St Bedes Hospital is a medium-sized 400-bed hospital in a regional Australian city. It was established in 1908 by the Sisters of Mercy an order of Catholic sisters.

St Bedes Hospital is a medium-sized 400-bed hospital in a regional Australian city. It was established in 1908 by the Sisters of Mercy an order of Catholic sisters. The facility has grown gradually over the
years and is now the third largest hospital in the city. It is entirely non-union and has never experienced
an employee layoff since its inception.
Sister Mary Josephine has been the Chief Executive Officer on the hospital for 11 years. Eight years
ago she hired Ms Sharon Osgood as Director of Personnel. Osgood has an M.A. in Human Resource
Management and has been instrumental in formalising the institutions human resources policies and
Hospital occupancy rates had run between 76 and 82 percent from 1970 to 1982. However since then
occupancy had gradually fallen to 57 percent. Such declines have not been unusual for this industry
during this time period as a result of changing reimbursement policies emphasis on outpatient services
and increasing competition. However the declining occupancy rate has affected this hospitals revenues
to such an extent that it ran a deficit for the first time last year. The only response to these changes thus
far has been a tightening of requirements for equipment or supply purchases.
At the most recent quarterly meeting of the Board of Governors Sister Mary Josephine presented the
rather bleak financial picture. The projected deficit for the coming year was $3865000 unless some
additional revenue sources were identified or some additional savings were found. The Boards
recommendation based on the immediate crisis and need to generate short-term savings was that
employee layoffs were the only realistic alternative. They recommended that Sister Mary Josephine
consider laying off up to 10 percent of the hospitals employees with an emphasis on those in the
nonessential areas.
Sister Mary Josephine responded that the hospitals employees had never been laid off in the history of
the institution. Moreover she viewed the employees as part of the family and would have great
difficulty in implementing such a layoff. Nevertheless since she had no realistic short-term alternative
for closing the revenue gap she reluctantly agreed to implement a layoff policy which would be as
fair as possible to all employees with a guarantee of reemployment for those laid off and to find
additional revenue sources so that layoffs would be unnecessary in the future.
Sister Mary Josephine called Sharon Osgood into her office the next morning shared her concerns and
asked her to prepare both a short-term plan to save $3 million over the next year through employee
layoffs as well as a long-term plan to avoid layoffs in the future. Her concerns were that the layoffs
themselves might be costly in terms of lost investment in some of the laid-off employees lost
efficiency potential lawsuits and lower morale. She was concerned that the criteria for the layoffs not
only be equitable but also appear to be equitable to the employees. She also wanted to make sure that
those being laid off received adequate notice so they could make alternative plans or so that the
hospital could assist them with finding alternative employment. Since the hospital had no previous
experience with employee layoffs and no union contract constraints her feeling was that both seniority
and job performance should be considered in determining who would be laid off.
Sharon knew the hospitals performance appraisal system was inadequate and needed to be revamped.
While this task was high on her to do list she also knew she had to move ahead with her
recommendations on layoffs immediately. The present performance appraisal system uses a traditional
checklist rating scale with a summary rating. Since there is no forced distribution the average ratings of
employees in different departments vary widely.
Table 1 shows the summary ratings of employees in each department. Most supervisors in all
departments rate many of their subordinates either satisfactory or outstanding. Sharon has done a
quick review of those employees whose overall ratings were unsatisfactory or questionable. Most
are employees with less than three years of seniority whereas the satisfactory employees had worked
for St Bedes for an average of around seven years. Table 2 provides a summary of the distribution of
employees and payroll expenses by department for the most recent year.
Table 1. Percentage Distribution of Performance Appraisal
Summary Ratings by Department at St Bedes Hospital
Department Unsatisfactory:
Needs to improve
Needs some
Meets normal
exceeds norms
Nursing 6.4 6.4 54.2 33.0
Allied Health 5.7 6.2 47.8 40.3
Central Admin 2.7 3.1 67.5 26.7
Dietetics/Nutrition 2.1 6.2 68.3 23.4
7.8 12.4 54.6 25.2
Medical Staff 1.1 6.2 63.8 28.9
Table 2. Employment and Payroll Expenditures Distribution
Department Number of
Payroll ($) Annual Turnover

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