Hi.

Topaz Industries operates several large plants that provide the packaging for many consumer products. The company has a progressive compensation system that is market-based and competitive with that of similar companies. Every position within Topaz is assigned a grade level from 1 to 30, with 30 being the company's chairman and 1 the lowest-level unskilled position. In assigning the grade levels, Topaz uses the following methodology:

The higher-level positions are classified according to the exact titles used by similar firms.

The lower-level positions are classified on the following factors:

Formal education attained.

Amount of responsibility.

Complexity of tasks.

Effects of mistakes.

Physical difficulty or amount of effort.

Salary ranges increase annually according to the rate of inflation.

When Topaz hires employees, they are generally offered a starting salary at the lower end of the position grade level. For an individual with exceptional skills or experience, the offer could be closer to the top of the level. Employees can move through the levels on the basis of performance and merit increases; a promotion moves the employee into a new position level with a higher salary range. Topaz provides various in-house educational programs for its employees and has a tuition reimbursement program.

Jill Simon, assistant controller for one of Topaz's plants, was hired a year ago at the top level for her position because of her extensive experience in the field. She has just learned that her annual increase will be 3 percent of her salary, the same percentage used to increase all position levels in the current year. Jill believes that her performance merits a larger increase but knows that as long as she remains an assistant controller at the top level, her future salary increases will be similar.

Jon Russell is an administrative secretary reporting to Topaz's treasurer. Jon has been with the company for several years, earning his current position two years ago through above-average performance. Because Jon has proved to be reliable and efficient, his boss has transferred responsibility for many routine tasks to him. Jon believes that his position should be reevaluated because of these increased duties, but he has not received any encouragement from his boss concerning this.

Billy Hampton was recently promoted to supervisor in one of the packaging plants, directing the work of 15 employees. He started at Topaz as a shipping clerk after completing high school and has learned the packaging business on the job by holding increasingly important positions over the years. Many of Billy's co-supervisors are better educated than he is, but lack his experience and frequently turn to him for solutions to their problems. Billy knows that these less-experienced supervisors earn more than he does because of their educational qualifications. Although he is confident that his salary will catch up with the others through merit increases, he does not believe that the company has been entirely fair with him.

Required:

1) Describe the incentive effects that Topaz Industries' job evaluation and compensation program is likely to have on Jill Simon, Jon Russell, and Billy Hampton.

2) Recommend several ways that the firm could improve its evaluation and compensation program to avoid situations similar to those described here.

3) Describe the general conditions that must be present for employees to be motivated to improve their performance under a merit pay system.

-ca