INSTRUCTOR’S MANUAL
APPLICATIONS IN HUMAN RESOURCE MANAGEMENT 7E
PART 4
Implementing Compensation and Security:
Compensation, Incentives, benefit, and Safety and Health
Compensaon
65. CASE: THE OVERPAID BANK TELLERS
I. OVERVIEW:
This case points out the problems that can develop if an organization overpays its employees.
Students often hear about the problems which surface as a result of underpaying employees, yet
overpaying employees can create serious problems as well. This case suggests that organizations may
0nd it advantageous to conduct wage surveys on a regular basis. By doing so, the problems that result
from either underpaying or overpaying employees can be minimized.
II. OBJECTIVES:
1. To familiarize students with the problems that can develop when employees are
overpaid.
2. To provide a catalyst for discussing how wage surveys are conducted, the pi4alls
associated with them, and whether the results should be made public.
3. To make students aware of the pros and cons of giving merit raises and cost of living
raises.
III. ANSWERS TO CASE QUESTIONS:
1. If you were on the HR committee of State Bank, what decisions would you suggest
regarding raises for tellers?
In discussing this question, there are several issues that can be addressed. One of these is
determining which particular tellers are being overpaid. The wage survey indicates that the tellers as a
A second issue relates to the +ming of the raises. Raises are granted March 1, and it is now
February. Some students will argue that since the tellers are expec+ng the raises shortly, the bank
A third issue relates to which raise (merit and/or cost of living) should be reduced, assuming
raises for tellers must be cut. Some students typically argue that the tellers should receive the entire
2. How much faith should the HR committee place in the accuracy of the wage survey?
Wage surveys can range from highly accurate and useful to totally inaccurate and worthless. It
depends on the knowledge and expertise of those conducting the survey and the accuracy and honesty
of those providing the information for the survey. The State Bank presumably is familiar with the other
It is possible that the State Bank may want to call the bank that conducted the survey to
determine or double check the procedures used in conducting it. They also may want additional
Faculty members may want to mention some of the general problems associated with wage
surveys when discussing this question. One of these is that in conducting wage surveys, participant are
asked to provide wage/salary information with regard to bench-mark jobs. These are jobs that all firm
A second problem often associated with wage surveys relates to the accuracy of the data
provided by the participant. While most organizations wouldn’t knowingly lie about the wages they
pay, a firm may not provide accurate or comparable data for a variety of other reasons. For example, the
3. Cri+que State Bank’s policy of giving merit raises that range from zero to 8 percent,
depending on job performance.
There are at least two aspects of this question that can be discussed: (1) should the bank give
merit raises of any amount, and (2) should the merit raises range from 0-8%? In answering the first
question, faculty members may want to begin by sugges+ng various criteria besides merit that could
serve as the basis of gran+ng raises, such as seniority, education, need, skill level, and favori+sm. The
In discussing the second aspect of the question, instructors may want to point out that if a merit
raise system or any incentive system is to motivate employee behavior, suMcient rewards must be
o<ered. Expectancy theory points out that employees aren’t likely to improve their performance level if
Some students may rebel at the bank’s idea of gran+ng no merit raises to some employees.
They will contend that every employee must have done at least something to deserve a raise. Yet one
4. Cri+que the bank’s policy of giving cost-of-living raises. Do you think they should be
eliminated?
Cost of living raises are quite popular during inOa+onary +mes, and many union contracts
contain COLA provisions. This question can serve as the basis for discussing the pros and cons of using
them. Most people would probably agree that cost of living raises do not motivate employees to
improve their job performance. However, this is not their intent-they are designed to attract new
One of the arguments worth mentioning against cost of living raises is that it may encourage
employees to believe that productivity and financial compensation aren’t related. Instead, employees
66. CASE: REWARDING VOLUNTEERS
I. OVERVIEW:
While most of the literature on employee compensation focuses upon monetary compensation
for regular employees, many organizations depend upon volunteers to provide many of their services.
This is particularly true of non-profit organizations such as schools, hospitals, boy scouts, symphonies,
crisis centers, and many other types of “public service” organizations.
Since volunteers do not receive monetary compensation, the critical question is how to motivate
them to remain in the organization and continue to be produc+ve. What motivates volunteers to
volunteer, continue to volunteer and produce high-quality services? What non-economic rewards do
volunteers expect and how can management provide such rewards?
II. OBJECTIVES:
The major objective in this case is to sensi+ze students to the di<erences between paid
employees and unpaid volunteers in terms of their management. In particular, management needs to
actively manage their volunteers by identifying their needs and a9emp+ng to meet them through
non-economic rewards. Since volunteers provide important services to many organizations, the
selection of an appropriate volunteer coordinator and development of appropriate volunteer policies,
procedures and programs are necessary for success. Students need to become aware that volunteer
programs are important and will not manage themselves.
