finish the final case(every thing in documents)

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SALARY ADMINISTRATION COMPENSATION EXERCISE Introduction Students in human resource management programs receive a great deal of training in the design of various salary compensation programs. However, comparatively little direction has been provided students as to the proper administration of the day to day or year to year administration of individual salaries under such programs and the attendant salary administration problems that more often than not arise. This salary administration exercise is intended to provide students with just such experience in conducting a fair and motivational salary administrative system. This exercise will include both a discussion of salary administration theory and its application in common salary administration situations salary administrators will encounter in industry within the confines of a traditional compensation program (all cases are based on actual industry situations). Students should have had prior instruction in designing a conventional compensation program to include job evaluation, designing salary ranges, policy lines, external/internal competitiveness issues, etc. Review of Salary Administration Theory The basic philosophy of salary administration is to motivate, prevent or correct salary inequities and control costs by not over paying for the value of individual employee contribution to firm performance. To that end, conventional salary administration as practiced in industry has a variety of principles and directives: General Merit Raises Guidelines • Where there is no change in a person’s performance from one budget year to the next, then the person in question should under normal conditions receive the same % merit raise from one year to the next. • When there is a performance increase from one performance level to another, then the person in question should normally receive a higher % merit raise in order to recognize and reward the increased contribution by the employee to the company. This % raise should be sustainable for the foreseeable future at the higher level of performance. • Likewise when there is a performance drop from one performance level to another, then the person in question should normally receive a lower % merit raise in order reflect the lower contribution to firm by the individual and to call attention to the drop in performance. This lower % raise should also be a sustainable amount for the foreseeable future. • The % merit raise given to a particular employee should be sustainable (that is the same % given from year to year in relation to the range maximum or when there is no range maximum in relation to external competition based on a professional conducted salary survey; this assumes no change in performance) for the foreseeable future (approximately five years). • In those situations where the % merit raise contemplated is not sustainable for a given performance level, then the % merit raise must be reduced to a level that is sustainable for given % merit raise. Situations that are not sustainable include those that take a person’s salary to one that is at or above his or her performance band or classification maximum in the near term (usually less than five years). • Merit raises are usually provided on an annual basis. However, many firms stagger the date of the merit raise based on performance. Top performers usually receive their raises the quickest (12 months or less) with average performers taking the longest to obtain their merit raise (usually 15-18 months). In is important to note that this latter practice allows firms to better sustain merit raises as in some years a person will receive no raise but due to the cost of living and competitive adjustments salary range bands will usually have been adjusted upward by so some %, thereby allowing additional room for a merit raise for a particular individual. Salary Band Issues Guidelines • From time to time certain individual salaries may be above their allowable salary range maximum. This often occurs due to several factors. First, a person’s performance level will commonly decline for various reason. As a result their corresponding performance maximum salary range band falls as well. Sometimes, supervision grant raises that bring a person’s salary above its range maximum without the proper authorities noticing or preventing the action. At other times, the company’s compensation scheme may be above competitive levels or the pay policy is changed to one that is lower than the previous policy. Consequently, a number of individual salaries will fall above their revised range maximums. • Nevertheless, once a person’s salary is above it’s range maximum, it is normally frozen or “red circled” until the person’s salary falls below the range maximum. Management could choose to lower the individual’s salary. However, this should not be done except in extreme circumstances due to the adverse affects on motivation and morale. Other viable options, depending upon the circumstances, that may help resolve the problem are promotion, an increase in performance, or waiting until the range maximum rises above the person’s salary due to cost of living and/or competitive adjustments. • Salary bands/ranges are often adjusted on a periodic basis (usually annually). In order to hold the purchasing power of a given salary level constant salary bands must be adjusted upward or lower based on the annual change in the CPI. Salary bands/ranges may also be adjusted upward or downward based on the company’s salary levels (policy line) as compared to relavent competitive salary levels. Promotional Guidelines • Promotions may be made to recognize experience and contribution in the current position by a promotion in the current job. Promotions may also entail a physical move/promotion to some higher-level vacant position. • Normally promotions are linked in some manner to current performance levels and a person’s capacity to handle higher levels or responsibility. This is often affected by shortages in talent (in which case people are promoted faster than normal), by a surplus in personnel (in which case people are promoted less often than normal), compensation levels are lower than competition (in which case workers are promoted faster), or when compensation levels are above competitive levels (in which case promotions are often slowed). • Absent the above exception individuals should be promoted at a rate to where they are at their highest level of potential(so as to obtain their best work at their highest level of ability) fiveten years before normal retirement age. Rules of thumb based on performance levels at large firms are as follows: Average performance-about three promotions in a career- about one every 8-10 years Above average performance-about five promotions in a career- about one every 5-7 years Excellent performance-about eight promotions in a career-about once every 3-4 years Outstanding performance-unlimited but about once every 1 ½ to two years. • Promotional raises normally vary from zero to 5% per promotion level. Industry practice is to grant a 5% raise (to maxinimize motivation/recgonition) unless it would mean raising an individual’s salary so high in his or her salary band that normal merit raises would not be sustainable and/or they would be so small as not to motivate. • Promotions should not be allowed for individuals experiencing a drop in performance. Retirement Issues • Those individuals nearing retirement should be brought to their highest level of potential and salary band at least three years before retirement. This is done for several reasons. One, to recognize their many years of dedication and commitment to the company. Two, many retirement plans base their benefits and pension calculations on employee salaries. Third, it should enhance retention levels since the remaining workforce observes that someone staying a career with the company is treated well. Special Adjustments Special adjustments are granted when normal salary treatment (merit and promotional raises will not rectify any particular salary problem). Normally, salary adjustments above 10% are not allowed except in extreme circumstances. When there is a rather large salary discrepancy, the individual involved may receive (up to 10%) special adjustments for several years before the problem is corrected. There are several common situations in which special adjustments are used to correct salary problems: • For whatever reason, sometimes some employee salaries will be below the classification range minimum. In effect the company is paying the person below what the company itself says the job is worth. In such cases the individual’s salary should be raised to at or above the classification range minimum not only for motivational reasons but for legal ones as well. It is important to note that in such cases the individual involved could receive a special adjustment in excess of 10%. Due to the seriousness of the problem, it is not spread over several years as previously discussed. • In some situations, usually industry boom periods, external salaries rise at a rapid rate. As a result some employees (often-short service employees) are paid a lower salary than those paid new hires). This is an obvious inequity (salary compression) that must be corrected. If normal salary treatment does not correct the problem then a salary adjustment is warranted. The normal rule of thumb is to have current employees at least $100 a month above new hire salaries. • Under other conditions, particularly in firms with no set salary structure (as in the this compensation case) salary administrators must closely monitor relevant salary surveys to ensue that their employee salaries stay in line with competition and the company pay policy. Hence salary adjustments may be necessary to bring an individual up to comptitive levels. • It is important to ensure internal equity as well. In general, a person with higher performance and/or experience(and education) should be making more than someone with lower performance and or experience. Raise Communication • When communicating raises to employees it is important to explain what portion is merit, promotional, and/or adjustment. Otherwise, employees will usually assume they will continue to receive the % raise in the future(assuming no change in performance). When an equity adjustment as been included in the raise this could mistakingly result in a demotivated employees. For this reason, many companies actually grant equity adjustment at times other than when the merit raise is awarded. However, for case purpose they will all be awarded at the same time. IT TAKES A SHARP PENCIL Montgomery Sharp Pencil Accountants Anonymous is a regional accounting firm that has offices in Troy, Mobile, Montgomery, and Dothan. Montgomery Pencil employees 125 workers in total. It has been in business 30 years and over the last five years has experienced an annual growth in business of 25%. The industry average is only 10%. Sharon Walls has been budgeted $25000 to allocate among her nine subordinates as pay raises (high level company management rarely grant