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EXERCISE: WAGESIMA COMPENSATION ADMINISTRATION EXERCISE

I. Objectives:

To familiarize students with some of the problems involved in building and maintaining a compensation system.

To provide students with alternative approaches for solving some typical compensation-related problems.

To give students practice in writing memos to employees regarding compensation issues.

To familiarize students with job evaluation procedures.

Procedures

This exercise will be done individually. You are to begin by reading all the material presented in this exercise. Assume that you are responsible for developing and maintaining the Mack Organization's wage and salary system. Assume further that the person who previously had these responsibilities has just quit and left you all the E-mail Items that follow.

First, you are to respond in writing to each employee who sent an e-mail (5 E-mails). Second, explain on a separate sheet of paper what additional actions you would take with reference to each item. For example, if you believe that you should gather additional information before making a final decision on an item, explain what information you would need. Or, if you believe that additional memos or discussions with someone in the company are needed, explain this. You should submit both the memos additional action sheets.

Situation

The Mack Organization is a large organization headquartered in the midwestern United States. It has offices located throughout the country and employs over 700 individuals. You may assume the organization is a chemical company, a manufacturing company, a bank, an insurance firm, or any large organization with which you are familiar.

The Mack Organization's human resource department includes a compensation administration section that consists of two individuals, one of whom is you (or your team). The company has several different wage structures, including one for executives and one for clerical personnel. For compensation purposes, all clerical employees are divided into five job classifications. The organization's current wage structure for clerical personnel is shown in

Exhibit 4.4.

How Salaries Are Determined

Employee salaries directly relate to the work they perform and how well they do it. Two major factors work together to establish the salaries payable for various jobsjob evaluation and salary ranges.

Job Title

Salary

Number of Employees

Office Service Aide

$25,259 minimum

$33,262 maximum

40

Office Services Assistant

$26,588 minimum

$35,337 maximum

30

Administrative Assistant

$30,041 minimum

$39,604 maximum

20

Senior Assistant

$34,628 minimum

$45,083 maximum

40

Executive Assistant

$43,364 minimum

$54,794 maximum

20

Job Evaluation

Job evaluation is a method of measuring the relative worth of each job in the organization compared to all the other jobs, based on an objective analysis of the duties and responsibilities of the position. The Mack Organization job evaluation is as follows: A description that defines the function of the job and lists the major duties performed is written for each job. Each description is then evaluated by a standing committee of employees from various areas of the organization who have a broad knowledge of the jobs that exist throughout the organization. Their evaluation is based on "yardsticks," including knowledge required, freedom of action, accountability, contacts with employees and customers, physical effort required, unusual working conditions, research responsibilities, and supervision or management responsibilities. Based on these yardsticks, the job is assigned a point value. By listing all positions according to their point value, the relative worth of each position is established.

Grade Levels and Salary Ranges

Based on the total points received in a job evaluation jobs are assigned to a grade level. Each grade has an entry or minimum salary and a maximum salary payable for the jobs in that grade; the amounts between the entry and maximum salary comprise the salary range for the grade.

Usually employees begin at the bottom of each salary grade. Employees are considered for a merit increase after six months of satisfactory service. After this, they may receive an annual merit increase upon completion of satisfactory service. There is a total of six possible merit increases. Cost-of-living increases are granted periodically by the organization to all employees.

Give a reply to the five E-mails listed below.

E-mail Items

Item 1

To: Wage & Salary Division

From: Mary Wallace- Vice President

Re: Request for pay increase/promotion

This is to formally request your endorsement of my intent to promote Susan Anthony, an administrative assistant in my office, to the position of senior assistant. I realize a requirement for senior assistant is proficiency in Adobe InDesign (a desktop publishing program) and that Ms. Anthony is not yet proficient. However, aside from this, Ms. Anthony possesses the necessary skills to perform all tasks in this office. Ms. Anthony has been in this office for five years and is a loyal and dedicated employee. I wholeheartedly encourage your endorsement of this recommendation and pay increase. A vacant senior assistant position is available in this office. Please advise as soon as possible.

Item 2

To: Wage & Salary Section

From: Kelly Actor

Re: Request for pay increase

I have been with this company for ten years. My present position with this company is senior assistant, at the maximum pay level. The Wispette Company has offered me a position that would give me a 9% increase in my salary for similar duties. Since I do enjoy my work, I hate to leave. However, my financial obligations to my family leaves me with no choice. My husband recently has been disabled, with no hope of employment for three years. As I mentioned, I have enjoyed my ten years with this company. My supervisors and I get along well. I have not missed any work during the ten years except for the two-week vacation during the summer. If you will match the Wispette Company offer, I would prefer to stay with your company. I understand there is no opening for an executive assistant, which would be a comparable position. I need an answer soon.

