Fundamentals of Human Resource Management 6th Edition by Raymond Noe, John Hollenbeck, Barry Gerhart,Patrick Wright

Exercise 10

Changing the Pay Level at Eight Crossings
Based in Sacramento, California, Eight Crossings provides medical transcription services for physicians and hospitals. Its employees also answer phones, edit documents, and transcribe legal documents. The company's 85 employees work either at the service center in Sacramento or in their homes, where they receive audio or text files via the Internet. In this way, Eight Crossings employees can work in their specialty as needed without tying up a doctor's or attorney's office space.
Initially, the ease of sending files electronically was an advantage that enabled Eight Crossings to grow at a tremendous pace. But it has also opened up the company to competition from similar services provided from low-wage locations such as India. In addition, as voice recognition software has improved, automation could take over some of the processes that have been handled by skilled, experienced transcribers.
In that situation, Eight Crossings CEO Patrick Maher felt the pressure when clients began to ask him for a lower rate. Most of the costs of running Eight Crossings are related to labor. Overhead and materials are minimal for this type of work. Consequently, for Maher to offer his clients a better price, he would have to cut what he paid employees or stop earning a profit.
The pay level at Eight Crossings had been about 5% above the average for the industry. Maher believed that this pay strategy gave his company an advantage in recruiting and keeping the best transcribers. Pay was calculated per line of text at a rate that varied according to the complexity of the material being transcribed. Depending on how many hours they worked and how complex the jobs they took, each transcriber earned between $20,000 and $70,000 a year.
In looking for ways to trim expenses, Maher considered that part of most documents included sections of boilerplate text. These are generated automatically by transcribers' software but were included in the number of lines for which the transcribers were paid. Maher concluded these amounted to a 5% bonus paid for each assignment. Maher decided he could cut transcribers' pay by 5% and in effect still pay them the same rate for what they were actually transcribing (but without the "bonus").
That pay cut would bring pay levels at Eight Crossings down to the market rate. Would that mean employees would leave for greener pastures Maher guessed not, considering that his company was receiving resumes from experienced transcribers looking for work.
Maher's next challenge was how to communicate the pay cut to employees working in 22 locations, many working from home and communicating with the office electronically. He began by discussing the situation with the company's eight supervisors, who check the transcribers' work for quality. This prepared them to address employees' concerns. Next, he sent an e-mail to the transcribers, explaining the reasons for the change and inviting questions.
Maher's fears about the pay cut were not realized. Employees expressed understanding of the move and appreciation for his commitment to continue sending work to U.S. workers. And because Eight Crossings is paying the market rate, moving to another company would not offer employees an advantage in terms of pay.
How would you evaluate the company's method of communicating the change in pay level What improvements to that process can you suggest