Business

Case in Principle Management

In an industry not known for generous benefits, you have long stood out. As the president and owner of Unique Restaurant Corporation, you have become Detroit’s peerless culinary celebrity in part by attracting the best managers, waiters, busboys, and bartenders to work for you. The company, with $40 million in annual revenue, attracts such talent by providing excellent benefits. For example, You began providing health insurance 17 years ago, making the plan available not only to all full-timers, including hourly staff, but also to part-timers who had been with the company for three years and worked three shift a week. But, with the auto industry slumping and health- care cost soaring, you have recently found yourself considering the once unthinkable: dropping employee health-care coverage.

Unique’s plan was so-called self-insurance package run by the baby food marker Gerber. For the few dollars per employer per month, you could tap into a health maintenance organization or preferred provider organization on Gerber’s network. The costs were reasonable. If an employee had a baby and hospital bill came to $8,000 Unique paid about $3,000. As the company grew, however, so did the buffet of benefits it offered. First, you added dental coverage. Next, came a prescription drug plan that covered the full cost of medications. Then, a few years ago Unique began to pay a portion of its employees’ child-care costs. And these programs were on top of paid vacations and the company’s 401(k) plan!

For a long time, everyone was happy. But when Detroit’s economy began to sputter, people cut back on entertaining, both lavish catered events and casual dining out. Even as sales receipts shrank (sometimes close to 15 percent below previous years), Unique’s medical expenses were climbing 10 to 15 percent a year, and the prescription drug plan alone jumped from $3,000 a month to $9,000. The employee loyalty you had worked so hard to inspire was soon a......