Denton Fabricators is a subsidiary plant owned by National Products, Inc. As is the case at all National Products subsidiaries, Denton Fabricators is allowed to operate as an independent profit center. This means, among other things, that Denton Fabricators sets its own pay policies and programs. Denton employs about 350 employees, mostly in the fabrication and production units. To support the business, there is an accounting department staff of 13 including the department manager, three unit managers, and nine nonexempt employees. There are four non-management jobs in the department: accountants (two positions), senior accounting clerks (two positions), bookkeepers (three positions), and bookkeeper assistants (two positions). The two employees in the accountant positions were recruited out of college, and the remaining employees in the unit typically started as bookkeeper assistants, then worked up to bookkeepers and eventually to the senior accounting clerk job. Denton Fabricators has been under the same budgetary constraints as the other subsidiaries in National Products. As a result, there have been no changes to Dentons salary levels for over 3 years. Over the past 2 years, Denton has experienced increased levels of turnover throughout the company, including in accounting. AssignmentYou have been given the assignment of reviewing the salary levels for the four positions in the accounting area. You are to make recommendations for any changes to Dentons salary program for these four positions and/or any individuals in those positions. Estimate the effects these changes would have on employees. To that end, you have been provided the following information: A staffing and compensation chart which includes recent data from a salary survey of your labor market. The corporate compensation philosophy.

Staffing and Compensetion Chart Last Increase Performance Raring 1-5) Current Years in Position Months Prior Salary Accountant Grade 10 Range: $26,000-$39,000 $28,500 $28,000 $28,250 Pat Jones Fran Smith Average 3 0 none 1.5 3 6 8% Sr. Accounting Clerk Grade 8 Range: $8.10-$12.10 9,72 Gene Williams 4 4 24 3% Lee Brown Average S9.55 9.65 2.5 3 20 2.5% Bookkeeper Grade 7 Range: $6.75-$10.00 S 8.50 *Chris Black 5% 3 19 4 Terry Johnson Jeri Franklin $10.45 S 8.40 S 9.12 4% 12 2 28 5% 1.5 3 24 Average Bookkeeper Assistant Grade 5 Range: $6.20-$9.70 Jan Murphy Kery Powers Average S 6.70 S 6.80 S 6.75 3 1.5 3 2 2% Denton Fabricators Corporate Compensation Policy Goals of the Compensation Program The goal of Denton Fabricators Corporate Compensation is to attract and retain qualified personnel for the achievement of company business goals. Desired Market Position To achieve this goal, Denton Fabricators intends to compensate experienced and capable job performers at a competitive market rate of pay. "Experienced and capable job per- formers" are understood to mean individuals with enough years experience to be consid- ered qualified for successful independent job performance. The amount of time it takes to become "experienced and capable" will vary by job and will be assessed on a job-by-job basis. "Competitive" is understood to mean compensation that is paid at or near the market average. Role of Perforrmance-Based Pay Employees who are judged to perform the job acceptably should receive adjustments to their pay that match the rate of inflation. Employees who performers should receive adjustments that are approximately double the rate of inflation. Adjustments will be permanently added to the employee's base rate of pay on an ap- proximately annual basis. judged to be exceptional Communication to Employees The general structure of this compensation program will be communicated to employees. This includes information on how compens ation levels for job grades are determined. However, because each employee's salary is a private and confidential matter between Denton Fabricators and each employee, information about individual salaries is expected to be kept private. Denton Fabricators Corporate Compensation Policy Goals of the Compensation Program The goal of Denton Fabricators Corporate Compensation is to motivate personnel to support the achievement of company business goals. Desired Market Position To achieve this goal, Denton Fabricators intends to compensate capable job performers at a very competitive market rate of pay. "Capable job performers" are understood to mean individuals that demonstrate their ability to support company growth and profitability through strong performance in generating revenue or controlling expenses. "Competitive" is understood to mean that the employee's fixed, base salary will approach but never exceed the market average for compensation in comparable jobs. However, strong per- formance can be eligible for bonus compensation that, when added to the employee's base salary, can produce a total compensation up to 75 % of the typical market maximum for the pay grade. Role of Performance-Based Pay Employee job performance will be used in making decisions about bonus pay. The amount of bonus adjustment for which any employee is eligible will be at the discretion of the managing supervisor. Bonus compeisation is not permanently added to base pay, however. Communication to Employees The general structure of this compensation program will be communicated to employees. This includes information on how compensation levels for job grades are determined. In addition, in order to incent appropriate behavior. the percentage amount of increases awarded to each employee will be noted in a company-wide communication each year. Goals of the Compensation Program The goal of Denton Fabricators Corporate Compensation is to control the costs of labor in order to support the achievement of company business goals. Desired Market Position To achieve this goal, Denton Fabricators intends to compensate qualified employees in the most cost-effective manner possible. To maintain our business, the costs of production need to be kept at the lowest possible levels. Denton Fabricators realizes that it must pay a competitive wage in this context. "Qualified employees" are those employees who have been dependable and reliable in their work behaviors. "Competitive" is understood to mean compensation paid at somewhat below the market average. That is, the midpoint for Denton salary grades should be about 10 % below the market average. Role of Performance-Based Pay Employees will be regularly assessed by their supervisors, and those who