8.
Tardiness/excess absenteeism
10
Points are deducted if an employee arrives late or is absent for causes other than illness or death in the
immediate family.
100
The list of categories to evaluate the Plant/Field Supervisors is slightly different.
Each employee begins the year with 100 points. If an infraction in any of the categories is
observed, one to five penalty points can be assessed for each infraction. Notification is given to
the employee indicating the infraction and the points to be deducted. A worker who is assessed
25 points in any one month or loses all the points in any category in one month is subject to
immediate review. Likewise, anytime an employee drops below 40 points, a review is scheduled.
The General Supervisor meets with the individual employee and the employee’s Plant/Field
Supervisor at this review.
If an employee has no infractions during the month, up to 12 points can be restored to the
employee’s point total – two points each for Categories 1-4 and one point each for Categories 5–
8. However, at no time can a worker have more than the maximum allowed in each category or
more than 100 points in total.
When Small first introduced PERS to the General Supervisors, they were not sure they liked the
system. Small told them how well it had worked where he had used it before. Small’s enthusiasm
for the system and his likeable personality convinced the General Supervisors that the system
had merit.
There were a few isolated problems with the system in the first two months. However, Ray
Meyers, a crew worker, is very unhappy with the new system as evidenced by his conversation
with Dan Jenkins, a fellow crew worker.
Meyers:
“Look at this notice of infraction – I have lost 22 points! I can’t believe it!”
Jenkins:
“How did your supervisor get you for that many points in such a short period?”
Required:
(1) What are the strengths and weaknesses of the Performance Evaluation and Review system
(PERS) in terms of the design for a review and evaluation system and for the expected
motivational effects?
(2) What problems might occur in the administration of the PERS system?
100. Avantronics is a manufacturer of electronic components and accessories with total assets
of $20,000,000. Selected financial ratios for Avantronics and the industry averages for firms of
similar size are presented below.
Avantronics 2013 Industry
Average
2011 2012 2013
Current ratio 2.09 2.27 2.51 2.24
Quick ratio 1.15 1.12 1.19 1.22
Inventory turnover 2.40 2.18 2.02 3.50
Return on Equity 0.14 0.15 0.17 0.11
Avantronics is being reviewed by several entities whose interests vary, and the company’s
financial ratios are a part of the data being considered. Each of the parties listed below must
recommend an action based on its evaluation of Avantronics’ financial position.
• Mid Coastal Bank. The bank is processing Avantronic’s application for the new five-year term
note. MidCoastal has been Avantronics’ banker for several years, but must re-evaluate the
company’s financial position for each major transaction.
• Ozawa Company. Ozawa is a new supplier to Avantronics, and must decide on the appropriate
credit terms to extend to the company.
• Drucker & Denon. A brokerage firm specializing in the stock of electronics firms that are sold
over-the-counter, Drucker & Denon must decide if it will include Avantronics in a new fund being
established for sale to Drucker & Denon’s clients.
• Working Capital Management Committee. This is a committee of Avantronics’ management
personnel chaired by the chief operating officer. The committee is charged with the responsibility
of periodically reviewing the company’s working capital position, comparing actual data against
budgets, and recommending changes in strategy as needed.
Required:
(1) Describe the analytical use of each of the four ratios presented above.
(2) For each of the four entities described above, identify one or two financial ratios, from those
ratios presented, that would be most valuable as a basis for its decision regarding Avantronics.
(3) Discuss what the financial ratios presented in the question reveal about Avantronics. Support
your answer by citing specific ratio levels and trends as well as the interrelationships between
these ratios.
101. Wilson & Associates is a medium-size marketing organization specializing in professional
promotion and publicity services. The firm’s top management believes that it provides quality
service as evidenced by the high level of customer satisfaction.
The organization consists of three departments: print media, audio media, and visual media,
each of which has a senior director in charge. The company employs 80 clerical staff who are
paid on an hourly basis and 30 professional staff who are salaried. A large majority of the
employees have an excellent rating in their job skills, and all employees demonstrate above
average performance in their job responsibilities. The employees take pride in their
achievements, and morale is very good.
Salary ranges are established for different job classifications within the clerical staff (i.e., clerk,
clerk typist, secretary, and administrative assistant) and the professional staff (i.e., analyst,
manager, and director). A fixed-rate structure is used for all salaries. The company offers no
commissions because it does not want its professional staff applying undue sales pressure on its
customers. Company management is proud that it does not have to resort to a salary plus
commission structure for its professionals to generate sales.
Employees are recognized for superior performances through salary increases and promotions.
Management believes that salary increases should be based on merit, and open positions are
filled from within whenever possible. Top management contends that highly skilled and
motivated employees will improve productivity it they are rewarded with annual merit pay raises
and if promotions are based on performance.
Top management announced in November 2015 that the amount available for pay increases in
2016 would be 10 percent of the actual total salary expenditures for 2015. All salary increases
would be effective January 1, 2016.
