Let’s say you run a company. Sales are down and profits are going down with them. It’s come to the point where you have to let go of an employee. You’ve narrowed it down to two. The first has been with the company longer than anyone else and has a larger salary. The second has been with the company for only a year and has a smaller salary. Everything else is equal.
Who would you fire?
I would use the accounting method of LiFo:
Last in: First out
Biggest salary goes. If the problem is financial, and not anything else, then paying a larger salaty could sink the ship entirely. The purpose is to keep the ship afloat, or youre out of a job too, and whoever else you employ as well.
I would base it not on financial reasons but what does the employee offer to the company? which one does the most work? Is more reliable? is a team player.. that is who I would NOT fire
Mum, all things are equal between the two employees (except length of employment and salary amounts).
Ticky one, since it is about money that you have to let someone go. However, I believe in LiFo too. Loyalty is a factor that is often overlooked.
Well, the first thing I’d do is check and see whose temple recommend is current …
Just kiddin’. ;)
I think the standard practise is that the last guy hired gets fired.
Unless the difference in salary would actually make-or-break the company.
It’s just about showing your employees some gratitude for working for you.
I think it’s an unrealistic comparison. You’ll never end up with two employees who are identical, especially if you have one that has been around for a long time, and a brand new hire.
The old employee will either have burned bridges and will be disliked by management/co-workers/customers, or the old employee will have extremely valuable relationships with others in the workplace. “The new guy” just wouldn’t have had the opportunity to do either — or at least to the degree that “the old guy” has.
Secondary to that is the mountain of “soft skills” an employee brings to an organization. Maybe their primary job function is to develop web sites, but in the course of their job, they have pretty much learned how the web/e-mail/FTP servers are setup and run. This individual is more valuable than a new guy who is able to develop web sites, but has no overlap in other areas of the company. Maybe your developers work directly with clients….
It’s never cut and dry like this. Companies are built on their employees. I read an article about a dot com that started laying people off when the bust hit. They eventually had laid off all of their developers, and there was nobody left but the founders and their “business staff”. How can you run a dot com without somebody to build the site?
Anonymous who said, “I think it’s an unrealistic comparison”.
I think you are missing the point. It’s a hypothetical moral dilemma. It’s not about the fact that in real life one employee would probably be slightly better than the other, it’s a what would you do if there really were no other differences than salary and time at the company.
As for my opinion, all things being equal the newer guy would have to go.
I hope this isn’t a decision you are making right now, but here are a few factors to consider, from an economist’s angle.
1. you say that the only differences are in terms of salary and seniority. Let’s say they both make 100 ‘units’ per day of an identical product. This implies that, on a per-unit basis, the old guy is costing more per unit. If the older employee is just as productive, then the employer has to question why they are paying a higher price for their labour. Surely there must be some attributes other than seniority. The older person might be wiser and knows what to do when management isn’t around, or maybe they produce the same amount of units with a higher level of quality. The older person might have fewer (or more) sick days.
2. sunk and irrecoverable costs. Has the employer invested time more time and training for certain work-related tasks? If so, firing them and retraining the younger person could yield certain training costs, even if it’s just the employer’s time.
3. Are both interested in working fewer hours at a lower wage/salary, especially if the employer offers to take a cut to their own salary? Work-sharing can benefit all in this case, and would be the ideal solution, at least until business picks up. If the business allows for this, then it’s a good approach. If the employer had, say 100 employees, then cutting 1/2 hour per week per employee has the same impact as laying off 1.5 workers.
4. how much of the company’s costs are labour? The higher the percentage, the greater the impact labour cost-cutting has on the bottom line.
5. redundancies. How many jobs are being done twice? Sometimes overcrowding slows production down.
6. paying the value of marginal product and revenue/worker dollar maximization. This relates to the first point. All workers (in theory) are paid the value of their marginal product. If you had a worker take a day off, how much would business suffer?
Case A: Pay older employee 200 dollars per day. Business loss is 400.
Case B. Pay younger employee 50 dollars per day. Business loss is 200 dollars.
The younger employee gets cut, even though they are proportionally more productive and effective. (400/200 is 2 and 200/50 is 4, or revenue per salary dollar). The business would do better to see if hiring 4 younger workers at 50 dollars each (200, the same as would be paid to one older worker) results in a loss of 800 dollars.
No, it’s not a decision I am making. Should I ever have to be responsible for HR decisions!