Merit Increases and Job Performance

Running Head: FACULTY MERIT RAISES 1

Writing Assignment Week 7: Faculty Merit Raises

Janae Bajorek

MGT320

August 5, 2014


Job Performance and Merit Increases

Job performance can become an overly broad term when used in very sensitive situations

such as merit increases. The text describes job performance as a “function of ability and

motivation” (Noe, 2013, p. 537). However, the expectancy theory challenges the strategy of

monetary motivation with the idea that employees are looking for something more. Something

deeper. For instance, monetary rewards are an extrinsic motivational tool that keeps employees

coming to work for a paycheck every other Friday, but intrinsic rewards such as a sense of

accomplishment and recognition for a task well done will positively contribute to not only the

employee’s attendance but their organizational commitment. That being said, monetary rewards

cannot be an organization’s only tool of motivation. Rather, merit increases should play a role in

rewarding a job already well done, not enticing employees to do well in the first place. This view

follows the reinforcement theory of following high performance with a reward (Noe, 2013, p.

537). Therefore, we define job performance as the output of both an individuals’ ability to do a

job and the intrinsic motivation fueling the ability to exceed expectations.

However, we understand that in regard to recruitment and in line with the efficiency

wage theory (Noe, 2013, p. 501) wage does influence productivity. Specifically, in situations

were highly skilled employees such as our professors are involved, a respectable pay incentive is

critical to success. Therefore, although it will be primarily based off job performance, we have

decided to institute a fair, consistent, and competitive pay structure allowing Small State

University to recruit and keep the best in class.

As of today the college has no distinct pay grades. Pay grades, as defined by the text, is a

strategy of grouping similar jobs together with a common rate range to ensure there are no

outliers when reviewing the salaries for multiple similar positions (Noe, 2013, p. 507). For Small


State, we will divide the professors into pay grades by department, since each department is

evaluated differently and therefore would benefit from unique pay grades to coincide with the

evaluation style and data. The different departments in question are the management, marketing,

finance and accounting, decision sciences, and information technology departments.

Today we will focus on the management department to establish a fair and consistent pay

structure. We first look to establish a rate range in which each professor in this pay grade would

be adhered to. This pay range will be established with a minimum, median, and maximum

amount. Our range spread, the difference between the minimum and maximum amounts, will be

larger than that of lower skilled positions (Noe, 2013, p. 508). This strategy leaves room for pay

based on high performance as discussed prior.

Merit Pay Program

Performance will determine where within the pay range each professor will lie. In other

words, the program being placed into effect will be a merit pay program making a strong

connection between performance and appraisal ratings (Noe, 2013, p. 541). The features of this

program will include base pay changes (as opposed to a merit bonus), annual review, and will be

focused on the individual’s measured performance. This measured performance will be based

from the three areas reviewed annually in the department chairs’ ratings: teaching, research, and

service. This program will work off of a merit increase grid. A merit increase grid will “combine

an employee’s performance rating with the employee’s position in a pay range to determine …

his or her pay increases” (Noe, 2013, p. 543).

In addition to performance the second factor impacting the merit increase grid is each

employee’s compa-ratio. The compa-ratio compares actual pay to the pay policy. When a


compa-ratio is less than 1.00 this is an indicator the employee’s salary is not up to par with the

policy. On the other hand, a compa-ratio greater than 1.00 expresses a salary that is starting to

get away from the pay policy and become more costly than it theoretically should. The compa-

ratio is important to maintain fairness within the pay grade and ensure no salaries are getting out

of hand (Noe, 2013, p. 510). To determine each individual compa-ratio, we must establish a

midpoint for the pay range.

Currently in the management department the highest (max) salary is Professor Ricks with

a salary of $135,000 annually. This salary is a reflection of a past position as Dean of the College

that warrants a higher salary than that of his current position as a professor of Labor Relations

and Organizational Behavior. To work to actively adjust this outlier, Professor Ricks will not be

allowed to receive raises until the following year’s review. The reason for this decision is to

maintain fairness among the pay grade. Each individual is to be compensated for the position

they currently hold, not past positions. As Professor Ricks is currently working as a professor

and contributing the same as the other professors to the school, it is only fair that he receives the

same compensations back, not more. This reasoning is in line with the equity theory. It is clear

that employees evaluate their pay to others in comparable positions (Noe, 2013, p. 496).