proposals above the amounts allocated). Cost of living for 2003 is expected to rise at an annual 4.0%. There have been some ugly grievances at this branch over pay raises in the past, so Sharon has been strictly advised to base all of her allocations on purely objective reasons. No increase recommendation will be granted without an appropriate justification. Your Salary recommendation should show the total amount proposed and its % of the salary. Salary increases must be distinguished based on merit adjustments (coded M), promotional adjustments (coded P), increases for promotion may be up to 5%. Equity adjustments (coded A) while all equity adjustments must be justified (this includes any communications that you would also provide the employee when giving the increase)any equity adjustment over 10% must carry additional extraordinary justifications. Round salary adjustments for CL 20 and above to the nearest $100 and round salary adjustments for the levels below CL 20 to the nearest $50. Name EEO Stat Cur Sal Last Inc% Ratings Paul H E Crystal W 58,800 7%, 2/01 71,400 2002 W 36400 7% 27 Sr AA 2001 26 Acct A 2000 25 Adsv BA 1999 25 2% A 2002 Mar-01 AA 2001 Tonya PT Job Title CL Serv Hi Ed Exp Personal Data in file 27 Acct 30 MA Acct 42 Nearing Retirement;has be a real help in the reorganization/transition of mgt. 24 11 PHD Acct. 28 Single, no child, married, expecting first child, male clients love her. 22 2 BA 30 Advs O 2000 30 O 1999 30 A 2002 26 ACCT Jun-01 AA 2001 26 26 Acct. 8 Pro Union, 2 yrs related experience; party’s a lot; no OT NR NR Scott W 37600 9% E 2002 28 ACCT Apr-01 E 2001 27 E 2000 26 23 5 BA Acct. 10 Works the most overtime, 2 yrs related exp; looking for another job; say his salary is too low AA 1999 Joe B 18200 NA 2002 21 Sr ACCT CLERK 16 1 BAMGT. 12 7 years experienced highly recommended very highly; very knowlegable but does not have a high energy level; his been in twice asking about getting a raise; has a Lexis car payment to cover; also wants to know when you are going to promote him to an exempt accounting position K t . Stacy W 386000 7% E 2002 Jun-01 AA 2001 Heath Max W W 460000 27 Spec A A1999 27 9% E 2002 29 Acct Advisor Feb-01 E 17000 2001 29 AA 2000 28 AA 1999 28 9% AA 2002 17100 18 E 2000 18 E 1999 18 0% A 2002 AA 2000 16 MA Eng. 24 6 MA 16 6 NA % Raise Given 7.0 8.0 Not an acct, real help in automating the office continues to save $ with program. Skills 24 Transfered in from another company location to help MGR with recent business increases 8 Married hard worker 4 yrs related exp; upset that new worker makes more than her; she has let this affect her performance 21 Sr Acct 16 4 BA 21 Clerk Hist. 21 9 Not out going, but very precise; never makes an error; AA 1999 Best Relevant Salary Data: 2002 Regional Accounting Salary Survey Salary Accountants All companies By experience Avg Top Qtl New Hire 35000 37000 2-4 YRS 38000 44000 5-9 YRS 35000 47000 10-15 YRS 49500 56000 16-20 YRS 56000 59000 20 + YRS 64000 75000 19 Loyal, hard working Acct. 18 Acct Clk 2001 May-01 AA 2001 24 27 Comp A 2000 Jun-01 E Warren W 27 Admin & 5 yr related exp; goes out of his way for a for a beer on way home form work; son recently maimed in a tragic car wreck; quantity of work is way down Salary Accountants Big six Firms By Experience Avg 38500 47000 48000 65500 70200 83000 5.5 l 1999 Administrative Assistants Salary Survey 5-10 yr 11-15 yr 16-20 yr 20 + yr Avg 23000 26000 29000 30000 1999 Computer Specialists Salary Survey Top Qtl 25000 29000 35000 38000 Avg 1-3 yr 50000 4-6 yr 65000 7-10 yr 85000 11-15 yr 100000 Over 15 120000 2001 Accounting Clerk Salary Survey Troy Salary all Companies Avg Avg top 3 Co. Accounting Clerk Senior Acct Clerk 16000 18000 18000 25000 Top Qtl 60000 80000 95000 110000 130000
QUALITY IN SALARY ADMINISTRATION: A COMPENSATION EXERCISE Introduction Students in human resource management programs receive a great deal of training in the design of various salary compensation programs. However, comparatively little direction has been provided students as to the proper administration of the day to day or year to year administration of individual salaries under such programs and the attendant salary administration problems that often arise. This salary administration exercise is intended to provide students with just such experience in conducting a fair and motivational salary system. This exercise will include both a discussion of salary administration theory and its application to common salary problems salary administrators will encounter in industry within the confines of a traditional compensation program (all cases are based on actual industry situations). Students should have had prior instruction in designing a conventional compensation program to include job evaluation, designing salary ranges, policy lines, external/internal competitiveness issues, etc. Review of Salary Administration Theory The basic philosophy of salary administration is to motivate, enhance perceptions of fairness by preventing or correcting salary inequities, and controlling compensation costs by not over paying for the value of individual employee contribution to firm performance. To that end, conventional salary administration as practiced in industry has a variety of principles and directives: General Merit Raises Guidelines • Where there is no change in a person’s performance from one budget year to the next, then the person in question should under normal conditions receive the same % merit raise from one year to the next. • When there is a performance increase from one performance level to another, then the