Christopher Maurer, executive vice president for human resources at FirstMerit Bank headquartered in Akron, Ohio, needed to solve a major problem in one of his departments. This particular department had forty-eight employees whose job included processing customer checks. Their job required them to input every customer’s check accurately with correct account numbers and dollar amounts in a timely manner. Unfortunately, they were failing to do either task correctly. Incorrect inputting caused customer satisfaction to decrease. And lateness resulted in penalties from the federal government bank overseers.

The employees in the check-proofing department all had less than two years of experience on the job. That is, this department has experienced a 100 percent turnover every two years. Loyalty in this department did not exist, which was creating a big problem for FirstMerit. Starting salaries for these employees was approximately $9 per hour. Employees and bank officials recognized that the job was monotonous. Employees would spend hours a day typing written amounts on checks into their computers so the checks could be processed. But there was an expectation that although accuracy was paramount, speed was important, too—and employees felt that their pay was not consistent with the expectations of their jobs. Meeting the dual goal of speed and accuracy was something bank officials wanted to achieve, while at the same time they wanted to find a way to encourage employee loyalty. After studying the situation, Maurer believed that implementing a pay-plan that provided incentives for faster and more accurate processing would move the organization toward meeting its department goal. 

FirstMerit’s program was relatively simple. Relying on the same computers employees were working on, employees would be evaluated on their speed and accuracy. Through an extensive analysis, bank officials determined that the minimum level of acceptable performance would be 10,000 keystrokes an hour. Those who exceeded 10,000 keystrokes an hour would receive extra pay—or pay for performance. 

Since this plan was implemented, the bank has reduced the number of employees in the department from forty eight to twentyseven. Of the twenty-seven remaining employees, one averages $23 per hour, nine earn $20 per hour, thirteen are in the $15 to $19 per hour range, and four are performing at the minimum acceptable level. Overall, twenty-two of the twenty-seven employees in the department earn in excess of $15 per hour—nearly double the base rate. As a result, employee morale has increased significantly as the performers feel like they are being compensated for their hard work. For the bank, turnover has dropped to zero; no one has left or needed to be hired in the department in more than three years. Customer satisfaction has also increased. And productivity is up, which is remarkable given that the department has had a 44 percent staff reduction. Because of this success, FirstMerit is looking at ways to roll out similar pay systems for other parts of the bank. 

Questions:

1. Explain the type of compensation system that best describes the pay plan at FirstMerit and why it increased employee performance. 

2. Discuss whether intrinsic rewards might have been used to increase employee performance in the check processing department. 

3. Could the same results be achieved by using a lower base salary and piecework plan? Explain which would be more effective and why