Maryann is a divisional manager for a major restaurant chain. She has been hearing rumors about Paul, her best manager, that make her uncomfortable. Paul’s store has the best sales and highest rate of growth, does well on inspections, and has the most positive customer feedback. As a result of this great performance, Paul is being considered for a promotion.
The rumor that Maryann has heard is that Paul was not ringing cash sales into the register at the restaurant. To get to the bottom of the story she sent several friends to the restaurant at different times to see what Paul was doing. Some of them reported that the rumor was true: Paul took the money and didn’t enter the payment into the register.
On her own Maryann discovered that Paul did not seem to be pocketing the money, he was using it as under the table payments to his crew in order to motivate them to perform better. He was clearly violating company procedure, but he wasn’t using the money for direct personal gain, he was using it to achieve the high performance standards that had become his trademark. The money was never recorded as income, and no payroll taxes were taken out. The result is that although his store was performing at the highest level, Paul was exposing the company to tax liability action by the IRS.
- What action if any should Maryann take in this situation?
- Do the merits of Paul’s unorthodox methods outweigh the risks?
Author: G. Scott Erickson, Lehigh University