person in question should normally receive a higher % merit raise in order to recognize and reward the increased contribution by the employee to the company. This % raise should be sustainable for the foreseeable future at the higher level of performance. • Likewise when there is a performance drop from one performance level to another, then the person in question should normally receive a lower % merit raise in order reflect the lower contribution to the firm by the individual and to call attention to the drop in performance. This lower % raise should also be a sustainable amount for the foreseeable future. • The % merit raise given to a particular employee should be sustainable (that is the same % given from year to year in relation to the range maximum or when there is no range maximum in relation to external competition based on a professionally conducted salary survey; this assumes no change in performance) for the foreseeable future (approximately five years). • In those situations where the % merit raise contemplated is not sustainable for a given performance level, then the % merit raise must be reduced to a level that is sustainable for the given % merit raise. Situations that are not sustainable include those that take a person’s salary to one that is at or above his or her performance band or classification maximum in the near term (usually less than five years). • Merit raises are usually provided on an annual basis. However, many firms stagger the date of the merit raise based on performance. Top performers usually receive their raises the quickest (12 months or less) with average performers taking the longest to obtain their merit raise (usually 15-18 months). In is important to note that this latter practice allows firms to better sustain merit raises as in some years a person will receive no raise but due to the cost of living and competitive adjustments salary range bands will usually have been adjusted upward by so some %, thereby allowing additional room for a merit raise for a such an individual. Salary Band Issues Guidelines • From time to time certain individual salaries may be above their allowable salary range maximum. This often occurs due to several factors. First, a person’s performance level will commonly decline for various reasons. As a result their corresponding performance maximum salary range band falls as well. Sometimes, supervision grants raises that bring a person’s salary above its range maximum without the proper authorities noticing or preventing the action. At other times, the company’s compensation scheme may be above competitive levels or the pay policy is changed to one that is lower than the previous policy. Consequently, a number of individual salaries will fall above their revised range maximums. • Nevertheless, once a person’s salary is above it’s range maximum, it is normally frozen or “red circled” until the person’s salary somehow falls below the range maximum. There are several ways this could occur. Management could choose to lower the individual’s salary. However, this should not be done except in extreme circumstances due to the adverse affects on motivation and morale. Other viable options, depending upon the circumstances, which may help resolve the problem, are promotion, an increase in performance, or waiting until the range maximum rises above the person’s salary due to cost of living and/or competitive adjustments. • Salary bands/ranges are often adjusted on a periodic basis (usually annually). In order to hold the purchasing power of a given salary level constant salary bands must be adjusted upward or lower based on the annual change in the CPI. Salary bands/ranges may also be adjusted upward or downward based on the company’s salary levels (policy line) as compared to relevant competitive salary levels. Promotional Guidelines • Promotions may be made to recognize experience and contribution in the current position by a promotion in the current job (sometimes called a step or recognition promotion). Promotions may also entail a physical move/promotion to some higher-level vacant position. • Normally promotions are linked in some manner to current performance levels and a person’s capacity to handle higher levels or responsibility. This is often affected by shortages in talent (in which case people are promoted faster than normal), by a surplus in personnel (in which case workers are promoted less often), compensation levels are lower than competition (in which case workers are promoted faster), or when compensation levels are above competitive levels (in which case promotions are often slowed). • Absent the above exception individuals should be promoted at a rate to where they are at their highest level of potential (so as to obtain their best work at their highest level of ability) about ten years before normal retirement age. Rules of thumb based on performance levels at large firms during normal economic times are as follows: Average performance-about three promotions in a career- about one every 7-8 years Above average performance-about five promotions in a career- about one every 5-6 years Excellent performance-about eight promotions in a career-about once every 3-4 years Outstanding performance-unlimited but about once every 1-2 years. • Promotional raises normally vary from zero to 5% per promotion level. Industry practice is to grant a 5% raise (to maximize motivation/recognition) unless it would mean raising an individual’s salary so high in his or her salary band that normal merit raises would not be sustainable and/or they would be so small as not to