Problem: Lyone, Inc. is a non-union manufacturer of consumer household goods. Their industry is largely union, yet they have remained without a union because employees have always felt that they could work well with management and that management protected the employees and treated them fairly. Recently, the employees have sought a pay increase after accepting a wage freeze last year. The economy has improved, production is at an all-time high, and employees want to be rewarded for their efforts and loyalty.
The Board of Directors is aware that with the high earnings recently announced, shareholders are expecting high returns after a dismal four quarters last year. If they approve a modest pay increase for the employees who accepted the wage freeze last year, they will not be able to release the high-rate dividends to shareholders. Also, the Board fears that a failure to comply with the reasonable employee demand might prompt the employees to seek union representation, something the Board does not want to encounter.