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Case study:
Nearly 10yrs ago Ali & Usman opened a small chocolate shop named as ‘Royal
Chocolates’. Royal Chocolates manufactured high quality chocolates for all special
occasions. All the chocolates were manufactured & sold on the premises of the two
owners (Ali, Usman). Mr. Ali was responsible for the production & finances while Mr.
Usman took care of sales & advertising. At first, both were the only full-time employees
& part-time help was used during peek business seasons. However, the demand for their
chocolates grew & the business soon became successful beyond their optimistic
expectations.
As the firm grew, Ali & Usman expanded their retail & manufacturing facilities & hired
15 full-time employees. All employees, except the proprietors, were paid on an hourly
basis slightly above the federal minimum wage rate. Despite the low wages, the firm was
able to attract dedicated employees who enjoyed working in ‘Royal Chocolates’ small &
cohesive environment. Part-time employees were still used to help the full-time
employees when needed. However, some of the part-time employees were lacking in
aggressiveness & initiative that a small, but growing business required. As Ali put it,
some of the workers in the production area seemed to be lacking in performance. Often
shelf inventories of chocolates that were especially popular with the customers would be
depleted. In addition, some of his sales persons’ help would fail to report for work or
would call in sick. Turnover among part-time help was high & both Ali & Usman felt
that the firm’s pay policy might be contributing to their personnel problems.
Ali decided to institute a ‘piece-rate’ plan whereby production workers would be paid a
bonus for packing more than 75boxes of chocolates per hour. In order to ensure quality,
production workers were penalized for every box containing smashed or imperfect
chocolates that the quality control workers rejected. He hoped that this incentive system
would help maintain inventory levels without sacrificing quality. Unfortunately, the plan
was a failure because nearly all the production workers complained that the incentive
system was too demanding & making extra money was difficult. Royal Chocolates’
problems were compounded when its sales personnel complained that they were forced to
accept a straight hourly wage with no chance for any incentive bonus. The production
workers, in turn, claimed that they were not compensated fairly relative to the sales
workers because sales personnel worked in pleasant surroundings whereas; production
workers had to endure heat, noise, & greater safety hazards. A number of workers also
claimed that wages in other companies in the community were much higher than those at
Royal Chocolates.
Royal Chocolates recently received a visit from a state labor department’s representative
who threatened the company owners for violating the wage & hourly wage law. It
appears that Royal Chocolates had failed to pay overtime to employees who worked over
40 hours during the week during peek seasons. Between the employee about pay, the
legal problems, & the paper work that Ali is required to fill out for the state & federal
government, he is beginning to wonder whether being a small business owner is worth
the headaches. His headache became even worse when he began trying to figure out how
the Reform Tax Act was going to affect his business & its tax situation.
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