motivate. • Promotions should not be allowed for individuals experiencing a drop in performance. • Above entry levels many firms require that performance be sustained for at least two years before being eligible for promotion. • Related experience outside company service may be counted toward promotion on the same basis as company service. Related degrees above bachelor’s may also be counted as experience on a year for year basis, with a master’s counting no more than two year’s related experience and a PhD. counting as no more than four year’s experience. Retirement Issues • Those individuals nearing retirement should be brought to their highest level of potential and salary band at least three years before retirement. This is done for several reasons. One, to recognize their many years of dedication and commitment to the company. Two, many retirement plans base their benefits and pension calculations on employee salaries. Third, it should enhance retention levels since the remaining workforce observes that someone staying a career with the company is treated well. Special Adjustments Special adjustments are granted when normal salary treatment (merit and promotional raises will not rectify a particular salary problem). Normally, salary adjustments above 10% are not allowed except in extreme circumstances. When there is a rather large salary equity discrepancy, the individual involved may receive (up to 10%) special adjustments for several years before the problem is corrected. There are several common situations in which special adjustments are used to correct salary problems: • For whatever reason, sometimes some employee salaries will be below the classification range minimum. In effect, the company is paying the person below the amount the company itself says the job is worth. In such cases the individual’s salary should be raised to or above the classification range minimum not only for motivational reasons but for legal ones as well. It is important to note that in such cases the individual involved could receive a special adjustment in excess of 10%. Due to the seriousness of the problem, it is not spread over several years as previously discussed. • In some situations, usually industry boom periods, external salaries rise at a rapid rate. As a result some employees (often-short service employees) are paid a lower salary than those paid new hires). This is an obvious inequity (salary compression) that must be corrected. If normal salary treatment does not correct the problem then a salary adjustment is warranted. The normal rule of thumb is to have current employees at least $100 a month above new hire or potential new hire salaries. • Under other conditions, particularly in most firms with no set salary structure (as in the this compensation case) salary administrators must closely monitor relevant salary surveys to ensue that their employee salaries stay in line with competition based on the company’s pay policy. Hence salary adjustments may be necessary to bring an individual up to competitive levels. • It is important to ensure internal equity as well. In general, a person with higher performance and/or experience (and education) should be making more than someone with lower performance and or experience. Raise Communication • When communicating raises to employees it is important to explain what portion of the total increase is merit, promotional, and/or adjustment. Otherwise, employees will usually assume they will continue to receive the same total % raise in the future (assuming no change in performance). When an equity adjustment as been included in the raise this could mistakenly result in a demotivated employees. For this reason, many companies actually grant equity adjustment at times other than when the merit raise is awarded. However, for case purpose they will all be awarded at the same time. Exceptions to policy • Exceptions to company compensation policy and guidelines may be allowed under extreme circumstances. However, these should be rather rare events and must be approved by the highest levels of company management. IT TAKES A SHARP PENCIL Montgomery Sharp Pencil Accountants Anonymous is a regional accounting firm that has offices in Troy, Mobile, Montgomery, Huntsville, Athens, Auburn, Decatur, and Dothan. It’s headquarters is located in Montgomery, Alabama. Montgomery Pencil employees a total of 125 employees. It has been in business 30 years and over the last five years has experienced an annual growth rate 25% as compared to an industry average of only 10%. Sharon Walls has just been transferred to the Troy division replacing Joe Cool (encouraged resignation), who had been the branch accounting manager. Sharon currently earns an annual salary of $75000 and the last raise that she received amounted to 15% of her salary. Sharon was given the job due to the company losing several major accounts in the area. In fact, in the year 2000 this division lost $50000. In recent years this division has been plagued by high turnover. HQ human resources was able to get the last top three performers who resigned to provide a confidential exit interview. These interviews revealed that three top employees who recently resigned did so because of poor/unfair management and below market compensation as their primary reasons for leaving (they would not provide any further details) Sharon has been in the job now for 8 months. During this time Sharon has not only recouped the lost business, she has also had time to reorganize the office to make it more efficient. This reorganization included laying 7 marginal employees