Changes at Scout Mortgage

Steve walsh stated we were working for tips as owners

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Steve Walsh stated, “We were working for tips as owners of the company” (Hellriegel and Slocum, 2009, page 532). Due to these changes in Scout’s business environment the company
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had to change its strategy. The change in pay grade was a huge motivational blow for Scout’s employees. To motivate employees, a company needs to be able to attract them to join the organization and encourage them to stay, allow employees to perform the tasks they were hired for, and stimulate them to go beyond their usual performance and be innovative and creative (Hellriegel and Slocum, 2009). At the beginning of the case, Scout does a very good job of motivating their loan officers with monetary pay. When Scout Mortgage was founded in 2000 the mortgage business was booming, therefore generating a lot of revenue. Loan officers could live comfortably closing three loans a week at $4000-$7000 commission per loan closed (Hellriegel and Slocum, 2009, page 532). When interest rates crept up in 2004 business started to taper off, and by 2006, the industry had dropped to about $240 million in funded mortgages (Hellriegel and Slocum, 2009, page 532). Their loan officers were still closing loans, but not enough to keep the company afloat at their current rates and a change had to be implemented. Walsh and Mangels sat down all their employees (after trying a different strategy of hiring salaried workers and leaving the loan officers’ pay alone) and told everyone that they were switching all members over to salary-based pay at a flat $36,000 per year with commission of $100 per loan closed (Hellriegel and Slocum, 2009, page 533). With this change came loss of employees. They fired five loan officers and three salaried workers. Most of the commissioned staff left the company. Losing their monetary compensation killed their motivation and enticed them to seek work elsewhere for better pay. Employees had no incentive to stay and no longer felt stimulated to go above and beyond for their company. The change to all-employee salary- based pay was stimulated by workplace stress.
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When Scout started considering changing the pay of their commissioned loan officers, they originally tried a different strategy first. The problem they faced had an easy solution: hire on salaried workers and get rid of their commissioned staff to cut down on costs. However, Mangels and Walsh recognized that firing their top officers could hurt customer service and possibly lose large amounts of closed loans, hurting the business even further. There was also the issue of interpersonal relations at hand. Many of the employees felt like family and friends. Firing them or cutting their salaries could very well bring harm to those relationships, something that Steve and John didn’t want to happen. Instead, they decided to hire a handful of salaried workers, starting at $40,000 per year, and left the existing staff’s commission-based salaries alone. This seemed like a great fix but the new hires faced the issue of role conflict, feeling as
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Steve Walsh stated We were working for tips as owners of...

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