Item 3

To: Wage & Salary Section

From: Jane Swenk, Supervisor

Re: Long-term employee wage dispute

M.O. Scott, an administrative assistant, expressed concern that her daughter, also an administrative assistant, was making an equal amount of money. M.O has been employed for 28 years, her daughter for five. Merit raises are given yearly only for the first five years, and M.O. has not gotten on in 23 years. I don't think this is fair. M.O should get something for her long services. Please respond so I can explain the situation to her.

Item 4

To: Wage and Salary Section

From: Bob Franklin, Administrative Aide

Re: Pay inequity question

I was recently hired as an administrative assistant and received the minimum pay for this position. Why do some offices services aides make more than I do? My duties and responsibilities are much greater than theirs.

Item 5

To: Compensation Section

From: Betty Dyer, Supervisor

Re: Pay for Tammy Tuff

Tammy Tuff is an excellent administrative assistant in my office. She does an outstanding job with all assignment and performs beyond standards for an administrative assistant in everything she does. She completes her assignments in half the time of other aides and voluntarily assumes extra duties after finishing her assignments. In addition to her outstanding performance, Ms. Tuff has improved morale in the office since she started nine months ago. She always has a smile on her face and brightens the day for co-workers with her pleasant disposition. Best of all, she makes others feel important, and this has carried over to their work. Everyone seems to take pride in their work; consequently, performance and productivity are up. Due to Tammy's influence, the turnover rate is zero, leaving with no promotion potential in this office. Based on Tammy's excellent performance, skills that exceed the requirements of the job, and attitude that has improved morale, I feel that Tammy deserves to be paid as a senior assistant even though she is not one and the is no senior assistant vacancy.

Question 2 (50 marks): The following graph is found in most economics texts and it illustrates how an economy can get outside its PPF through free trade. Solving this problem is a straight-forward application of Lagrange. Figure 1: Skippy lives on a samll island full of resources that lets her produce two goods: 2? and y. Her production possibility frontier (constraint) is given by 3:2 + y2 = 300. Skippy works alone to maximize her utility which is given by U (at, y) 2 y. (1) Set up the Lagrangian function for Skippy and solve for E and y. Use your solution to calculate [7. (10 marks) (2) Carefully graph and label the PPF and Indifference Curve at the optimum. (10 marks) Part I. (40 points) 1. Use the following algebraic model of an economy to answer parts a-d. You may use graphical versions of this model to answer parts e and f. Labor Demand: La = no - n1*(W/P) + nz*K + 13*RM Labor Supply Ls = So + S1*(W/P) Labor Market Position: U = (Ls - Le)/Ls + U* Production: Y = Tech*La" *K*RM Consumption: C = Co + CI*Yd +C2*NW - c3*P (NW = net worth) Investment: 1 = d - e*r Governmental Expenditures G = Go + f*(Y" - Y) Net Exports: X = go - g1*Yd - gz*r (9) Disposable Income Yd = Y - T (10) Taxes: T = to + ti*Y (11) Aggregate Expenditure: AD = C+I+G+X (12) Goods Market Equilibrium: Y = AD (13) Money Demand: Md - P = hi*Y - hz*i (14) Money Supply: M = mo + miti (15) Money Market Equilibrium: Md = M (16) Nominal Interest Rate: i=rt n Endogenous Variables Exogenous Variables Ld,P.U,Ls, Y,C.G, Yd, T.r W.K,RM, U*, Tech, NW, Y, It and 1,X,AD,Md,M,i various autonomous terms (e.g., no, So, to) (6) Derive the IS Curve. (4) Derive the LM Curve. (6) Derive the Aggregate Demand Curve and indicate its slope. (6) Derive the Aggregate Supply Curve and determine the sign of its slope. (9) e. Determine the effect of an increase in potential GDP (Y ) on output, prices, real interest rates, and employment. Show graphics based on the above model. (9) f. Show how an increase in the raw materials (RM) affects output, prices, real interest rates, and employment. Show graphics based on the above model. 2. (24 points) Consider the following version of model 5. Except where indicated, variables are expressed in current year terms thus the "t" subscript has been suppressed. Be sure to show your work for all parts. IS Curve: Y = YP - a(r - p) + NX+e Net Exports NX = Xo - XI.E Fisher Equation: r = i-n Phillips Curve: It = n"+ (p(Y - Y") + v Inflation Expectations: Monetary Rule: i= n + p + B*(n - n*) + (1- B)*(Y-Y) O