after the company’s annual appraisal evaluation and making better use of relevant computer technology. Ms. Hudson has been budgeted $33000 to allocate among her nine subordinates as pay raises (high level company management rarely grant proposals above the amounts allocated). This amount includes money for promotions and any equity adjustments that are needed to rectify any internal or external inequities that might exist (particularly in view of the evidence gained from the recent exit interviews). Cost of living for 2002 is expected to rise at an annual 2.0%. There have been some ugly grievances at this branch over pay raises in the past, so Sharon has been strictly advised to base all of her allocations on purely objective reasons. No increase recommendation will be granted without an appropriate justification. Salary recommendation should show the total amount proposed and its % of the salary. Salary increases must be distinguished based on merit adjustments (coded M), promotional adjustments (coded P), increases for promotion may be up to 5%. Equity adjustments (coded A) while all equity adjustments must be justified (this includes any communications that you would also provide the employee when giving the increase) any equity adjustment over 10% must carry additional extraordinary justifications. Round salary adjustments for CL 20 and above to the nearest $100 and round salary adjustments for the levels below CL 20 to the nearest $50. 1 2 3 4 5 6 7 Name* EEO Stat Cur Sal Last Inc% Ratings Paul H AA 2001 26 Sr NI 2000 25 Acct NI 1999 25 Adsv E 1998 26 Crystal W 52500 4%, 2/01 70000 12% AA 2001 Mar-01 O 2000 Tonya W 34000 NA 8 9 10 11 12 PT Job Title CL Serv Hi Ed Exp Personal Data in file 27 Acct 25 29 MA Acct 41 Nearing Retirement, wife died six months ago. CPA 24 30 Advs 10 PHD Acct 27 Single, no child, engaged 4 mo ago, male clients O 1999 30 Love her. O 1998 30 CPA AA 2001 26 ACCT 22 Jun-01 NR 1 BA Acct 7 Pro Union, 2 yrs related experience NR NR Scott W 31500 7% E 2001 Apr-01 E 2000 AA 1999 28 ACCT 22 27 4 BA Acct 26 9 Works the most overtime, 2 yrs related exp Working on MA-acct NA 1998 Tim B 44000 5% A 2001 25 Sr ACCT 23 May-01 A 2000 15 MA Acct A 1999 22 Has six dependents, None of his kids over 14 CPA A 1998 Stacy W 33000 3% AA 2001 Jun-01 A 2000 Rodney W Max B Warren W 36000 14000 16000 27 Admin & AA 1999 27 Spec A 1998 27 5% O 2001 29 Sr Acct Feb-01 AA 2000 25 AA 1999 25 AA 1998 25 3% E 2001 18 Acct Clk Jun-01 E 2000 18 E 1999 18 E 1998 18 1% AA 2001 May-01 AA 2000 NA 24 27 Comp 21 Sr Acct 21 Clerk 21 16 MA Eng 18 Loyal, hard working Not an acct, saves $ With programming skills 23 17 MA Acct 24 Working on PHD part time, clients like to Work with him and think he is top notch CPA 15 5 NA 7 Married hard worker 4 yrs related exp 16 2 BA Hist 8 Not out going, but very precise; never makes an error; work volume could be better 7 yr related exp * columns reading left to right-column 1-employee name; column 2-Equal Employment Opportunity Status: W=white, B=black, H=Hispanic; column 3-current salary; column 4-% and date of last merit increase; column 5-perforamnce rating last four years: O=outstanding, E=excellent, AA=above average, A=average, NI=needs improvement, I=inadequate; column 6-highest level person is seen attaining in the firm or potential (PT); column 7-current job title, column 8-numerial job classification (CL), column 9company service, column 10-highest level of education attained, acct=accounting, eng=English, hist=history; column 11-number of years of experience since age 18 (Exp plus 18 gives one a person’s age), and column 12-additional information about the person. Best Relevant Salary Data: 2001 Regional Accounting Salary Survey Salary Accountants All companies By experience Salary Accountants Big Six Firms By Experience New Hire 2-4 YRS 5-9 YRS 10-15 YRS 16-20 YRS 20 + YRS Avg 32000 37000 28500 47500 54000 60000 Top Qtl 36000 42000 45000 55000 62500 70000 Avg 36500 44000 51000 62000 68200 80000 % Raise Given 6.5 7.5 8.0 1999 Administrative Assistants Salary Survey 5-10 yr 11-15 yr 16-20 yr 20 + yr Avg 23000 26000 29000 30000 1999 Computer Specialists (degreed) Salary Survey Top Qtl 25000 29000 35000 38000 Avg 1-3 yr 50000 4-6 yr 65000 7-10 yr 85000 11-15 yr 100000 Over 15 120000 1998 Accounting Clerk Salary Survey Troy Salary all Companies Avg Avg top 3 Co. Accounting Clerk Senior Acct Clerk 14000 16000 16000 22000 Top Qtl 60000 80000 95000 110000 130000 INSTRUCTOR’S GUIDE The first issue that students must address in this exercise is to decide on the maximum amount of a merit raise for each performance level and the timing of each raise. For the sake of simplicity raises in the case should be awarded on a 12-month basis. As can be seen from a review of last year’s salary merit increases there is no consistency across individuals with the same performance in terms of merit raises. Based on judgment, experience, budget limitations, accounting for inflation, and some attempt to be consistent with previous year the following merit guide is a good starting point (instructor may want to provide this to the students): MAXINUM MERIT RAISE GUIDE O - Outstanding E - Excellent AA- Above Average A - Average NI - Needs Improvement I - Inadequate 12% 9 7 5 0 0 A pay policy must be chosen as well. This is not a major accounting firm, however, it is a rising regional star. A good choice in this case would be to choose a pay policy that puts accountants at or near the top quartile of all companies and below but not too far below the average (within 5-7 %) for the big six firms. Salary case one-Paul Background