Allowing Professor Ricks to continue with a much higher salary than his peers and also be

eligible for the same page increases (continually increasing the range spread) will send the wrong

message to the other professors and may prove to be detrimental to their morale and productivity.

In the future, the University is expected to enforce the policy that all employees moving

positions within the organization will assume the pay associated with that position. Just as an

employee promoting to a higher paid position would expect a pay raise, an individual stepping

down should expect a decrease in pay.


Moving forward, with a minimum salary in the department of $90,000 and a maximum of

$116,000 (excluding Rick’s $135,000 outlier) the median for the current salaries within the

management department is $97,000 annually. These numbers will serve as our pay range,

allowing for a broad pay spread of $26,000. Now that we have a midpoint for our pay range, we

can evaluate each employee’s compa-ratio (see table below).

Figure 1: Compa-Ratios

Employee Current Pay Midpoint Compa-ratio

Houseman 92,000 97,000 .95

Jones 116,000 97,000 1.19

Ricks 135,000 97,000 1.39

Matthews 97,000 97,000 1

Karas 100,000 97,000 1.03

Franks 90,000 97,000 .93

As you can see from Figure 1, the average compa-ratio of the current salaries within the

management department is .93 (5.59/6). This number expresses that the current salaries are

slightly lagging behind where we want our pay policy to be. It is anticipated that by holding

Rick’s salary still and increasing the others’ by merit, we will get this number closer to 1.

Performance Expectations

Now that we have our midpoint and compa-ratios settled for the individuals in this pay

range, we are able to utilize the results from the most recent evaluation by the department chairs.

For this evaluation of job performance, teaching, research and service are all critiqued by four


tiers: far exceeds, exceeds, meets, and fails to meet expectations. A point system will allow for

more weight to be placed on teaching and research considering they are most important to the

college in comparison to service. Both teaching and research have a possible of four points to be

earned each evaluation where the service area only has a possible three. The scoring system is

shown below in Figure 2.

Figure 2: Performance Points Awarded

Teaching Research Service

Far Exceeds 4 points awarded 4 points awarded 3 points awarded

Exceeds 3 3 2

Meets 1 1 1

Fails to Meet 0 0 0

This scoring system allows for a maximum point possibility of 11. These points will be used to

determine if they are exceeding, meeting, or below expectations in tiers of 4. All individuals

between 0 and 3 points are considered to not be meeting expectations, between 4 and 7 meets

expectations, and between 8 and 11 exceeds expectations. This performance factor along with

their given compa-ratio will be used in the merit increase grid to determine the size and

frequency of her or her pay increases (Noe, 2013, p. 543). Figure 3 shows a breakout of each

individuals’ job performance rating and how they are placed according to expectations.


Figure 3: Management Department Average Performance

Teaching Research Service Total Rating

Houseman 3 3 1 7 Meets

Jones 3 4 2 9 Exceeds

Ricks Frozen Frozen Frozen N/A N/A

Matthews New Hire New Hire New Hire N/A N/A

Karas 4 3 1 8 Exceeds

Franks 1 0 2 3 Does Not Meet

Finally we are able to use the information from both Figures 2 and 3 to place each individual

eligible for this annual review into the merit increase grid. The grid is shown below in Figure 4.

Figure 5 on page 8 shows the program in action with each eligible professor in the Management

department. You will notice both Professor Ricks and Professor Matthews are not present on this

table. Professor Ricks is excluded for reasons discussed earlier, while Professor Matthews’s

specific case is discussed further in the document.

