Michael Simpson is one of the most outstanding managers in the management consulting division of Avery McNeil and Co. (Avery McNeil is primarily an accounting firm, but it also has two divisions besides accounting: tax and management consulting.) A highly qualified individual with a deep sense of responsibility, Simpson obtained his MBA two years ago from one of the leading northeastern schools. Before graduating from business school, Simpson interviewed a number of consulting firms and decided that the consulting division of Avery McNeil offered the greatest potential for rapid advancement.

At the time of the events in this story, Simpson had recently been promoted to manager, making him the youngest individual at this level in the consulting group. Two years with the firm was an exceptionally short period of time in which to achieve this promotion. Although the promotions had been announced, Simpson had not yet been informed of his new salary. Despite the fact that his career had progressed well, he was concerned that his salary would be somewhat lower than the current market value that a headhunter had recently quoted him.

Simpson’s wife, Diane, soon would be receiving her MBA. One night over dinner, Simpson was amazed to hear the level of the salaries being offered to new MBAs. Simpson commented to Diane, “I certainly hope I get a substantial raise this time. I mean, it just wouldn’t be fair to be making the same amount as recent graduates when I’ve been at the company now for over two years! I’d like to buy a house soon, but with housing costs rising and inflation following, that will depend on my pay raise.”

Several days later, Simpson was working at his desk when Dave Barton, a friend and colleague, came across to Simpson’s office. Barton had been hired at the same time as Simpson and had also been promoted recently.

Barton said, “Hey, Mike, look at this! I was walking past Jane’s desk and saw this memo from the personnel manager lying there. She obviously forgot to put it away. Her boss would kill her if he found out!”

The memo showed the proposed salaries for all the individuals in the consulting group that year. Simpson looked at the list and was amazed by what he saw. He said, “I can’t believe this, Dave! Walt and Rich will be getting $12 000 more than I am.” Walt Gresham and Rich Watson had been hired within the past year. Before coming to Avery McNeil, they had both worked one year at another consulting firm. Barton spoke angrily:

“Mike, I knew the firm had to pay them an awful lot to attract them, but to pay them more than people above them is ridiculous!” Simpson responded, “You know, if I hadn’t seen Walt and Rich’s salaries, I would think I was getting a reasonable raise. Hey listen, Dave, let’s get out of here. I’ve had enough of this place for one day.” Barton replied, “Okay, Mike, just let me return this memo. Look, it’s not that bad; after all, you are getting the largest raise.”

On his way home, Simpson tried to think about the situation more objectively. He knew that there were a number of pressures on the compensation structure in the consulting division. If the division wished to continue attracting MBAs from top schools, it would have to offer competitive salaries. Starting salaries had increased about $23 000 during the last two years. As a result, some of the less experienced MBAs were earning nearly the same amounts as others who had been with the firm several years but had come in at lower starting salaries, even though their pay had been gradually increasing over time. Furthermore, because of expanding business, the division had found it necessary to hire consultants from other firms. In order to do so effectively, Avery McNeil had found it necessary to upgrade the salaries they offered. The firm as a whole was having problems meeting the federally regulated Equal Opportunity Employment goals and was trying especially hard to recruit women and minorities.

One of Simpson’s colleagues, Martha Lohman, had been working in the consulting division of Avery McNeil and Company until three months ago, when she was offered a job at another consulting firm. She had become disappointed with her new job and on returning to her previous position at Avery McNeil was rehired at a salary considerably higher than her former level. Simpson had noticed on the memo that she was earning more than he was, even though she was not given nearly the same level of responsibility as he was. Simpson also realized that the firm attempted to maintain some parity between salaries in the auditing and consulting divisions.

When Simpson arrived home, he discussed the situation with his wife:

Simpson: Diane, I know I’m getting a good raise, but I am still earning below my market value—$20 000 less than that headhunter told me last week. And the fact that those two guys from the other consulting firm are getting more than I am shows the firm is prepared to pay competitive rates.

Diane: I know it’s unfair, Mike, but what can you do? You know your boss won’t negotiate salaries after they have been approved by the compensation committee, but it wouldn’t hurt to at least talk to him about your dissatisfaction. I don’t think you should let a few thousand dollars a year bother you. You will catch up eventually, and the main thing is that you really enjoy what you are doing.

Simpson: Yes, I do enjoy what I’m doing, but that is not to say that I wouldn’t enjoy it elsewhere. I really just have to sit down and think about all the pros and cons in my working for Avery McNeil. First of all, I took this job because I felt that I could work my way up quickly. I think that I have demonstrated this, and the firm has also shown that they are willing to help me achieve this goal. If I left this job for a better-paying one, I might not get the opportunity to work on the exciting jobs that I am currently working on. Furthermore, this company has time and money invested in me. I’m the only one at Avery that can work on certain jobs, and the company has several lined up. If I left the company now, they would not only lose me, but they would probably lose some of their billings as well. I really don’t know what to do at this point, Diane. I can either stay with Avery McNeil or look for a higher-paying job elsewhere;

however, there is no guarantee that my new job would be a “fast track”

one like my job at Avery. One big plus at Avery is that the people there already know me and the kind of work I produce. If I went elsewhere, I’d essentially have to start all over again. What do you think I should do, Diane?

Use equity theory to explain Michael’s feelings. Provide details about inputs, outcomes, and likely comparison people.