Simulon Defense Industries Benefits Exercise


Simulon Defense Industries

Simulon is a publicly-owned defense manufacturer in the U.S. with approximately 20,000 employees, 10,000 of whom are unionized. The company is structured functionally and has divisions such as finance, manufacturing, marketing, human resources, etc. The company has a CEO, 6 vice-presidents, and 13 directors-level managers. All are considered “executives.” The average employee wage is $48,000 per year. Executive pay ranges from $175,000 per year for some directors to $950,000 per year for the CEO. Company revenue last year was approximately $1.6 billion. The stock is currently selling at about $30 per share and profits are about 5% of revenue.

The company is unionized and unionized employees and salaried employees have separate health plans. The components of the union health plan were negotiated as part of the union agreement. The agreement includes a liberal cost-sharing arrangement with the company. The salaried exempt health plan is a company-sponsored health insurance plan that covers all other employees, including company executives. Currently, 70% of the costs of the plan are paid by the company and 30% by the employees through annually-established premiums, co-pays, and deductibles. However, the plan contains a standard disclaimer clause wherein the company reserves the right to cancel or change the benefits it offers to its employees.

Recently the Board of Directors was presented with a request from the CEO to implement a comprehensive annual executive health evaluation at the Mayo Clinic to further ensure the good health of company executives who are crucial to the company’s continued success. The annual evaluation would consist of a medical history review, complete cardio-pulmonary evaluation, comprehensive lab analysis and blood profile, nutritional and lifestyle assessment, fitness assessment, full-body imaging services, and a personalized report and review with a personal executive health physician. While costs cannot always be determined in advance and will vary based on age, gender, personal and family history, symptoms, and high-risk factors, it is estimated that the cost of the annual two-day physical would be around $5,000 per executive, excluding travel costs. Because of the costs associated with this preventive exam and because it would not be offered to all participants in the plan, these health evaluations could not be offered to the executives under the company’s normal healthcare plan. A separate non-qualified benefit plan would need to be established to provide these benefits.

A member of the Board asked how the cost of the new, non-qualified plan would be covered. The CEO responded that the total annual cost for the health evaluation itself would be only $120,000, but with travel, the costs might double. He stated that sum could easily have been recovered by increasing the annual medical premiums for all hourly employees by only $24 per year. In his words “Such an increase would be imperceptible to the employees.” However, he went on to say, “But, we can’t do that because of the existing union agreement. Such a change would require us to renegotiate the agreement with the union. Therefore, I propose that we raise the medical premiums for salaried exempt employees by an additional $24 per year during the next annual enrollment period. It’s likely that we will be increasing the premiums by 6-10% to cover health cost increases anyway, so an additional $2 per month won’t be noticed.”

The board said they would take the CEO’s recommendation under consideration.

Answer the Following Questions:

  1. Are annual executive health evaluations of this type a good idea for protecting a company’s executive talent?
  2. Are there any ethical issues involved in this situation? If so, what are they?
  3. Who are the primary and secondary stakeholders in this situation?
  4. What are the potential consequences or outcomes for each stakeholder?
  5. Should the Board approve the CEO’s proposal? Why or why not?
  6. Which ethical approach guided your decision (utilitarian, rights, justice, virtue, etc.)? Why did you select this approach?

While these questions should be addressed in your analysis, DO NOT merely respond to the six questions presented above. Your submitted assignment should address these questions as part of an integrated essay or report. The title page, headings, citations, and references should be consistent with the APA Manual (7th edition).

This is an individual assignment; collaboration with others is not permitted.

NOTE: If a rubric is associated with this assignment, it is intended for use in program assessment. While it contains some factors measured by this assignment, it does not reflect the totality of factors used in grading the assignment. The assignment will be graded based upon the quality of the responses to the questions above as well as the quality of the written presentation itself.

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