III. DISCUSSION:
The problems here are a failure to select an appropriate volunteer coordinator and a failure to
ins+tu+onalize the volunteer program by developing appropriate volunteer policies, procedures, and
programs. ultimately, the Sta+on Manager bears the responsibility for each of these failures.
solution to the existing problems will involve shi-ing the volunteers out from under the
Program Director and ins+tu+onaliza+on of the volunteer program. The Sta+on Manager could become
the volunteer coordinator himself, he could delegate it to the administra+ve assistant, or he could hire a
new person for this task (if funding permi9ed).
The actual names and dates in this case have been disguised and the facts have been
abbreviated. In the actual case, the second Program Manager resigned his position soon a-er he had
driven most of the volunteers away. The volunteer program never again a9ained the size it exhibited
during the early years. A small number of student volunteers have continued to be used for lower-level
function, but announcing has now been taken over by full-+me employees. The sta+on has lost many
long-term supporters from among their previous volunteers. The sense of excitement is gone and the
small volunteer program has never been ins+tu+onalized.
IV. ANSWERS TO CASE QUESTIONS:
1. Describe the fundamental problem in this case together with its causes.
2. What specific mistakes were made by
a. the General Manager and
b. the Program Director?
The first mistake the Sta+on Manager made was selecting the Program Director to coordinate
the volunteer program. The nature of that position was such that the individual 0lling it had too many
other responsibilities. Managing volunteers became a low-priority activity. The decision to put the
The second mistake was in not following-up to see that the Program Director was actually
The first mistake the Program Director made was in not developing rewards to recognize the
good work the volunteers had been doing since the sta+on opened. The second mistake was in
“punishing” the volunteers by downgrading their roles from announcer to board operator simply
because of their status and without concern for their performance. The third mistake was in not
3. Did you ever do unpaid volunteer work? What were your purposes/goals? Did you
achieve them?
Obviously, there are no right or wrong answers here. Students should be encouraged to describe their
volunteer experiences, whether the activity allowed them to achieve their goals, and the factors that
4. What types of rewards are most appropriate for volunteers? To what degree were
those provided to volunteers at the radio sta+on?
Non-economic compensation is the appropriate compensation for volunteers. However, it is
important for managers to recognize that volunteers do need some form of compensation for their +me
and e<ort. Examples of such compensation include opportunities to learn and develop skills, feedback
on performance, verbal praise, assignment to preferred work ac+vi+es, posi+ve publicity, opportunity for
training, opportunity to train others, award ceremonies, social events, letter of recommendation, and
5. What steps should the sta+on general manager take now?
As in most situation, prevention is much easier and more e<ec+ve than a9emp+ng to solve the problem
a-er the fact. The damage has been done, volunteer morale has been undermined, and commitment of
the demoted volunteers to the sta+on has eroded. In this particular case, the program director was
67. CASE: EVALUATING NONTRADITIONAL INCENTIVE SYSTEMS: HOWE 2 SKI STORES
I. OVERVIEW:
This case focuses on whether a non-tradi+onal incentive system is appropriate for a retail store.
II. OBJECTIVES:
1. To introduce a group of non-tradi+onal incentive plans that is becoming increasingly
popular with employers.
2. To provide information about the strengths and weaknesses of these plans and the
condition required for successful implementation.
3. To provide an opportunity to determine which incentive plan would likely be most
e<ec+ve within a particular organizational seTng.
III. DISCUSSION
The case concerns a chain of three ski and snowboarding shops located on the East Coast. Since
the first store opened, the owner, Maria Howe, has pursued a di<eren+a+on strategy of state-of-the-art
equipment for skiers at all levels, store employees who are able to provide the customer with expert
advice, and a quick response +me that accommodates the last-minute shopper. She has also
aggressively pursued and created a market for the ski stores by o<ering lessons, sponsoring seminars,
and adding snowboarding equipment. These e<orts have paid o<, yielding suMcient business to enable
Howe to expand to three stores and maintain a Ouctua+ng but consistent profit. However, she is facing
increasing competition from other ski stores that have opened in the area.
Howe’s leadership style appears to range from consulta+ve to par+cipa+ve, and she has made
many a9empts to increase employee involvement in the business, most of which center around the type
of employee hired and the solicita+on and incorpora+on of their suggestion about store inventory.
However, as the business has expanded to three stores, there is growing evidence of low productivity—
late orders, damaged equipment, lost rentals, lack of responsiveness to customers, etc.
In the year before the case situa+on takes place, Howe developed and implemented a merit
incentive plan to motivate increased productivity from the store’s molders, employees’ who place the
bindings on skis, to be more produc+ve. The plan was not very successful. Molders doubted the
accuracy of the managers’ judgments about their performance because their work is very
interdependent with that of the other employees and because other employee groups felt that they
should have been included in the plan. The case concludes with Howe hearing a consultant speak about
the benefit of non-tradi+onal incentive plans and deciding to check out the feasibility of these for her
organization.
