Employment

Flexibility at Pushkar
Hotels
Learning Through Alternative Pedagogies

Batch 2021-23
Section 1
FAS Group 3, WG C2

21F144 - Rohit K
21F119 – Chirag Kodial
21F160 – Tanishqa Jogani
21F162 – Unnati Bedi
21F114 – Arya Dasgupta
INTRODUCTION TO THE CASE

The protagonist of the case is Mr. Arvind Kumar, VP-HR of Pushkar Hotels. The
case revolves around the premise of rationalization, which Arvind has been tasked to
carry about when the company faced daunting losses and existential crisis due to the
Covid-19 crisis. Although Arvind previously worked in rationalization for the
company, during which he implemented various policies promoting flexible workforce
like, re-deployment of permanent employees, replacing many permanent employees
with third party employees etc. which resulted to huge success for the company, this
time the situation was different. The hotel industry fell drastically with the hotel
occupancy as low as 5 % in many cases, Pushkar’s aggressive expansion policy had
to give way to shutting down or even selling out of many properties. Tensions started
creeping in regarding the survival of the company which was mounting on its debts.
Pushkar tried tying up with the government for covid beds but was still unable to
recover its losses. The older private investors were ready to support the company
only if it reduces it expenses significantly. Seeing no chances for survival after March
2021 and no chance of recovering its losses in near future, the CEO of Pushkar
hotels announced the decision of rationalizing of the permanent workforce to reduce
the count to less than 2500 and tasked Arvind with the same. Arvind was not very
sure with this move as, this rationalization targeted even the front office and banquet
executives in various hotels under the ‘Atithi’ brand. Arvind was frustrated by the
company’s quest on cost cutting and wondered if the hotels can provide the same
service quality which it was famous for without having important executives in crucial
positions. Based on his calculations, Arvind found that 25% can be saved by
replacing the executives whereas only 10-15% can be saved by replacing the
workers. He remembered how; many economists proved that too much of
rationalization can be detrimental for the organization but was also cognizant with
the company’s demands. 

Taking all these into consideration, Arvind was facing both ethical and

professional dilemma as to whether he should carry on with the rationalization or not
and if yes then how was he to ensure good performance from the hotels which the
‘Atithi’ chain of hotels stands for? 
 Questions and Answers

Question 1
Based on the class discussion what are the three most important factors for the
argument in favour of greater employment flexibility at Pushkar? Explain the choice
with suitable argument.

Answer 1
Three Most important point in favour of greater employment flexibility at Pushkar
Hotels are-

1. Cost Cutting-
Engaging in flexible style of employment at Pushkar allows for cost benefits and also
eases the compliance burden over the administration and the company.

As stated in the case-

Employing contract workers saves the company from the payment of certain funds
including the payment of provident funds and medical insurance under the
Employees State Insurance. Atithi chain of hotels doesn't have to pay them any
incentives which would have to be given to the permanent employees. Hiring these
contractual labourers will moreover help in reduce the number of regular employees,
thereby, exempting from coverage under labour laws that are applicable based on
employment of specific minimum number of regular employees. Moreover, all the
responsibilities and the liabilities of salary payment, regulations, control of work, lies
with the third party.

“In the recent past, economists said that when the unemployment rate fell below
5.5% or so, wages would rise and that would push up prices, and that spells
inflation. This time, the unemployment fell far below 5.5%, and there was no
inflation. Why? Part of the answer has to do with contract labours. They made it
 easier for employers and unemployed workers to find each other and that reduced
unemployment without causing inflation”1

Hence, with the help of outsourcing of work can help in increasing the profit margin.

As in the time of such a big Crisis every penny saved will be a penny earned.
Therefore, the cost saving on salaries of managers and executives-
= 500* 12L* 25% ( Percent saving in replacing an executive and manager with
contract staff )
= INR 15 Cr
And, saving of workers to maintaining an employee count of 2500 will be-
= 600* 6.5L *15% (Percent saving in replacing regular staff with contract staff)
= INR 5 Cr 85 L

Therefore, a cost of over INR 20 Cr can be a huge amount for a company that is at
the verge of shutting down and saving it might help it to revive back stronger.

2. Survival of Atithi chain of hotels: 

As Covid-19 set to spread in India, Mr. Arvind started to worry about what laid ahead
for Atithi chain of hotels. The hotel chain started to equip with the protective
equipment and gear to tackle Covid-19. They also provided training related to safety
precautions to the entire staff. But they had no idea that this would take them to only
halfway of what was about to come knocking at their doors.

A few days passed by and they realized that their losses would mount to a new high.
They would be required to shut down a few of their hotels. The lack of business took
a toll on the company. The older private investors hinted their interests only if the
company reduces its employees. The CEO, in the meeting explained that the
company would struggle to pay the salaries of the permanent employees after March
2021. Taking all these suggestions and facts into consideration, Mr. Arvind must
devise some measures to keep the company running and surviving through this
phase. Losing their old investors at a stage when the company has started to lose its
attractiveness will in turn speed up the decline and eventually result in total

1
https://www.wsj.com/articles/SB981345825974664550
 bankruptcy. To survive and save money to pay to keep their operations running, the
company must adopt greater employment flexibility.