Paul is loyal career employee and has been with the firm nearly his entire career. Apparently, his wife had a terminal illness and as a result his performance suffered in recent years due to caring for her. The instructor should note that Paul was not let go, as were other marginal performers. In other words the company “carried” him during his wife’s illness. It should also be noted that his performance before the illness was likely to have been excellent (was excellent in 1998) and it appears to be returning to that level now. Most employees consider it fair and motivational for an employer to take care of a good worker during times of personal crisis. While Crystal is above him salary wise with less experience, there is no internal equity problem, since Crystal had a history of being an outstanding performer (and his performance had been sub-par for several years). While there are no salary bands for the salary administrator by which to compare his salary, there are external surveys that may be used to determine if his compensation is in line with competition. Based on the surveys, He is way below competition, in part due to his recent poor performance and in part due to poor salary administration. Paul is also approaching normal retirement age. He is 59. Merit (M) 7% 3700 Equity (A) 5% 2600 Resulting Salary $56,200 58,800 Justification He is way below competition but there are other severe equity problems that need addressing. Performance likely to rise again next year. Will promote next year and give needed equity adjustments. Don’t forget part of his low salary was due to his performance being down due to wife’s illness. Also, being a loyal company employee he is not likely to quit. In fact he is likely to be very grateful for the company carrying him during his time of family crisis. However, he is nearing retirement and the company will need to get his salary as high as it can prior to normal retirement age (65). May even tell him that the company knows he is low and will rectify this problem (this depends on the individual personality involved) and get his salary up for retirement. Assuming his performance stays constant or rises, he will be the first person the you “take care of” next year. Salary case two-Crystal Background Crystal has been an outstanding performer in the past but her performance has dropped dramatically this year. Often when there is such a change in performance levels it is due to a new supervisor. It may also be due in part to her romance. In this particular case, you also suspect that it is due to poor management (favoritism) by the pervious unit manager. Particularly, since she is way over paid relative to competition. Merit (M) 2% 1400 Resulting Salary $71,400 Justification Technically she should receive no raise. However, since the average raise is 7.5 % for all firms. The average salary for all firms should rise by a like amount minimizing the difference. Additionally, by giving her at least cost of living, perhaps she will get her performance back up. Due to many customers liking her it could adversely affect your business if she were to leave. However, given that she is so overpaid, this is unlikely. Providing at least cost of living and telling her where she is relative to competition should soften the blow and hopefully prevent her from becoming too demotivated. Salary case three-Tonya Background Tonya is a new hire. She is a little below the top quartile of all companies but not enough to worry about at this point. If she had received a higher performance rating there might be more cause for worry. Besides her salary after her merit raise brings her above the average for the top quartile of all companies for accountants with less than two year’s experience. The fact that Tonya is pro union is an irrelevant comment. It is Illegal to use this information to adversely affect a person’s employment in any way. Merit (M) 7% 2400 Resulting Salary $36400 Justification Normal merit raise. No significant equity problems with external competition. Salary case four-Scott Background Scott is clearly an excellent performer both under the new manager and the old supervision. He is maintaining his performance while working on a master’s degree so he can sit for the CPA exam. However, due to the rapid rise in staring salaries he is way under paid relative to those just being hired such as Tonya. This not an employee that the company would want to lose. Merit (M) 9% 2800 Promotion (P) 5% 1600 Equity (A) 5.5% 1700 Resulting Salary $34300 35900 37600 Justification Normal merit raise. Promote in recognition of his good performance and experience in current job. Equity adjustment so that he is at least $1200 above Tonya. Will want closely monitor over next several years. Likely provide another adjustment next year assuming significant difference in his and her performance. Case five-Tim Background Scott is an average performer. This likely due to having such a large family. He also is likely to be very interested in making much more money. He should be told that if he raises his performance that will happen. It is important to note that he is now the lowest performer in the unit. Should the firm/unit be on a force distribution rating system, and then he will be rated needs improvement next year and be on the verge of termination. He is underpaid relative to the top quartile of all companies but not that far below the average of all firms. Given that he is an average (and lowest performer as well) performer, he is not that far out of line. Merit 5% (M) 2200 Resulting Salary 46200 Justification Normal merit