EXERCISE: HOW SHOULD MERIT RAISES BE ALLOCATED? Developments in Business Simulation and Experiential Learning, Volume 31, 2004 EXERCISE: HOW SHOULD MERIT RAISES BE ALLOCATED? R. Bruce McAfee Old Dominion University rmcafee@odu.edu Marian W. Boscia King’s College mwboscia@kings.edu ABSTRACT C. To enhance student’s problem solving and decision making skills. Classes in both Organization Behavior and Human Resource Administration typically focus on the topic of granting merit raises. This paper presents an exercise that can be used to examine the equity, expectancy, and learning theories of motivation (OB topics) and basic principles of wage and salary administration (HR topics). The exercise requires that students develop criteria for granting merit raises and apply those criteria to a particular situation. It also requires them to deal with the issues of pay inversion and overpaid employees. The theoretical foundation for this exercise is also discussed. D. To enhance student’s oral presentation skills by requiring that they explain the procedure used in determining merit raises. Design and Procedures Either at the beginning of or before coming to class, students should individually read the “Situation” below and determine merit raises for each Professor. Then, the instructor should divide the class into groups of 3-5 students. Each group should be told to develop a fair procedure that will be used to determine merit raises and then decide the dollar raise to be given to each Professor. After each group finishes, one member should write the raise amounts on the board or overhead for all class members to see. To facilitate this, it may be helpful if the instructor writes a grid on the blackboard showing the name of each professor across the top and an assigned group number on the left axis. This will allow for a quick comparison of the raises given by each team for each professor. Then, once all groups have disclosed their raises, a spokesperson for each group will explain the criteria and procedure used to determine raises. INTRODUCTION The subject of employee compensation has gained considerable attention in the media and in academia. Indeed, ABSEL has published numerous works addressing general compensation issues including: “Compensation Dilemmas: An Exercise In Ethical Decision-Making” [McAfee and Anderson, 1995], “Behavioral Consequences Of Reward Regarding Employee Absenteeism In An Industrial Setting: An Operant Conditioning Approach” [Kustin , 1981], and “Executive Bailout At Shake & Spear, Inc.” [Sanders, Veiga and Yanouzas, 1984]. Issues of merit pay, specifically, have been largely ignored in prior ABSEL Proceedings. The issue has only been mentioned briefly in: “Designing A Competency-Based Peer Assessment Scale For The Evaluation Of Teaching In Higher Education” [Whatley et al., 1980], “An Experiential Approach To Teaching Subordinate-Oriented Communication” [Vaught and Pettit, 1986], and “Teaching Business Policy Utilizing Mass Lecture And Individual Case Labs” [Kopp and Shufeldt, 1990]. Unlike these papers, however, this one presents an exercise that focuses exclusively on the theoretical and practical aspects of granting merit raises. Situation Small State University is located in the eastern part of the United States and has an enrollment of about 8,000 students. The College of Business has 40 full time faculty members and over 30 part time faculty. The College is divided into five departments: Management, Marketing, Finance and Accounting, Decision Sciences, and Information Technology. Profiles of the Management Department faculty members are presented in Table 1 below. Management faculty are evaluated each year based on three primary criteria: Teaching, Research, and Service. Teaching performance is based on student course evaluations over a two-year period. Service to the university, college, profession, and community is also based on accomplishments over a two-year period. Research is based on the number of journal articles published over a three-year period. Teaching and research are considered more important than service to the university. In judging faculty performance, the Department Chair evaluates each Professor in terms of four standards: Far Exceeds Standards, Exceeds Standards, Meets Standards, and Fails to Meet Standards. The results of this year’s evaluations are shown in Table 2 below. THE EXERCISE Purpose and Objectives A. To make students aware of the concepts or theories related to the issue of making merit raise decisions and to the problems that relate to implementing these concepts or theories. B. To familiarize students with possible criteria a manager can use in making merit raise decisions. 116 mailto:rmcafee@odu.edu mailto:mwboscia@kings.edu Developments in Business Simulation and Experiential Learning, Volume 31, 2004 TABLE 1 PROFESSOR PROFILES: Prof. Housman: 55 years old; 25 years with the University; teaches Principles of Management mass sections; teaches over 400 students per year; has written over 40 articles and given over 30 presentations since joining the College; wants a good raise to catch up with others. Prof. Jones: 49 years old; 10 years with the University; teaches Human Resource Management and Organizational Behavior; stepped down as Department Chair three years ago; teaches about 200 students a year; has written over 30 articles and 2 books since joining the College; recently received a $80,000 grant for the College from a local foundation. Wants a good raise as a reward for obtaining the grant. Prof. Ricks: 61 years old; 6 years with University; teaches Labor Relations