In the Trenches: Dirty negotiation ends with mud on Acme's face

After Acme lured away a capable maintenance manager with an overly generous offer, it tries to negotiate the deal half-way thru. When the manager refuses the renegotiation, Acme creates unreasonable goals for him and fires him for not meeting them and are saddled with a lawsuit. Find out what each could have done to avoid such a messy situation. Only the names have been changed to protect the innocent.

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Riding high in its mid-1990s saddle, Acme lorded over a niche market and absorbed many of its competitors, turning what was once a well-run Ma and Pa operation into a consolidated powerhouse. Now, with 27 manufacturing plants scattered from one coast to the other, Acme splits the country into six regions, each with a director whose job is to manage the maintenance function and expand a code of corporate-wide maintenance best practices.

The Acme culture is big on key performance indicators, and the main metric for the maintenance directors is overall equipment effectiveness, which is the product of the percent of time a machine is available for production, the percent of good-quality product it makes and the percent of the maximum production rate that it’s operating. The maintenance directors have direct or indirect control over all three factors.

Acme hired Mel Batoste as managing director of maintenance and assigned him the four plants in the Midwest region. Acme lured Mel away from a secure, well-paying job, where his prospects looked quite rosy. Getting him to take a gamble aboard the good ship Acme required not only a $150,000 base salary, but additional pay in the form of shares of Acme stock and guaranteed bonuses worth $100,000 for 2001 and $110,000 for 2002. A provision in his contract stipulated that if Acme terminates him for any reason, other than cause, before he’s been on the payroll for two full years, he’ll receive the balance of his unpaid salary and the bonus for 2001.

After Mel had been with Acme for about one year, Jerry Mander, Acme’s COO, approached him about renegotiating his compensation guarantees. Mel felt that both parties had dealt in good faith originally and he saw no reason to change the terms of the contract now. Because it made no sense to go along with a move that wasn’t in his best financial interest, he refused the overture. A few days later, Jerry informed Mel that his performance was being reviewed closely and that the regional boundaries were being changed, at least for the purposes of maintenance accountability. This involved shuffling half of the plants under Mel’s control. Now his portfolio included two badly-performing plants. When the change became final, Jerry again insisted that Mel give up his compensation package. Again, Mel refused to hear of it.

Six months later, Jerry approached Mel about renegotiating his bonus package and told him that, no matter what Mel thought, Acme was going to prevail in this matter. The idea didn’t make any more sense to Mel now than it did earlier. But now it was delivered as a threat. When he refused to consider it, Jerry told Mel that his performance had weakened recently and if he didn’t rethink this business about giving up the bonus plan, Acme wouldn’t be able to predict the final outcome or consequences. Mel was baffled about how anyone could view his performance as weak. In spite of being saddled with ineffective plants, Mel coached them into improvements. The KPIs at the plants under his control ranked third in the field of six regions.

Two weeks later, Jerry sent Mel an e-mail telling him the key performance indicators for the plants under his control were unacceptable and that Mel would be fired if he didn’t raise their aggregate overall equipment effectiveness to at least 93% within the next calendar quarter. Mel found this demand to be outrageous. The highest historical OEE Acme had ever seen at any single plant was only 89%.

Despite a valiant effort, Mel didn’t make the bogie. When the next calendar quarter closed, Jerry fired Mel for cause, using the excuses of insubordination and an inability to perform the duties for which he was hired.

Not one to look back, Mel started his job search in earnest. Aware of the high probability of a background check for someone in his salary range, Mel was straightforward about the fact that Acme fired him for cause because of the claim he didn’t meet the performance standards, and he had a well-rehearsed explanation. Soon, it became apparent that honesty wasn’t necessarily the best policy for one who is looking for a job. Every employer he approached gave him the “thanks, but no thanks” brush off. It became very clear that Mel couldn’t negotiate from a position of strength as long as this Acme situation dogged his heels.

Mel resolved the issue in the classical American manner by suing Acme for breach of contract for imposing additional unnegotiated job expectations; publicizing false, defamatory reasons for his departure and refusing to honor the guaranteed bonuses he was promised.

How could this situation have been avoided? Is honesty still the best policy? Are there more effective ways to attract talent? Are there objective ways to determine if expectations actually are unrealistic? Is it ever permissible to use white lies during the job hunt? What recourse does one have if terminated on the basis of lies and twisted truths? Is unwavering adherence to management by the numbers beneficial in the long run? Would Mel have done better to negotiate with Jerry without ever actually intending to accept a new offer instead of simply rejecting the idea?

An attorney says:

Acme certainly would have improved its chances of prevailing in Mel’s suit had Jerry Mander not threatened Mel that his refusal to renegotiate his compensation package would have dire consequences. Jerry provided Mel with wonderful evidence to use against Acme in a lawsuit with his threats, not once but twice. I don’t think a jury will like this one.

Fair is fair. Acme may have believed it made a bad deal with Mel. But both our moral code and our system of justice expect people to live up to their bargains. By all reports, Mel lived up to his end of the agreement, and even after he was saddled with poor performing plants, he eked improvement from them. Given the cost of litigation today, it might have been cheaper for Acme to pay Mel what he was due under the contract than to meander its way through this piece of litigation with a bad ending likely in store for Acme.

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