Simulon Defense Industries Benefits Exercise (C)
Simulon is a publicly-owned defense manufacturer headquartered in Nashville, TN, 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, six vice-presidents, and thirteen directors. All are considered “executives.” The average employee wage is $60,000 per year. Executive pay ranges from $350,000 per year for some directors to $750,000 per year for the CEO. Company revenue last year was approximately $1.6 billion. The stock is currently selling at about $50 per share, and profits are about 8% of revenue. Half of the workforce is unionized. The hourly workforce has a major medical plan negotiated by the union. Salaried, exempt employees are covered under a separate health plan self-insured by the company.
Recently the Company’s Board of Directors was presented with a request from the CEO to implement an executive health evaluation at the Duke University Medical Center in Durham, NC, to ensure the good health of company executives who are crucial to the company’s continued success. The comprehensive evaluation, which would be available to executives annually, would consist of a medical history review, complete cardio-pulmonary evaluation, comprehensive lab analysis and blood profile, nutritional and lifestyle assessment, fitness assessment, and a personalized report and review with a personal executive health physician. Full-body imaging services would also be available if desired. 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 two-day physical would be around $4,000 per executive, excluding the costs for travel, lodging, and food. Because this more-comprehensive health evaluation plan is intended only for executives, it cannot be covered by the company’s major medical plan for salaried, exempt employees as it would be considered discriminatory. These benefits could not be offered to all employees under the major medical plan because the cost would be prohibitive.
A member of the Board asked how the cost of the program would be covered. The CEO responded that the total annual cost for the health evaluation itself would be only $80,000 and could easily be recovered by increasing medical premiums for all hourly employees by only $10 per year. Including travel, the costs might double. In his words, “Such an increase would be imperceptible to employees.” He went on, “However, we can’t do that because of the union agreement. We would have to negotiate the increase and update the union contract, and they would never agree to it. Therefore, I propose that we change the current cost-sharing ratio and increase the premiums for the salaried employees under the company’s major medical plan. The cost would be the same — an increase in their medical premiums of less than $20 per year if we wanted to
cover all costs. This would be in addition to the annual increase resulting from increases in healthcare costs.”
The board said they would take the CEO’s recommendation under consideration.
Questions:
1. Are annual executive health evaluations of this type a good idea for protecting a company’s executive talent?
2. What legislation governs employee healthcare plans? How does it impact this situation?
3. Who are the primary and secondary stakeholders in this decision? Distinguish between the two.
4. What are the potential consequences or outcomes for each primary stakeholder in this situation? Be specific!
5. Are there any ethical issues involved in this situation? If so, what are they? 6. Should the Board approve the CEO’s proposal as presented? Why or why
not? 7. Which ethical approach guided your decision (utilitarian, rights, justice,
common good, duty, virtue)? Explain how the approach guided your decision. 8. What other options could be considered for funding the CEO’s proposal?
While these questions should be addressed in your analysis, DO NOT merely respond to the 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).
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