The print media department consists of 20 clerical and eight professional employees on January
1, 2015. Six clerical employees were added during the year at the rate of about one every two
months. Two professionals were added, one on March 1 and one on August 1. Three employees
were promoted during the year: two secretaries to administrative assistants and one manager to
director. The total actual salary expense for the department without regard for employee benefits
and employer tax contributions was $548,000. Therefore, the total amount allocated for wage
increases for the print media department in 2016 is designated to be $54,800.
Shortly after the merit pay program was announced, the print media department employees
received their year-end evaluation conducted by the employee’s supervisor. The senior director
met with each supervisor and received all performance reports and then announced the merit pay
increase for each employee.
Upon completion of this entire process, several employees complained individually about the
inequities of the merit pay program. The senior director was concerned about the employee
discontent because the people complaining were some of the highest achievers on the staff.
They tended to be at the lower classification levels and were relatively new employees, having
been with the company for one to two years. The individuals showed potential and were highly
motivated, often working extra hours and assuming additional responsibilities.
The new employees’ behavior differed slightly from the employees who had been with the
department for a longer period of time. Although highly skilled and competent in their jobs, the
veteran employees tended to be reluctant to accept additional responsibility or to work extra
hours on a regular basis.
Required:
1) Review Wilson and Associates’ wage and compensation plan.
a. Identify and discuss the general strengths of the wage and compensation plan.
b. Identify and explain the shortcomings in the administration of the merit pay increases that are
to become effective in 2016, and discuss what effect these shortcomings could have on the group
of discontent employees in the print media department.
2) Explain how this compensation program should be revised, if at all.
102. Topaz Industries operates several large plants that provide the packaging for many
consumer products. The company has a progressive compensation system that is market-based
and competitive with that of similar companies. Every position within Topaz is assigned a grade
level from 1 to 30, with 30 being the company’s chairman and 1 the lowest-level unskilled
position. In assigning the grade levels, Topaz uses the following methodology:
1. The higher-level positions are classified according to the exact titles used by similar firms.
2. The lower-level positions are classified on the following factors:
a. Formal education attained.
b. Amount of responsibility.
c. Complexity of tasks.
d. Effects of mistakes.
e. Physical difficulty or amount of effort.
3. Salary ranges increase annually according to the rate of inflation.
When Topaz hires employees, they are generally offered a starting salary at the lower end of the
position grade level. For an individual with exceptional skills or experience, the offer could be
closer to the top of the level. Employees can move through the levels on the basis of performance
and merit increases; a promotion moves the employee into a new position level with a higher
salary range. Topaz provides various in-house educational programs for its employees and has a
tuition reimbursement program.
Jill Simon, assistant controller for one of Topaz’s plants, was hired a year ago at the top level for
her position because of her extensive experience in the field. She has just learned that her
annual increase will be 3 percent of her salary, the same percentage used to increase all position
levels in the current year. Jill believes that her performance merits a larger increase but knows
that as long as she remains an assistant controller at the top level, her future salary increases
will be similar.
Jon Russell is an administrative secretary reporting to Topaz’s treasurer. Jon has been with the
company for several years, earning his current position two years ago through above-average
performance. Because Jon has proved to be reliable and efficient, his boss has transferred
responsibility for many routine tasks to him. Jon believes that his position should be reevaluated
because of these increased duties, but he has not received any encouragement from his boss
concerning this.
Billy Hampton was recently promoted to supervisor in one of the packaging plants, directing the
work of 15 employees. He started at Topaz as a shipping clerk after completing high school and
has learned the packaging business on the job by holding increasingly important positions over
the years. Many of Billy’s co-supervisors are better educated than he is, but lack his experience
and frequently turn to him for solutions to their problems. Billy knows that these less–
experienced supervisors earn more than he does because of their educational qualifications.
Although he is confident that his salary will catch up with the others through merit increases, he
does not believe that the company has been entirely fair with him.
Required:
1) Describe the incentive effects that Topaz Industries’ job evaluation and compensation program
is likely to have on Jill Simon, Jon Russell, and Billy Hampton.
2) Recommend several ways that the firm could improve its evaluation and compensation
program to avoid situations similar to those described here.
3) Describe the general conditions that must be present for employees to be motivated to
improve their performance under a merit pay system.
103. Boating Inc. manufactures water vessels and is organized into three large divisions: jet
skis, fishing boats, and yachts. The following information presents operating revenues, operating
incomes and invested assets of the company over the last three years:
(All figures in 000s.)
Operating Revenues Operating
Income Invested
Assets
Jet Skis
2015 $2,000 $500 $1,200
2016 3,000 700 1,500
2017 4,000 1,000 2,000
Fishing Boats
2015 5,000 3,000 2,000
2016 5,000 2,500 1,500
2017 4,000 2,000 1,500
Yachts
2015 8,000 4,000 3,000
2016 7,000 3,000 2,500
2017 8,000 3,500 3,000
The following table shows the number of managers covered by the current compensation
package of Boating Inc.:
Number of
Executives
Jet Skis
Fishing Boats
Yachts
2015 50 200 250
2016 60 180 200
2017 70 160 250