Since pay for performance is an important factor governing compensation increases, managers must be able to defend the compensation recommendations they make for their employees. Merit raises granted under a pay-for-performance policy must be based on objective performance ratings if they are to achieve their intended purposes of rewarding outstanding employee performance. As managers know, however, they must deal with other factors that can affect compensation recommendations. These may include the opinions of the employee’s peers or extenuating circumstances, such as illness or family responsibilities. The purpose of the following exercise is to provide you with the experience of granting salary increases to employees on the basis of their work performance and other information.

The following are the work records of 5 employees. As their manager, you have just completed their annual performance reviews, and it is now time to make recommendations for their future salaries. Your department budget has $10,000 allocated for salary increases. Distribute the $10,000 among your employees based on the descriptions for each person.

A. John Acquin currently earns $60,000. He is known as a strong team player, and coworkers often go to him for assistance and advice. He is single, with a daughter in university, whom he still supports.

B. Jessica Simmons earns a salary of $40,000. Her annual performance review was satisfactory.

Several members of the work group have spoken to you about the complexity of her job and the numerous customers she regularly deals with. They feel it is a tough and demanding job and she is doing her best.

C. Tabitha Tran earns $40,000. Her performance review rating was below average, and she seems to have difficulty with other members of her team. Tabitha has had a difficult time this past year. Both her parents, with whom she lived, died recently.

D. Simon Chan earns $40,000. His performance review rating was above average. He is respected by his coworkers and is generally considered to be helpful and outgoing.

He is single and has no dependants.

E. Ray Bennett earns $60,000. His performance review rating was very high. His peers resent him because he comes from a very wealthy family, and they feel he is trying to impress everyone. Ray is married, and his wife is a director at a local marketing company. They have 2 grown children who are self-sufficient.

Share your results with other class members. Be prepared to explain your allocation of money.