Critique the bank\'s policy of giving merit raises that range from 0 to 12 perce
ID: 333270 • Letter: C
Question
Critique the bank's policy of giving merit raises that range from 0 to 12 percent, depending on the job performance.
CASE The Overpaid Bank Tellers State Bank is located in a southwestern town of about 50,000 people. It is one of four banks in the area and has the reputation of being the most progressive. Russell Duncan has been the president of the bank for 15 years. Before coming to State Bank, Duncan worked for a large Detroit bank for 10 years. Duncan has implemented a number of changes that have earned him a great deal of respect and admiration from both bank employees and townspeople alike. For example, in response to a growing number of Spanish-speaking people in the area, he hired Latinos and placed them in critical bank positions. He organized and staffed the city's only agricultural loan center to meet the needs of the area's farmers. In addition, he established the state's first "uniline" system for handling customers waiting in line for a teller. Perhaps more than anything else, Duncan is known for establishing progressive human resource practices. He strongly believes that the bank's employees are its most important asset and continually searches for ways to increase both employee satisfaction and productivity. He feels that all employees should strive to continually improve their skills and abilities and, hence, he cross-trains employees and sends many of them to courses and conferences sponsored by banking groups such as the American Institute of Banking. With regard to employee compensation, Duncan firmly believes that employees should be paid according to their contribution to organizational success. Hence, 10 years ago, he implemented a results-based pay system under which employees could earn raises from 0 to 12 percent each year, depending on their job performance. Raises are typically determined by the bank's HR Committee during February and are granted to employees on March 1 of each year. In addition to granting employees merit raises, six years ago the bank also began giving cost-of-living raises. Duncan had been opposed to this idea originally but saw no alternative to it. One February, another bank in town conducted a wage survey to determine the average compensation of bank employees in the city. The management of State Bank received a copy of the wage survey and was surprised to learn that its 23 tellers, as a group, were being paid an average of $22 per week more than were tellers at other banks. The survey also showed that employees holding other positions in the bank (e.g., branch managers, loan officers, and file clerks) were being paid wages similar to those paid by other banks (see Exhibit 4.1). After receiving the report, the HR Committee of the bank met to determine what should be done regarding the tellers' raises. They knew that none of the tellers had been told how much their raises would be but that they were all expecting both merit and cost-of-living raises. They also realized that, if other employees learned that the tellers were being overpaid, friction could develop and morale might suffer. They knew that it was costing the bank over $26,000 extra to pay the tellers. Finally, they knew that as a group the bank's tellers were highly competent, and they did not want to lose any of thenm.Explanation / Answer
As a decision the implementaion to award merit wages of 0 to 12% by Russel Duncan was not wrong per se, as is evident from the passage, he was an able and efficient leader who realised the importance of employee motivation and satisfaction to ensure optimal performances. His encouragement of the employees to excel and create personal goals along with organisational goals is clear from the fact that he encouraged them to enhance their skills constantly and even send them for cross training. In consideration of this, the decision was not unexpected as a motivational tool. Cost of living raises are meant to counter inflation and the effect it has on the costs of running a home and have nothing to do with motivation directly as they are not performance based but do impact job satisfaction and security of an employee. Also this is a mandatory inclusion in wages in every organisation so any reduction in this or excluding it cannot be considered also, as it would immediately prove to be a morale dampener. The very fact that the tellers are availing such high performance bonus through merit raises proves that they are performing way above the rest of the departments, unless the targets are not well-defined for each department. If that is the case, they deserve to be paid a merit wage, Duncan however, could have reduced the impact on costs by keeping the raise between 1-5% instead of a high of 12% which can be quite extreme and prove detrimental in certain cases where employees start looking at it as the main objective. A merit wage should motivate not become a goal in itself. Also, the very fact that only one department gets the raise does make one question the performance measuring tools employed and their basis providing equal weightage to all the departments and all the jobs, including subjective and objective measures. The way to override this problem would be to bring a change into the system of merit wages through competitve analysis with industry data and feedback and introduce a new system with reduced percentages or entirely change the reward with similar value for the employee, such as a holiday on which the bank can avail discounts on bulk purchase, but reduced cost for the bank.
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