MERIT PAY DECISIONS AT BAG GROCERS, INC.

Scenario

MERIT PAY DECISIONS AT BAG GROCERS, INC.

Rewarding individuals using a merit pay program is a time-honored tradition in organizations in the U.S. Most organizations like to think they are recognizing employee contributions with merit pay. However, the raise pools are usually quite small and the link between pay and performance on the job is spurious at best. Despite the problems with pay-for-performance systems, they are used extensively. This exercise is designed to give you experience with the decision making process used to reward individuals for performance on the job. You will be asked to make decisions on the raises of five employees, and to justify those raise decisions.

You are a Regional Director for BAG Grocers, Inc., a chain of grocery stores operating in the southwestern U.S. You are required to evaluate the five Store Directors who report directly to you. Based on your evaluations, you must also decide the size of the merit increase each Store Director will receive. Salaries for the Store Director’s job range from $31,000 to $45,000. The company has budgeted $16,000 for merit increases in your region. You may allocate these merit increase funds as you deem appropriate, however, you are required to document your decisions. Each of the Store Directors has worked for you for two years or more, so you are quite familiar with their performance, and you know an ample amount about them personally. There are also some internal and external equity problems with which you need to deal. Background information on each Store Director is detailed in Exhibit 1. Salary and additional demographics are included in Exhibit 2.

Your assignment is as follows:

Determine the size of the merit increase for each Store Director, based on the information provided.
Justify the size of each increase (explain the areas you are rewarding or the behaviors you are trying to motivate for each Store Director, and explain why).
Explain how you would defend your decision process if it were contested legally.

EXHIBIT 1 – BACKGROUND INFORMATION

EXHIBIT 1 BACKGROUND INFORMATION
Jerry Barnes, Dallas Store#1 – Jerry is a star employee. He is highly dedicated and loyal to BAG, Inc. He obtained his MBA while an Assistant Store Director, to increase his promotability. Jerry is currently engaged and plans to be married in about 6 months.
Karen Stewart, Dallas Store #2 – Karen has just recently received her MBA, which she obtained by attending night school at Southern Methodist University. Now that she has her degree in hand, she is extremely marketable. Karen feels she is underpaid and is very likely looking for job opportunities elsewhere. She is an asset to the company and her resignation would be a great loss.
Anthony Cecelli, Houston Store #1 – Anthony is a “solid citizen”. He has no desire for a promotion but continues to perform his job at levels above average. His store exceeds expectations. Anthony is approaching the maximum salary level in his salary grade. We will have to come up with alternatives to merit increase if this occurs.
Charles Stevenson, Houston Store #2 – Charles has greatly improved his performance over the last year. His wife was seriously ill the year before, which contributed to his lower performance. She has not recovered completely, and requires in-home health care during the day, while Charles is at work. She was previously employed but is no longer able to work.
Frank Garcia, Houston Store #3 – Frank is currently attending the University of Houston to obtain his MBA. He is working full-time, and attending classes at night. He also has a 3-year-old son. Frank’s performance has been solid, but has dropped slightly since he enrolled in the MBA program last year. Once Frank gets his degree, he will be highly marketable.
EXHIBIT 2 – DEMOGRAPHIC AND SALARY DATA
Store director Age Sex Race Seniority in company Seniority in position Edu Married Spouse employed Current salary Previous salary Current performance Previous performance External equity index*
Karen Stewart 37 F A 6 2 MBA NO N/A $34,000 $31,500 5 5 (15%)
Jerry Barnes 45 M C 13 3 MBA NO N/A $40,000 $37,200 5 5 0%
Anthony Cecelli 62 M C 30 8 BBA YES YES $43,800 $41,800 4 3 9.5%
Charles Stevenson 47 M C 12 5 BBA YES NO $36,100 $34,200 4 2 (9.8%)
Frank Garcia 39 M H 11 4 BBA YES NO $35,800 $33,000 4 5 (10.5%)
Note: Race: A-African American, C- Caucasian, H-Hispanic. Performance is recorded on a five scale with 1 representing poor performance and 5 representing excellent performance.
*index in parentheses () is below the market.