The case also highlights the fact that by adopting the flexibility, the company would
save up to 25% of salary from the executive band and 10-15% from the regular
worker band. Now, calculating the direct savings of the company via salary payment
annually, it would amount to about INR 20.85 crores. This is a substantial amount for
any company who is on a downward trajectory and is trying hard to remain
operational. This amount would be crucial for the company to manage and pay its
staff post March 2021. It may buy a few more months for them.

The below table provides the information of the amount of money saved by adopting
employment flexibility:

Total no. of hotels 100

No of executives and Managers/hotel 5
Total no of Executives and Managers 500
CTC for an Executive and Managers ₹ 12,00,000
CTC for a regular Worker ₹ 6,50,000
Total CTC of 500 Executives (A) ₹ 60,00,00,000
Total CTC of 600 workers (B) ₹ 39,00,00,000
Total CTC of 500 flexible Executives ₹ 15,00,00,000
(20% less) (C)
Total CCTC of 600 workers (15% less) ₹ 5,85,00,000
(D)
Net amount saved ₹ 20,85,00,000
 
3. Expert knowledge
Third party management of Atithi chain of hotels during the Covid-19 era would help
Pushkar hotels get the necessary expertise required to address the declining
revenues and that too at lower costs. Hotel Operators can be hired through
management contracts with any hotel management company that is into the
business of providing such expert services. In such contracts, terms and conditions
can be set as the owner and the company mutually agree upon with the owner
having a greater bargaining power at hand while negotiating term and fees due to a
great number of operators in the market.

The compensation structure of the expert managers hired can include performance-
based incentive fee clause i.e., the company will be paid a certain amount if these
managers are able to increase revenues of the properties designated to them
beyond certain thresholds.

These experts will have the requisite skills, knowledge, qualifications and experience
required to excel in the hospitality industry and will be motivated even more due to
performance-based incentive compensation structure. Also, there can be a clause
included in the contract that if these experts deliver desired results, the duration of
the contract can be increased as per mutual agreement.

Such expertise and motivation can never be achieved by permanent employees who
have a sense of job security in their minds.

Question 2
In your own view what could be the best way to deter the company from considering
the reduction of regular employees? Explain how you will convince the top
management about the efficacy of the way/option you suggest. (10 marks 
 
Answer 2
Since the current dilemma in front of Mr. Arvind is whether to shift to flexible
employment for the executive and manager cadre as well to save on cost because of
the dire situation Atithi chain of hotels is currently in due to the pandemic.  
 
Since the primary objective is to save on costs to conserve the financial
resources. The best way to deter the company from considering flexible employment
is to show cost analysis between going flexible employment and going for an
alternate option for executives and look at this dilemma objectively. 

<<This space has been intentionally left blank>>

 
As apparent from the above cost comparison there is an alternative to replacing the
executives/managers with contract staffing when comparing the savings in outlays
towards wages of the company. 
Therefore, we propose to declare no incentives and increments for the current
fiscal year and 30% salary cut for the executive level employees and shifting to
contract staffing for other departments as being adapted currently 
Executive level employees will play a pivotal role in bringing the company out of
crisis  

Apart from the justification of cost-benefit analysis, human psychology also comes

into play in the long term. As hospitality is a labour-intensive sector,
human psychology plays a vital role that needs to be taken into consideration. Few
arguments that take into consideration the human psychology which go against the
replacement of executives and managers with contract staff are listed below:
 
1. Replacing managers and executives will cause loss of valuable knowledge
and experience, loss of moral for those left. None of those are easy to replace 
2. If senior staff such as managers and executives are employed contractually it
will affect the hotels’ corporate accounts since multiple companies have shown a
relation between high turnover rates and customer retention
3. The existing employees know in and out of the organization i.e., the strengths and
weaknesses of the vision and mission of Pushkar Hotels and can thus their
decision making will be more informed and credible  
4. The regular employees have emotional connect towards the organisation which
goes a long way in coming out of a crisis.  

Statistics against employment flexibility 2

1. A recent study by University of Tennessee found that companies that have

layoffs are twice as likely to file for bankruptcy as companies that don’t have them
2. By replacing managers and executives the company loses on the time spent on
training them as well as their networks and knowledge about how to
get work done 
3. In a study done by Harvard business school it was discovered that after the firm
cut its staff by 15%, the numbers of new inventions in the firm reduced by
24% because the managers refrained from taking risks. Given the current
scenario managers must be willing to go the extra mile in order for the company to
survive.  
4. A 2002 study by Magnus Sverke and Johnny Hellgren of Stockholm University
and Katharina Näswall of University of Canterbury found that after a layoff,
survivors experienced a 41% decline in job satisfaction, a 36% decline in
organizational commitment, and a 20% decline in job performance.  
5. Another study at Arlington found that layoffs have neutral to negative effect on
stock prices in the days following their announcement, this could be detrimental to
the prospective investors of the company.   

2
https://hbr.org/2018/05/layoffs-that-dont-break-your-company