5.2 Case Study/Exercise
Complete the cases and exercises from Nkomo, Fottler, and McAfee (2011) show below in a Microsoft Word document.
- Case 65 (page 197)
- Exercise 69 (page 211)
- Incident 73 (page 223)
Incident 73. Merit Increases
Dr. Carl Jones is chairperson of the Department of Management in the College of Business Administration at a large state university in the East. He has been a member of the department for 14 years and a full professor for five years. Last summer he was asked to assume the chair after a screening committee conducted interviews and reviewed his resume and the resumes of three other candidates.
Dr. Jones was very excited about the new challenges and has begun several innovative projects to enhance faculty research and consulting. The teaching function in the department has always been first-rate while research has been somewhat weaker. Dr. Jones has continued to be very productive as a scholar, publishing three articles, two book chapters, and one proceedings article over the past year. He also made considerable progress on a management text of which he was a co-author. Finally, he remained active in his professional association, the Academy of Management, where he served as chair of one of the professional divisions.
The university’s policy is that all salary increases are based only on merit. Dr. Jones had developed a very sophisticated performance appraisal system for his faculty to help him quantify salary recommendations. His point system considers and weighs different items in the areas of teaching, research, and service. Teaching and research are weighted 40 percent each and service is weighted 20 percent. For the coming academic year, his recommended salary increases averaged four percent and ranged from one to seven percent. Dr. Jones felt he had good documentation for all his recommendations.
Dr. Jones submitted his recommendations to Dean Edmund Smith and was pleased when all these recommendations were accepted. He then proceeded to schedule appointments to meet with each faculty member to discuss his recommendation, the reasons for the recommendation, and goals for the coming year. While a few of the faculty receiving lower increases indicated dissatisfaction with his weighting system, particularly the emphasis on research, these meetings generally went well.
Dr. Jones then submitted his own annual report detailing his accomplishments as chair as well as his more personal accomplishments. From his perspective, he felt he deserved at least a 6 percent increase since his department had made major strides in a number of areas while the other departments had been standing still. Moreover, none of the other chairs were professionally active on the national level and none had published in the past year. His teaching evaluations were also in the top 15 percent of faculty in the college.
Dean Smith sent out letters to all the department chairs in August. Dr. Jones was shocked to learn that his salary increase was just 4 percent. Information he received through the “grapevine” was that all the chairs had received the 4 percent increase. He also learned from one of the other chairs that the dean always gave the chairs equal percentage increases each year. Contrary to the official university policy, there were no distinctions based on merit. Dr. Jones was visibly upset about what he considered to be a major inequity. He then called the dean’s secretary to schedule an appointment to discuss the situation with Dean Smith.
Questions
Describe the nature and causes of the compensation problem described in this incident.
Are “merit” salary increases always based on “merit”? Why or why not?
Why has Dean Smith had a policy of equal percentage salary increases for all department chairs despite the stated university policy? Are all the chairs equally meritorious?
How do you think Dean Smith’s “merit” increases will affect Dr. Jones and his performance as department chair and faculty member? Why? What can Dean Smith do to motivate him if a large differential pay increase based on performance is out of the question?
What are the long-range benefits of a true “merit” program? What are the problems associated with the lack of such a “merit” system for department chairs?
Case 65.
The Overpaid Bank Tellers
State Bank is located in a southwestern town of about 50,000 people. It is one of four banks in the area and has the reputation of being the most progressive. Russell Duncan has been the president of the bank for 15 years. Before coming to State Bank, he worked for a large Detroit bank for ten years. Duncan has implemented a number of changes that have earned hima great deal of respect and admiration from bank employees and townspeople alike. For example, in response to a growing number of Spanish-speaking people in the area, he hired Latinos and placed them in critical bank positions. He organized and staffed the city’s only agricultural loan center to meet the needs of the area’s farmers. In addition, he established the state’s first “uniline” system for handling customers waiting in line for a teller.
Perhaps more than anything else, Duncan is known for establishing progressive human resource practices. He strongly believes that the bank’s employees are its most important asset and continually searches for ways to increase both employee satisfaction and productivity. He feels that all employees should strive to continually improve their skills and abilities and, hence, he cross-trains employees and sends many of them to courses and conferences sponsored by banking groups such as the American Institute of Banking.
With regard to employee compensation, Duncan firmly believes that employees should be paid according to their contribution to organizational success. Ten years ago, he implemented a results-based pay system under which employees could earn raises from 0 to 8 percent each year, depending on their job performance. Raises are typically determined by the bank’s HR committee during February and are granted to employees on March 1 of each year. Six years ago, in addition to granting employees merit raises, the bank also began giving cost-of-living raises. Duncan had been originally opposed to this idea but could determine no alternative.
One February, another bank in town conducted a wage survey to determine the average compensation of bank employees in the city. The management of State Bank received a copy of the wage survey and was surprised to learn that its 23 tellers, as a group, were being paid an average of $22 per week more than were tellers at other banks. The survey also showed that employees holding other positions in the bank (e.g., branch managers, loan officers, and file clerks) were being paid wages similar to those paid by other banks (see
Exhibit
4.1).
Exhibit
4.1.