and Organizational Development; stepped down as Dean of the College of Business two years ago and took a $20,000 pay cut; teaches about 180 students per year; has written only two articles in the last 6 years due to administrative duties; very active in the community and serves on several charity boards. Wants a good raise to make up for loss of $20,000 stipend. Prof. Matthews: 28 years old; new hire-only four months with University; teaches Employee Relations and Compensation Management; just graduated with a Ph.D.; will teach about 110 students this year. To be competitive in the job market, the College needed to pay Prof. Matthews $87,000 plus provide a reduced teaching load for two years and a $6,000 per year summer stipend; none of the other faculty received this when they were first hired or subsequently; had 2 minor publications while a Doctoral student but none since joining the College. Wants a good raise to pay student loans and establish a new residence. Prof. Karas: 32 years old; 4 years with University; teaches International Business and Honors sections of Management Principles; teaches about 150 students per year; won Teacher of the Year Award this year; published 12 articles in last four years; has been interviewing for a new job at other universities and may leave if good raise is not forthcoming. Prof. Franks: 64 years old: 18 years with University; teaches Principles of Management and Human Resource Management; teaches about 150 students per year; principle advisor for Management major students; has not written any articles during the last 4 years; plans on retiring within 2-3 years. Wants a good raise to enhance pension plan. TABLE 2 DEPARTMENT CHAIRS RATING OF JOB PERFORMANCE Professor Current Salary Teaching Research Service Housman $82,000 Exceeds Exceeds Meets Jones $106,000 Exceeds Far Exceeds Exceeds Ricks $135,000 Meets Meets Far Exceeds Matthews $87,000 New Hire New Hire New Hire Karas $90,000 Far Exceeds Exceeds Meets Franks $80,000 Meets Fails to Meet Exceeds This year the state has agreed to give raises to state employees totaling 3% --$17,400 to the Management Department. Your task as Department Chair is to divide the $17,400 among the faculty members. Keep in mind that these raises will likely set a precedent for future years and that the professors will view the raises as a signal for what behavior is valued and what is not. Debriefing the Exercise In debriefing this exercise, we recommend that the instructor begin by examining the completed raise chart on the blackboard and describing the differences in raises given by each team for each professor. A comparison between the high and low raise amounts for each professor can easily be calculated as can the high and low raise amount between all professors. These amounts are usually quite large which raises the issue of why teams that are given the same information with the same instructions reach different pay conclusions. In one of our 117 Developments in Business Simulation and Experiential Learning, Volume 31, 2004 classes having seven teams, the difference in high versus low merit increases for Prof. Housman was $1,880. For the other professors, the difference was $2,255 (Prof. Jones), $2,050 (Prof. Ricks), $2,470 (Prof. Matthews), $1,295 (Prof. Karas), and $1,400 for Prof. Franks. Three teams gave Prof. Matthews no raise at all. This raises the further issue of whether the merit increases granted are primarily a function of a professor’s actual job performance or the team’s (Department Head’s) definition of job performance. Next, a comparison can be made between the different criteria and procedures used by the various student teams. Since each group was required to present this information at the end of the exercise, it is now possible to examine similarities and differences between groups. This discussion often reveals why the raises are so different between student groups. Finally, this exercise can be debriefed in terms of different motivation theories, current wage and salary theories and issues, or both. From a motivation perspective, the exercise can serve as the basis for discussing at least three motivation theories: equity theory, expectancy theory, and learning (behavior modification) theory. The exercise asks employees to be “fair” in the distribution of raises (equity theory). This raises the issue of what is “fair” when the concept is applied to raises. Some groups may think that all professors should receive the same dollar amount of raise money. Other groups may suggest that all professors should receive an equal percentage increase in pay. Still other groups may try to look for differences in job performance between the professors and attempt to give raises accordingly. One issue that all must face is whether merit raises need to be considered in light of the professor’s current salary. In this regard, one perspective would be to look solely at job performance (teaching, research, and service) and base raises accordingly, irrespective of a professor’s current salary. Another perspective would be to look at each professor’s total pay and attempt to achieve equity by distributing raises based on a combination of each professor’s current salary and her/his job performance. Under this later approach, Prof. Ricks, who currently earns $135,000 might not receive any raise whatsoever given that his/her current pay is so much higher than others. Regardless of which approach is used, students can be challenged by asking: “Is that fair?” followed by “Why?” The instructor may want to stress here that what is “fair” is in the eye of