raise. Given his performance level not much out of line with competition. Besides there are budget constraints and other more serious equity problems to deal with. Must raise performance. If he leaves for other employment will allow firm opportunity to recruit a better worker (non-regretted resignation). Case six-Stacy Stacy illustrates a situation not uncommon in many businesses. Her job does not really fit any job listed in a salary survey. She was an administrative assistant who with the advent of the PC, quickly embraced the new technology and became proficient through self-instruction (programming using software but not in cobalt, C, etc), etc. As a result, she is more than an administrative assistant but not a “true” computer programmer (no degree in field). However, her major contribution to the unit derives from her PC/Tech skills. Students should inquire if the degree is related and how long she has been PC proficient? Degree related to administrative work and she has been PC proficient for four years. She is somewhat under paid relative to the administrative assistant survey (looking at the top quartile), however, she is only above average performer, so this not too much of a concern. However, relative to computer specialists (degreed) she is way under paid. Given that she has no degree in the area, no need to bring her up that level, however, an equity adjustment is warranted due to her skill and contribution based on the related expertise. Merit (M) 7% 2300 Equity (A) 10% 3300 Resulting Salary 35300 38600 Justification Normal merit. While does not posses a computer degree has many of the skills of a degreed professional. Could not afford to lose said individual. Based on four years experience in area the survey average for professionals is $65000. Clearly, she should not be brought to this level but conversely for her skill she is well underpaid. Should recommend to Headquarters (or do on own) that PC proficient employees (nondegreed) be included in next salary survey so that management can get a better fix on their appropriate salary level. Case seven-Rodney Rodney has the most severe salary inequity. First, it can be inferred from his 2001 rating and the client comments he has been doing well for quite while and hence was unfairly rated down in the past. This is sure to be a sore spot with Rodney(it is also likely that he feels that Crystal was overrated in the past). It is likely that he is looking for other employment or will leave as soon as he finishes his PhD. Merit (M) 12% 4300 Promotion (P) 5% 1800 Adjustment (A) 15% 5400 Resulting Salary 40300 42100 47500 Justification The industry average for all companies is $54000 (19 years related experience) and the top quartile for all companies is 62500. So Rodney is grossly underpaid. Students need to request an exception to policy in this case. First, for the promotion (performance is not sustained for two or more consecutive years) and for the equity adjustment is 5% above policy. Justification is that he has been unfairly rated in the past (can provide evidence of his excellent performance from clients) and he is likely to leave unless the problem is addressed. Besides he will need another 15% equity adjustment in addition to his normal merit next year to get him even near competitive levels. In this situation assuming your salary recommendation is approved, you might consider informing him in advance of his likely total raise to prevent him from resigning, particularly in a hot job market. Case eight-Max Background Max’s problem is not external equity but a perceived inequity between him and Warren. Max is a better performer (and likely to realize it) than Warren but is being paid less. While it may appear that there is a potential race discrimination case, there is none since Warren had a degree. The difference in their salaries is the money the company paid for degree and experience at the time of hire. It is not uncommon in industry to hire someone with experience and a degree at the clerk level and then have him or her turn out to be not as good as performer as the company had originally hoped. When this occurs it can cause motivational problems with other lower level employees who are better performers but do not possess a degree. Merit (M) 9% 1250 Promotion (P) 5% 750 Resulting Salary 16250 17000 Justification Normal merit raise. Not out of line with competition. Should encourage him to go back to school and work on his degree (hopefully company has some form of tuition reimbursement program) should he complain about the difference in his salary and Warren’s. However, a step promotion should solve most of the problem and over time assuming no change in performance by either employee the remaining difference will disappear. Case nine-Warren Background Good worker but volume of work suffers. Should continue to counsel him on this. Merit (M) 7% 1100 Resulting Salary 17100 Justification Normal merit raise. No external or internal equity problems. Budget The budget amount for raises, promotions, and equity adjustments is $33,000. Recommendation increases total $38,600. Must request an exception to policy. Remember if unit manager doesn’t request it and good workers leave upper management is likely to say that they might have granted the raise if it had been requested. Assuming the over budget amount is not allowed then recommend scaling back Rodney’s Adjustment by $2700(cut in half), Stacy’s adjustment by $1500 (nearly half), and eliminating Crystal’s raise of $1400 which eliminates the difference of $5600.
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