents in general believe in securing and gaining in the short term. Using this theory, Joe can detail out his plans regarding transfer of ownership of the grill to the manager if deemed fit. This will improve the retention of the next manager, since they'll be certain that what's best in the interest of the grill is in their best interest also

4. Equity theory explains that employees working in one organization constantly compare how they are being compensated vis-a-vis others working at the same level/position in other organizations. The motivation of employees working is also largely motivated by the equity theory. If they believe they are being paid better or equal to their counterparts, they are more motivated to work and vice versa. As per the HRM student's graphs, Joe can see how his salary offer to the grill's managers match with other grills in his state or other states. Matching the best possible salary can help him acquire and retain better talent than what he can at the current compensation structure. Not just that he can also have much more motivated employees with improved efficiency