IIBMS – DETERMINING PAY RAISE

IIBMS – DETERMINING PAY RAISE

The Scientific Equipment Manufacturing company is a small manufacturing unit located in Peenya, Bangalore.  The company is non-unionised and manufactures analytical equipment for hospital laboratories.

Approximately one year ago, the manager of the Component Assembly Department established three production goals for the department.  The goals were : (i) reduce raw material storage costs by 10 per cent ; (ii) reduce variable labour costs (i.e. overtime) by 12 per cent; and (iii) decrease the number of quality rejects by 15 per cent.  The manager told the six unit supervisors that the degree to which each supervisor or exceeded these goals would be one of the major inputs for their merit – pay increases for the year.  In previous years, merit increases were based on seniority and an informal evaluation by the department manager.

            The six supervisors worked on separate but similar production lines.  A profile of each supervisor is as follows :

Amitha Aged 28, single; three years with the company after receiving her degree from the Bangalore University.  Has a job offer from another company for a similar job that provides a substantial pay increase over her present salary.  The scientific Equipment does not want to lose Amitha because her overall performance has been excellent.

Shindhe Aged 32, married with three children; three years with the company, high school education.  One of the most stable and steady supervisors.  However, he supervise a group of workers who are known to be unfriendly and uncooperative with him and other employees.

Anandan Aged 34, married with four children; high school equivalent learning; one year with the company.  Came to Karnataka six years ago from Tamil Nadu.  A steady worker, well-liked by his co-workers, but has difficulty in learning the local language.  He has, therefore, problems of communication within his group and with others.

Hemalatha Aged 29, divorcee with three children, two years with the company ; high school education.  Since her divorce one year ago, her performance has begun to improve.  Prior to that, her performance was very erratic; with frequent absences.  She is the sole support for her three children.

Eshwar Murthy Aged 27, single ; two years with the company, college graduate.  One of the best liked employees at Scientific Equipment. However, he has shown a  lack of initiative and ambition on the job. Appears to be preoccupied with his social life, particularly around his recently purchased house.

Cheriyan Aged 24, married with no children ; one year with the company after graduating from a local college.  First full – time job since graduation from college.  He is liked by all employees and has exhibited a high level of enthusiasm for his work.

Exhibit 11.3 presents summary of the performance of the six supervisors’ during the past year.  The data include the current annual salary, the performance level on the three goals, and an overall evaluation by the department manager.

The new budget for the upcoming year has allocated a total of Rs. 1,40,000 for supervisory salaries in the Component Assembly Department, Rs. 40,000, increase from last year.  The management has indicated that salary increases should range from five per cent to 12 per cent of the supervisors’ current salaries and should be tied, as closely as possible, to their performance.

            In making the merit-pay increase decisions, the following points should be considered.

1. The decisions will likely set a precedent for future salary and merit increases.
2. Salary increases should not be excessive, but should be representative of the supervisor’s performance during the past year. It is hoped that the supervisors develop a clear perception that performance will lead  to monetary rewards and that this will serve to motivate them to even better performance.
3. The decisions should be concerned with equity, that is, they ought to be consistent and comparable with each other.
4. The company does not want to lose these experienced supervisors to other firms. The management of this company not only wants the supervisors to be satisfied with their salary increases, but also to further develop the feeling that Scientific Equipment Manufacturing is a good company for advancement, growth and career development.

Exhibit 11.3
Supervisor	Current Salary (Rs.)	Storage Costs (10%)	Goal Labour Costs (12%)	Attainment Quality Rejects (15%)	Effort	Manager’s Cooperativeness	Evaluation Ability to work Independently	Knowledge of job
Cherian	23,000	12%	12%	17%	Excellent	Excellent	Good	Good
Amitha	24,000	12%	13%	16%	Excellent	Excellent	Excellent	Excellent
Shindhe	24,000	6%	2%	3%	Good	Excellent	Good	Good
Anandan	22,000	4%	4%	12%	Excellent	Good	Fair	Fair
Hemalatha	23,000	11%	10%	10%	Fair	Fair	Fair	Good
Eshwar Murthy	24,000	8%	10%	3%	Fair	Fair	Fair	Fair

 

Instructions for the exercise

1. Each person in the class should individually determine the Rupee amount and percentage increase in salary for each of the six supervisors, Individual decisions should be justified by a rationale or decision rule.
2. After each individual has reached a decision, the group will convene and make the same decision as noted in (1) above.
3. After each group has reached a decision, a spokesperson for each group will present the following information to the full class:
4. 1.  The group’s decision concerning merit pay increase for each supervisor (rupee and percentage)
   2.  The high, low and average individual decisions in the group.
   3.   A rationale for the group’s decision.

IIBMS – DETERMINING PAY RAISE

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