MERIT PAY DECISIONS AT BAG GROCERS, INC.

Rewarding individuals using a merit pay program is a time-honored tradition in organizations in the U.S. Most organizations like to think they are recognizing employee contributions with merit pay. However, the raise pools are usually quite small and the link between pay and performance on the job is spurious at best. Despite the problems with pay-for-performance systems, they are used extensively. This exercise is designed to give you experience with the decision making process used to reward individuals for performance on the job. You will be asked to make decisions on the raises of five employees, and to justify those raise decisions.

You are a Regional Director for BAG Grocers, Inc., a chain of grocery stores operating in the southwestern U.S. You are required to evaluate the five Store Directors who report directly to you. Based on your evaluations, you must also decide the size of the merit increase each Store Director will receive. Salaries for the Store Director's job range from $31,000 to $45,000. The company has budgeted $16,000 for merit increases in your region. You may allocate these merit increase funds as you deem appropriate, however, you are required to document your decisions. Each of the Store Directors has worked for you for two years or more, so you are quite familiar with their performance, and you know an ample amount about them personally. There are also some internal and external equity problems with which you need to deal. Background information on each Store Director is detailed in Exhibit 1. Salary and additional demographics are included in Exhibit 2.

Your assignment is as follows:

1. Determine the size of the merit increase for each Store Director, based on the information provided.
2. Justify the size of each increase (explain the areas you are rewarding or the behaviors you are trying to motivate for each Store Director, and explain why).
3. Explain how you would defend your decision process if it were contested legally.

EXHIBIT 1 - BACKGROUND INFORMATION


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EXHIBIT 2 - DEMOGRAPHIC AND SALARY DATA


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