Case Application 11: RETHINKING COMPENSATION AT FIRST MERIT BANK Christopher Maurer, executive vice president for human resources at bank officials determined that the minimum level of acceptable per- First Merit Bank headquartered in Akron, Ohio, needed to solve a formance would be 10,000 keystrokes an hour. Those who exceeded major problem in one of his departments. This particular depart 10,000 keystrokes an hour would receive extra pay-or pay for per- ment had forty-eight employees whose job included processing cus formance tomer checks. Their job required them to input every customer's Since this plan was implemented, the bank has reduced the check accurately with correct account numbers and dollar amounts number of employees in the department from forty eight to twenty- in a timely manner. Unfortunately, they were failing to do either task seven. Of the twenty-seven remaining employees, one averages $23 correctly. Incorrect inputting caused customer satisfaction to per hour, nine eam $20 per hour, thirteen are in the $15 to $19 per decrease. And lateness resulted in penalties from the federal govern hour range, and four are performing at the minimum acceptable ment bank overseers. level. Overall, twenty-two of the twenty-seven employees in the The employees in the check-proofing department all had less department earn in excess of $15 per hour-nearly double the base than two years of experience on the job. That is, this department has rate. As a result, employee morale has increased significantly as the experienced a 100 percent turnover every two years. Loyalty in this performers feel like they are being compensated fortheir hard work. department did not exist, which was creating a big problem for For the bank, tumover has dropped to zero; no one has left or FirstMerit. Starting salaries for these employees was approximately needed to be hired in the department in more than three years. Cus- $9 per hour. Employees and bank officials recognized that the job tomer satisfaction has also increased. And productivity is up, which was monotonous. Employees would spend hours a day typing writ is remarkable given that the department has had a 44 percent staff ten amounts on checks into their computers so the checks could be reduction. Because of this success, FirstMerit is looking at ways to processed. But there was an expectation that although accuracy was roll out similar pay systems for other parts of the bank. paramount, speed was important, too-and employees felt that their pay was not consistent with the expectations of their jobs. Questions: Meeting the dual goal of speed and accuracy was something bank 1. Explain the type of compensation system that best describes officials wanted to achieve, while at the same time they wanted to the pay plan at FirstMerit and why it increased employee per- find a way to encourage employee loyalty. After studying the situa formance. tion, Maurer believed that implementing a pay-plan that provided 2. Discuss whether intrinsic rewards might have been used to incentives for faster and more accurate processing would move the increase employee performance in the check processing organization toward meeting its department goal. department FirstMerit's program was relatively simple. Relying on the same 3. Could the same results be achieved by using a lower base computers employees were working on, employees would be evalu. salary and piecework plan? Explain which would be more ated on their speed and accuracy. Through an extensive analysis, effective and why