There is increasing evidence that pay alone does not motivate performance very e<ec+vely for
many American workers. Some incentive programs have been quite successful.
Lincoln Electric Company, a manufacturer of industrial electric motors and welding equipment,
has gone for more than 54 years without a losing quarter, has operated for forty years without a layo<,
and has workers who are three +mes more produc+ve than their cohorts in other firm. Company
leaders a9ribute this record to their incentive plan, which pays factory workers on a piece rate basis for
each acceptable piece produced and provides a yearly merit payment based on employees’
dependability, ideas, quality, and output. Employees’ bonuses average 97.6 percent of their regular
earnings. At Carrier corporation, a manufacturer of hea+ng and air condi+oning equipment,
productivity has risen 24 percent and rejects have decreased notably since the implementation of a
gainsharing plan, IMPROSHARE.
Unfortunately, very li9le well controlled research has been conducted on the e<ects of incentive
plans, but case studies suggest that a number of factors may contribute to their success or failure. The
first is employee involvement. Without employee input and commitment, incentive plans are unlikely to
generate changes in status quo operation and thus, have li9le e<ect on costs or profitability. Mitchell
Fein, the developer of the gainsharing plan IMPROSHARE, says that to implement gainsharing plans
successfully, management must be willing to share information and to listen to employees. Edward
Lawler, a well-known Quality of Work Life consultant, also notes that gainsharing plans are heavily
dependent upon employee acceptance, input, and cooperation. Furthermore, supervisors must be
willing to accept and promote employee input, despite the fact that may 0nd it initially very threatening.
A second factor that seems to be important is management’s willingness to consistently
discriminate between high and low levels of performance when awarding incentive pay. Marc Wallace, a
compensation researcher, notes a tendency for managers to turn into “Father Christmas” a few quarters
a-er an incentive plan has been operating despite espousing a hard line at the +me of its
implementation. A third factor seems to be the need for continuous evaluation of the plan of the plan to
see how it is working and both par+es’ willingness to revise it if necessary.
The importance of these factors and others for the success of incentive plans has been stressed.
A well-de0ned strategy that is consistent with the goals of the plan is also critical. Other factors found to
be signiticant are the need to induce jobs or units where performance can be measured, the importance
of decentralizing incentives so individual business units can modify them to suit their own needs, the
importance of separa+ng incentives from base pay to highlight the impact of performance, and the need
for a “sunset” provision that permits the modi0ca+on or termina+on of an incentive program in the case
of new technology or change in business plan.
Employers who are willing to consider the use of non-tradi+onal incentives and attend to the
lessons already learned by others pioneering in the area of incentive pay may stand to gain a great deal
from the implementation of these plans.
IV. POSSIBLE SOLUTIONS FOR HOWE 2 SKI
A lump sum bonus might be recommended as a feasible incentive for the case because there
appears to be a good relationship between Howe and her employees and she appears to be somewhat
Pay for knowledge does not seem to be an appropriate incentive plan for the case because of
the interdependence mentioned above, the costs required to establish pay rates and training programs
profit sharing plans are an acceptable incentive for the store because of the simplicity of the
formula and Howe’s willingness to give employees information and allow their input into some
Gainsharing plans seem the most appropriate type of incentive for the case because they are a
group based incentive, require employee input and cooperation that is already present to some degree,
Gainsharing seems to have a good chance of success in this situa+on due to the stable nature of
the technology, a suppor+ve and somewhat par+cipa+ve management team, and the fact that
management is already collecting data on indices that could be used to reOect gains. E<orts that might
be taken to increase the probability of success are to smooth out the product demand by increasing the
Criteria and indices that might be used to measure gains are (1) +meliness — percentage of
inventory pieces that are damaged, percentage of orders one day late and longer; (2) waste–percentage
of inventory pieces that are damaged, percentage of rental equipment lost or damaged without charges
The most likely nega+ve e<ects in this situa+on are increased payroll and training costs, addition
V. ANSWERS TO CASE QUESTIONS:
1. Given the background information about Howe 2 Ski Stores, discuss the feasibility of
implementing lump sum bonuses, pay for knowledge, profit sharing, and gainsharing
plans in this situa+on. What plan or plans would you recommend that Howe look at
more closely and why?
2. Assuming she decides that a gainsharing plan is feasible, what could be done to
increase the likelihood of success?
The following three things must be done:
3. What nega+ve e<ects are likely to result from even the successful implementation of
a gainsharing plan?
This teaching note was prepared by M. Susan Taylor, University of Maryland, and J. Kline
Harrison, Wake Forest University.