Wage Survey Results: Comparative Salaries of Local Bank Officers
Position Bank 1 Bank 2 Bank 3 State Bank
Commercial Loan Officer $78,600 $79,500 $77,900 $78,400
Consumer Loan Officer 59,200 54,700 55,760 59,000
Mortgage Loan Officer 57,100 55,900 59,500 57,200
Branch Manager 57,700 59,400 58,800 58,400
Assistant Branch Manager 40,800 40,400 40,600 40,300
New Accounts Officer 33,900 33,800 33,700 33,800
Officer Trainee 33,200 33,000 33,400 33,300
Average Weekly Earnings of Local Bank Tellers
Tellers $482 $479 $485 $504
After receiving the report, the HR committee of the bank met to determine what should be done regarding the tellers’ raises. The committee knew that none of the tellers had been told how much their raises would be, but that they were all expecting both merit and cost-of-living raises. They also realized that, if other employees learned that the tellers were being overpaid, friction could develop and morale might suffer. The committee knew that it was costing the bank over $26,000 annually to pay the tellers. Finally, they knew that as a group the bank’s tellers were highly competent, and they did not want to lose any of them.
Questions
If you were on the HR committee of State Bank, what decisions would you suggest regarding raises for the tellers?
How much faith should the HR committee place in the accuracy of the wage survey?
Critique State Bank’s policy of giving merit raises that range from 0 to 8 percent, depending on job performance.
Critique the bank’s policy of giving cost-of-living raises. Do you think that they should be eliminated?
Exercise 69. Allocating Merit Raises
objectives
To make you aware of the difficulties involved in making merit raise decisions.
To familiarize you with possible criteria a manager can use in making merit raise decisions.
out-of-class preparation time: 10–20 minutes to read exercise and decide each professor’s merit raise
in-class time suggested: 30–40 minutes
procedures
Either at the beginning of or before coming to class, you should read the exercise and determine merit raises for each professor.
To start the exercise, the instructor will divide the class into groups of three to five students. Each group should develop a fair procedure that will be used to determine merit raises and then decide the dollar raise to be given to each professor. After each group finishes, one member will write the raise amounts on the board or overhead for all class members to see. Then, once all groups have disclosed their raises, a spokesperson for each group will explain the procedure used to determine their raises.
Situation
Small State University is located in the eastern part of the United States and has an enrollment of about 8,000 students. The College of Business has 40 full-time and more than 30 part-time faculty members. The college is divided into five departments: Management, Marketing, Finance and Accounting, Decision Sciences, and Information Technology. Faculty members in the Management Department are evaluated each year based on three primary criteria: 1) teaching, 2) research, and 3) service. Teaching performance is based on student course evaluations over a two-year period. Service to the university, college, profession, and community is also based on accomplishments over a two-year period. Research is based on the number of journal articles published over a three-year period. Teaching and research are considered more important than service to the university. In judging faculty performance, the department chair evaluates each professor in terms of four standards: Far Exceeds Standards, Exceeds Standards, Meets Standards, and Fails to Meet Standards. The results of this year’s evaluations are shown in
Exhibit
4.3.
Exhibit
4.3.
Department Chairs’ Rating of Job Performance
Professor Current Salary Teaching Research Service
Houseman $92,000 Exceeds Exceeds Meets
Jones $116,000 Exceeds Far Exceeds Exceeds
Ricks $135,000 Meets Meets Far Exceeds
Matthews $97,000 New Hire New Hire New Hire
Karas $100,000 Far Exceeds Exceeds Meets
Franks $90,000 Meets Fails to Meet Exceeds
Due to financial problems and cutbacks this year, Small State University has agreed to give raises totaling just $6,300 to the Management Department. Your task as department chair is to divide the $6,300 among the faculty members. Keep in mind that these raises will likely set a precedent for the future and that the professors will view the raises as a signal for what behavior and achievements are valued.
A profile of each of the professors is provided below.
Professor Houseman: 55 years old; 25 years with the university; teaches Principles of Management sections; teaches over 400 students per year; has written over 40 articles and given over 30 presentations since joining the college; wants a good raise to catch up with others.
Professor Jones: 49 years old; 10 years with the university; teaches Human Resource Management and Organizational Behavior; stepped down as department chair three years ago; teaches about 200 students a year; has written over 30 articles and two books since joining the college; recently received an $80,000 grant for the college from a local foundation, and wants a good raise as a reward for obtaining the grant.
Professor Ricks: 61 years old; 6 years with university; teaches Labor Relations and Organizational Development; stepped down as dean of the College of Business two years ago and took a $20,000 pay cut; teaches about 180 students per year; has written only two articles in the last six years due to administrative duties; very active in the community and serves on several charity boards; wants a good raise to make up for loss of $20,000.
Professor Matthews: 28 years old; new hire—only four months with the university; teaches Employee Relations and Compensation Management; just graduated with a PhD; will teach about 110 students this year. To be competitive in the job market, the college paid Professor Matthews $97,000 plus provided a reduced teaching load for two years and a $6,000 per year summer stipend; none of the other faculty received this when they were first hired or subsequently; had two minor publications while a doctoral student but none since joining the college; wants a good raise to pay student loans and furnish a new residence.
Professor Karas: 32 years old; 4 years with university; teaches International Business and Honors sections of Management Principles; teaches about 150 students per year; won Teacher of the Year Award this year; published 12 articles in last four years; has been interviewing for a new job at other universities and may leave if a good raise is not forthcoming.
Professor Franks: 64 years old; 18 years with university; teaches Principles of Management and Human Resource Management; teaches about 150 students per year; principal advisor for management-major students; has not written any articles during the last four years; plans on retiring within two–three years, and wants a good raise to enhance pension plan.