A large firm has established what it hopes is an objective system of deciding on annual pay increases for its employees. The system is based on a series of evaluation scores determined by the supervisors of each employee. Employees with scores above 80 receive a merit pay increase, those with scores between 50 and 80 receive the standard increase, and those below 50 receive no increase. The firm designed the plan with the objective that, on the average, 25% of its employees would receive merit increases, 65% would receive standard increases, and 10% would receive no increase. After 1 year of operation using the new plan, the distribution of pay increases for a random sample of 600 company employees was as shown in Table 10.2. Test at the α = .01 level to determine whether these data indicate that the distribution of pay increases differs significantly from the proportions established by the firm.

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Table 10.2 Distribution of Pay Increases None Standard Merit 42 365 193