the beholder and that there are no firm rules that one can apply to determine what is fair. In this exercise, students are required to determine which of many variables (e.g., teaching, research, service, length of service at the university, number of students taught) should be included in determining merit raises and how each should be weighed. The expectancy theory of motivation argues that rewards should be based on job performance. Yet, how does one define “job performance?” Students can be challenged to defend their definitions and weights. Learning theory suggests that desired behavior should be followed by positive consequences. Once again, what are the “desired behaviors” for a faculty member and how should these behaviors be weighed. This exercise demonstrates the difficulty of applying these different theories to practical situations. This exercise also relates to numerous wage and salary administration issues. Most HR textbooks argue that organizations should establish a tier of pay grades, each of which should be based on the skills, knowledge, and abilities required to perform a job. Then, within each pay grade, pay is determined by the job performance and, perhaps, length of service of each individual. In this exercise, the university does not appear to have developed a series of pay grades for professors. Rather, Assistant Professors, Associate Professors, and Full Professors all seem to be lumped together into one grade. This raises the issue of whether the university should develop different duties and pay grades for each rank. Also, the exercise raises the issue of what salary should be given to an individual who steps down from a former administrative job. In this case, Prof. Ricks has stepped down from the position of Dean of the College and is still receiving a salary that reflects those old job duties, not the ones associated with a professor’s job. Should the University change its pay policy so that this does not happen in the future? Should Prof. Ricks still receive raises given his/her high salary or should no raises be given until other professors catch up? The exercise also raises the issue of pay inversion. Prof. Matthews is receiving a higher salary that Prof. Housman even though the later has a far superior record. The university probably justifies this on the basis that in order to attract new professors, it must pay market rate. In addition, it would argue that it can’t afford to raise the pay of all the other faculty who are affected. This raises the question of what is “market rate?” It also raises the issues of whether it is fair, ethical, and in the best interests of the university to follow this policy? What alternatives does it have? What are the possible negative long-term outcomes of this policy? THEORETICAL FOUNDATIONS The theoretical rationale and advantages for using this exercise can be found in the well known Blum’s taxonomy of learning levels (knowledge, comprehension, application, analysis, synthesis, and evaluation). Asking students to complete all portions of this exercise appears to encompass all six levels of learning. In terms of the comprehension and knowledge level of learning, this exercise requires that students recall facts (e.g. Professor’s current salary and biographical information) related to the exercise and to identify performance criteria. The application stage of learning is emphasized when students are asked to determine pay raises for each Professor and to write their raise amounts on the blackboard. During the exercise, students need to examine and compare each professor with one another in terms of current salary and job performance to determine raises. These requirements fall into the analysis level of learning. The synthesis level is demonstrated when students need to propose to the rest of the class their plan for granting raises. Finally, the exercise requires that students make raise decisions, present them to the class, and defend their answers, all of which is part of the evaluation learning level. Theoretical support for this exercise comes not only from the Kolb learning model but from other sources as well. From the earliest foundations of learning style research, educators have recognized the use of experience as an effective teaching method [Dewey, 1916 and 1938; Lewin, 1951; Piaget, 1971]. 118 Developments in Business Simulation and Experiential Learning, Volume 31, 2004 Dewey (1933) proposed that learning takes place when students have the opportunity to try out new behaviors and reflect on them. Experiential learning exercises, such as this one, provide a venue for exposing students to new situations in the classroom and provide opportunities for reflection. While reflecting on their experience, students can develop concepts and plan actions [Kolb, 1984]. This outcome has been well documented in a great variety of academic fields, including human and agro- medicine [Haas and Gregory, 2000; Wheat et al, 2003], human resource management [Elkins, 2002], retail management [Fairhurst and Good, 1991], leadership development (Hornyak and Page, 2003), marketing [Nicholson and Oliphant, 2002], and universal product design [Chang, 2000] and ethics [Sofaer, 1995]. Further, Hill and Herche (2001) describe teaching effectiveness in terms of getting students to think about issues and to question thoughtfully. Within this perspective, experiential learning can be an important feature of course designs. The benefits of using experiential methodology are numerous. Experiential learning environments can support students' development of real-world problem solving