Figure 4: Merit Increase Grid

Recommended Salary Increases by Performance Rating and Compa-Ratio

Performance Rating Compa-Ratio

80% to 90% 91% to 110% 111% to 120%

Exceeds Expectations 7% 5% 3%

Meets Expectations 4% 3% 2%

Does Not Meet Expectations 2% 0% 0%


Figure 5: Managerial Department Merit Increases

Professor Performance Rating Compa-Ratio Increase Dollar Amount

Houseman Meets .95 3% $2,760

Jones Exceeds 1.19 3% $3,480

Karas Exceeds 1.03 5% $5,000

Franks Does Not Meet .93 0% $0

The numbers shown above are a suggested increase and to be used as a guideline. The total

monetary value of the increases shown above represent $11,240. Today, we are happy to see we

are able to follow the guidelines above and grant the monetary raises earned for Houseman,

Jones, Karas, and Franks without a deficit in the budget. We have generously been given a

budget of $17,400 for raises among the management department leaving us with a remaining

$6,160 to be divided among the faculty members.

Merit Bonuses

Returning back to the quandary of Professor Ricks, we had determined that since he

stepped down and was allowed to keep a higher salary (that of a Dean) he would not be eligible

for a salary increase this year in order to maintain the pay range of the professors in the

management department. We feel that in order to uphold this strategy yet still reward Ricks for a

job well done, this is a great opportunity for a merit bonus. As opposed to a merit increase that

directly increases one’s salary amount, this bonus is a onetime payment that allows for

recognition of a job well done without defying the set pay range. According to Rick’s


performance evaluation, he would be placed in the category of meeting expectations. For this

reason, we have decided to grant Ricks a 2% bonus, which given his current salary of $135,000

amounts to a merit bonus of $2,700.

Professor Matthews is another special case within the management department that also

was not included in the merit increase grid. Matthews has only been with the college for 4

months and came into the position at a competitive salary of $97,000. In addition to this salary,

Matthews also was granted a reduced teaching load for two years and a $6,000 annual stipend.

These benefits given to Matthews are unique to him alone and were done in efforts for the

college to remain competitive in the recruiting market. This idea of increasing starting wages in

order to remain competitive with other companies recruiting for similar positions is explained in

the text as labor market competition (Noe, 2013, p. 500-501). We need to remain competitive

and offer benefits such as we did to Matthews in order to get the best in class new hires.

However, we also understand the importance of remaining fair and consistent. It is unrealistic to

raise the pay of all faculty to the current market rate or current salary regarded as competitive in

the recruiting world. That being said, Matthews and other new hires will not be eligible for

participation in the annual merit increases until he has been with the company for at least two

years. This is done for two reasons. First, two of the three categories in which individuals are

evaluated annually relies on data collected over two years. Therefore, with a tenure less than two

years, data collected would be skewed. Secondly, this time period allows for more tenured

professors to be given merit increases based on performance without the new hire wage

increasing. Consequently, tenured professors who are meeting or exceeding expectations will

continue to see increases in their wages, ensuring they are at or above the current market rate.


We believe this policy is fair, ethical, and in the best interests of the university. We have

made all efforts to take into consideration tenure, but ensure performance is the determining

factor for all individuals within a pay range. This policy will keep all salaries for the position in

question within a reasonable range based on compensable factors, value-added characteristics of

a position we are willing to pay for (Noe, 2013, p. 508), while still allowing a range spread large

enough to accommodate for rewarding individuals that perform beyond expectations.

Potential Long-Term Complications

As with all policies and procedures there is a trade-off. Leader of the total quality

management movement, W. Edwards Deming, argues that rating each individual independently

is not a fair process. Deming states that the environment that each individual works in effects the

individual’s performance greater than the individual themselves (Noe, 2013, p. 545). We see this

argument as very valid, but not a direct concern for our college in particular. This theory relates

more to positions directly working with a team, certain equipment, or even the public in a

customer service setting. As professors at the college we feel that for the most part this position

is self-directed and therefore, results are self-created. The students of a class can be related to

customers in a customer service setting, and as the students have a great effect of the teaching

evaluation portion, this dynamic is taking into consideration. That being said, it is also

understood that many students will participate in these evaluations. The board will look for

popular trends among students to judge teaching performance and outliers will be excused to

ease this complication.

Documents

Merit Increases and Job Performance