Under the Table

 

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. 

 

  1. What action if any should Maryann take in this situation? 
  2. Do the merits of Paul’s unorthodox methods outweigh the risks?

 

Author:  G. Scott Erickson, Lehigh University

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3 Responses to Under the Table

  1. greenmba2008 says:

    1. Maryann has no choice but to address the situation directly. She is a manager and has become aware of a situation that is against company policy and US law. If she has documentation and proof of the violations, I would presume that Paul will have to be discharged and that the company would need to self-report to the IRS.

    2. The merit of Paul’s methods do not outweigh the risks. Breaking the law is inexcusable and will not be OK in any situation related to advancing profit. Paul had obviously found a reward system that was motivating his workforce to perform above the norm. The elements of his reward plan could have been built into a company compensation system or ‘gainsharing’ process. Paul would have had to sell the proposal to the management team but his results seem to show that the approach is productive and profitable. He should have been able to work within the law to achieve his purposes.

  2. greenmba2008 says:

    Maryann certainly has to take action, or else the repercussions could be significant. Regardless of whether the rumors are true or not, she needs to confront Paul. If it turns out that Paul is taking money from cash purchases to distribute to employees, he needs to be let go. Even though some of his intentions are good, he is putting the company and many other employees at risk. It is hard to imagine a good enough explanation from Paul that would warrant him keeping his job, but I tend to give people the benefit of the doubt. I would wait until I heard Paul’s explanation before making any decision.

  3. Mary O'Neil says:

    MaryAnn needs to have a conversation with Paul and tell him that she is aware of the situation and that he needs to immediately stop doing this. She should explian that although his intentions were good, there are legal ways that he can go about rewarding his team. That the liability to the company is such a risk and we are not willing to take that risk. He should be told that if he continues, he will have to be let go in order to impose the seriousness of the situation on him. Paul should be encouraged to find creative and legal ways to support and motivate his team. Offer him a meeting to brainstorm ideas how to do so.

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