Wages and Profit Maximization: How Managers Can Maximize the Profit During Crisis

Topics: Profit maximization, Marginal cost, Cost Pages: 6 (2285 words) Published: December 11, 2011
Wages and profit maximization: How managers can maximize the profit during crisis

Among many other objectives of the management like “market share maximization, growth maximization and maximization of managerial return” ( Truett, Lila,J.,& Truet, Dale, B., 2004), the primary goal of each manager is to maximize profit of the company for short- and long-run period. Although there are many other concepts sustaining the idea of increasing shareholder’s wealth as the only manager’s role, the profit maximization turn to be the initial care of the management. Thus, the struggle to increase the profit is of great importance for the managers especially when it happens under the conditions of economic slowdown or even crisis. Profit maximization can be defined as “making the greatest economic profit possible” ( Truett, Lila,J.,& Truet, Dale, B., 2004) and can be simply present as the difference between the total revenue and total cost of a particular economical activity. In reference to the profit maximization and wages topic, wages, as a part of the cost of goods sold of each product and service, are a great component of the cost and, respectively, can be used for costs savings and increasing of the company’s profit. This idea of decreasing the costs seems to be very beneficial to companies and appealing to the managers during current circumstances of economic crisis when demand is also decreasing and the effects of financial crisis couldn’t be predicted. Many observers and economists express their opinions about how the current financial crunch will change the way managers will attain company’s profit at a decent level. According to some publications, the first thing that managers will definitely change is to pay attention to the low- costing productions and services due to the expectations of declining demand and lower consumer’s income. As it is described in some articles, the most significant changes would be shaking the labor market because of dismissal, shortening the production and decreasing the wages ( Markova, Z., Gutsuian, M, 2008). In the economic media and journals, some authors examine the Governments’ precautions to avoid effects of the crisis; others emphasize how crisis will influence other elements of economical life such as increase taxes, spending for healthcare and the overall economical growth. Most of them, though, highlight the reducing the cost for wages as one of the inevitable method for minimizing costs and maximizing the profit. For the purposes of this position paper, describing how managers can control the process of increasing the profit in reference to the wages, the following articles will be examined: “ In a pinch” (The Economists, 2008), “ Japan’s Wage Growth Remains at 0.1 % as Profit Deteriorate, Bloomberg, 2008, A historic crisis. But nothing to worry about” Times online 2008, “The labor market feel the crisis’ wind”, Dnevnik.bg, 2008, Economic Slowdown. Top 10 tips to save employment costs, Credit management, 2008. As it was stated above, most of these articles present many approaches of costs reductions but what is more important and related to the topic, they suggest how managers will achieve their saving from wages as painless choice they can made in the coming “crunch” . In the article” Economic Slowdown. Top 10 tips to save employment costs” from the Credit management edition, Jayne Vaughan from KPMG explains that managers often have to reduce its employment costs in order to survive in the circumstances of the “…country…squeeze” (Jayne Vaughan, 2008). In order to avoid redundancies, which are again related to the optimizing the production or service process and the finial profit maximization, she suggests some tips on how to minimize wages costs. The main suggestion is about “salary sacrifice” including various benefits such as cash, rewards, office cars, fuel, pension plans, payment schemes for the senior staff, benefit packages and so...
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