are not meeting minimal acceptable standards will be terminated. All employees who meet the minimum accepted standards of performance become eligible for a year-end cost of living increase, if it is granted. However, whether a cost of living increase is granted and the amount of the increase solely at the discretion of management. Cost of living adjustments will become ongoing additions to the employee's base rate of pay once awarded. However, management reserves the right to reset wage rates whenever it deems necessary Communication to Employees Compensation is a private matter between our business and each individual employee. Management reserves the right to make all decisions about the compensation of its em- ployees. Communication about compensation is unnecessary and may limit management's freedom to act in this area. Therefore, all aspects of compensation are to be kept private and confidential. Staffing and Compensetion Chart Last Increase Performance Raring 1-5) Current Years in Position Months Prior Salary Accountant Grade 10 Range: $26,000-$39,000 $28,500 $28,000 $28,250 Pat Jones Fran Smith Average 3 0 none 1.5 3 6 8% Sr. Accounting Clerk Grade 8 Range: $8.10-$12.10 9,72 Gene Williams 4 4 24 3% Lee Brown Average S9.55 9.65 2.5 3 20 2.5% Bookkeeper Grade 7 Range: $6.75-$10.00 S 8.50 *Chris Black 5% 3 19 4 Terry Johnson Jeri Franklin $10.45 S 8.40 S 9.12 4% 12 2 28 5% 1.5 3 24 Average Bookkeeper Assistant Grade 5 Range: $6.20-$9.70 Jan Murphy Kery Powers Average S 6.70 S 6.80 S 6.75 3 1.5 3 2 2% Denton Fabricators Corporate Compensation Policy Goals of the Compensation Program The goal of Denton Fabricators Corporate Compensation is to attract and retain qualified personnel for the achievement of company business goals. Desired Market Position To achieve this goal, Denton Fabricators intends to compensate experienced and capable job performers at a competitive market rate of pay. "Experienced and capable job per- formers" are understood to mean individuals with enough years experience to be consid- ered qualified for successful independent job performance. The amount of time it takes to become "experienced and capable" will vary by job and will be assessed on a job-by-job basis. "Competitive" is understood to mean compensation that is paid at or near the market average. Role of Perforrmance-Based Pay Employees who are judged to perform the job acceptably should receive adjustments to their pay that match the rate of inflation. Employees who performers should receive adjustments that are approximately double the rate of inflation. Adjustments will be permanently added to the employee's base rate of pay on an ap- proximately annual basis. judged to be exceptional Communication to Employees The general structure of this compensation program will be communicated to employees. This includes information on how compens ation levels for job grades are determined. However, because each employee's salary is a private and confidential matter between Denton Fabricators and each employee, information about individual salaries is expected to be kept private. Denton Fabricators Corporate Compensation Policy Goals of the Compensation Program The goal of Denton Fabricators Corporate Compensation is to motivate personnel to support the achievement of company business goals. Desired Market Position To achieve this goal, Denton Fabricators intends to compensate capable job performers at a very competitive market rate of pay. "Capable job performers" are understood to mean individuals that demonstrate their ability to support company growth and profitability through strong performance in generating revenue or controlling expenses. "Competitive" is understood to mean that the employee's fixed, base salary will approach but never exceed the market average for compensation in comparable jobs. However, strong per- formance can be eligible for bonus compensation that, when added to the employee's base salary, can produce a total compensation up to 75 % of the typical market maximum for the pay grade. Role of Performance-Based Pay Employee job performance will be used in making decisions about bonus pay. The amount of bonus adjustment for which any employee is eligible will be at the discretion of the managing supervisor. Bonus compeisation is not permanently added to base pay, however. Communication to Employees The general structure of this compensation program will be communicated to employees. This includes information on how compensation levels for job grades are determined. In addition, in order to incent appropriate behavior. the percentage amount of increases awarded to each employee will be noted in a company-wide communication each year. Goals of the Compensation Program The goal of Denton Fabricators Corporate Compensation is to control the costs of labor in order to support the achievement of company business goals. Desired Market Position To achieve this goal, Denton Fabricators intends to compensate qualified employees in the most cost-effective manner possible. To maintain our business, the costs of production need to be kept at the lowest possible levels. Denton Fabricators realizes that it must pay a competitive wage in this context. "Qualified employees" are those employees who have been dependable and reliable in their work behaviors. "Competitive" is understood to mean compensation paid at somewhat below the market average. That is, the midpoint for Denton salary grades should be about 10 % below the market average. Role of Performance-Based Pay Employees will be regularly assessed by their supervisors, and those who are not meeting minimal acceptable standards will be terminated. All employees who meet the minimum accepted standards of performance become eligible for a year-end cost of living increase, if it is granted. However, whether a cost of living increase is granted and the amount of the increase solely at the discretion of management. Cost of living adjustments will become ongoing additions to the employee's base rate of pay once awarded. However, management reserves the right to reset wage rates whenever it deems necessary Communication to Employees Compensation is a private matter between our business and each individual employee. Management reserves the right to make all decisions about the compensation of its em- ployees. Communication about compensation is unnecessary and may limit management's freedom to act in this area. Therefore, all aspects of compensation are to be kept private and confidential