Reference no: EM133029140

A hospital was having financial problems. Occupancy was low, equipment costs were higher than expected and the cost of supplies had increased. At the year's end, a rumor began to circulate that there would be no salary raises and that personnel reductions were possible. The hospital's five hundred employees were shocked by the extent of the financial problems indicated by the rumors. They began to ask supervisors, "Does top-level management agree with this rumor or not?"

The supervisors made no comment, refusing to confirm or deny the rumor. The official communication from management was, "The matter is under study". Most employees believed there would be no pay increases and, as a result, their morale was getting low.

When management announced that there would be no layoffs and that there would a 2 percent pay raise, the employees were delighted. Management was pleased with the employee's reaction, for six months before there were demand for a 10 percent pay increase and eduction of workloads.

Questions:

a) Was the employee reaction to the 2 percent pay raise more favorable than it would have been if the rumor had not started?

b) Should management have taken action when the rumor started circulating?

c) What would be possible results if the employees learnt that the management had started the rumor?