skills [Kolb, 1984; Jessup, 1995, Schlager, Lengfelder and David, 1999]. Experiential exercises can benefit students by increasing their confidence in their knowledge [LaVan and Carley, 1981] and students may develop a more favorable attitude toward the course because they play a more active role in the learning process [Kelley, 1978]. In a theoretical discussion of experiential learning, Kayes (2002) concludes that, “Methods that increase vocabularies, introduce proximity of knowledge sharing, aid in making connections between personal and social knowledge, and organize experience in meaningful ways lead to management learning.” (Kayes, 2002, p. 146.) DISCUSSION This exercise has been used successfully in two different Organization Behavior classes. While it took about 30 minutes to conduct the exercise, less time is needed if groups meet outside of class to determine raises or if the number of student groups is small. Also, the exercise can be shortened by asking student groups to only write down the raise amounts and not present the procedure they used to determine the raises. The exercise has the following positive attributes: 1. It can be used in a variety of classes-OB, HR Principals, Compensation Management, HR Policy, and Business Ethics. It can be used at the undergraduate or graduate level. 2. It is relatively easy to conduct and debrief. The instructor’s main task is to contrast the raise amounts given by student groups, to compare the procedures and criteria used by these groups to determine raises, and to examine all of the findings in light of one or more theoretical/practical bases. 3. Student interest in the exercise is high because pay and raise issues are typically salient to them. Most students have worked and have been frustrated with the amount of pay and raises received, particularly during a slow economy where raises are minimal. 4. It can be used to demonstrate and examine a variety of theoretical and practical issues. It can examine equity theory, expectancy theory, and learning theory and to examine wage and salary administration concepts. BIBLOIGRAPHY Dewey, J. (1916). Democracy and Education. Toronto: Macmillan. Dewey, John. (1938). Experience and Education, New York, NY: MacMillan. Hill, Mark E. and Herche, Joel. (2001). Teaching and Effectiveness: Another Look. Marketing Education Review; 11, 19-24. Jessup, L.M. (1995). The senior experience: Applied, team problem solving in business education. Journal of Education for Business, 71, 82-86. Kayes, D. Christopher. (2002). Experiential Learning and Its Critics: Preserving the Role of Experience in Management Learning and Education. Academy of Management Learning & Education, 1, 137-149. Kelley, Lane. (1978). An Experiential Evaluation Of A Didactic - Experiential Approach For Teaching Personnel Management. Exploring Experiential Learning: Simulations and Experiential Exercises, 5, 291-296. Kolb, D. A. (1984). Experiential learning: Experience as the source of learning and development. Englewood Cliffs, N. J.: Prentice Hall. Kopp, Daniel C. and Shufeldt, Lois M. (1990). Teaching Business Policy Utilizing Mass Lecture And Individual Case Labs. Developments In Business Simulation & Experiential Exercises, 17, 1990: 201. Kustin, Richard. (1981). Behavioral Consequences Of Reward Regarding Employee Absenteeism In An Industrial Setting An Operant Conditioning Approach. Developments in Business Simulation & Experiential Exercises, 8, 58-61. LaVan, Helen and Carley, Cameron. (1981) An Empirical Analysis Of Experiential Learning For Learning Reinforcement. Developments in Business Simulation & Experiential Exercises, 8, 214-216. Lewin, Kurt. (1951). Field Theory in Social Sciences, New York, NY: Harper and Row Publishers. Piaget, Jean. (1971). Psychology and Epistemology, Middlesex, England: Penguin Books. Sanders, Patricia B., Veiga, John F. and Yanouzas, John N. (1984) Executive Bailout At Shake & Spear, Inc. Developments in Business Simulation & Experiential Exercises, 11, 217-218. Schlager, Franz, Lengfelder, Julie, and Groves, David. (1999). An Exploration of Experiential Education as an Instructional Methodology for Travel and Tourism. Education, 119, 480- 488.). Vaught, Bobby C. and Pettit, John D. Jr. (1986). An Experiential Approach To Teaching Subordinate-Oriented Communication. Developments in Business Simulation & Experiential Exercises, 13, 56-59. Whatley, Arthur, Cyrs, Thomas E. Jr., Eckard, Pamela B., and Acosta, Rafaela C. (1980). Designing A Competency-Based Peer Assessment Scale For The Evaluation Of Teaching In Higher Education. Experiential Learning Enters the Eighties, 7, 137 – 139. 119 Table of Contents Volume 31, 2004 Controlling the Complexity and Orenting Target Groups by a Modular, Server-Based Business Game System Learning Network Demonstration: Delivering Business Education in a Distance Learning Environment Economic Evolution, Human Capital Investment, and Adult Distributed Electronic Learning: A Literature Review Designing a Globalization Simulation to Teach Corporate Social Responsibility Developing and Teaching an Online / In-Class Hybrid: A Demonstration A Model for Evaluating Online Instruction An Evaluation of a Distributed Learning Course: A Students'-Eye Perspective Blended Learning Strategy Improved Business Writing Skills How to Receive and Process Attachemnts while Greatly Reducing the Risk of Viruses and Trojans Introducing Online Components to a Class: How to Increase teh Likelihood of Success Teaching Strategic Communications Online: Using Learning Outcomes to Develop a Case-Based Course Implementing Distance Approaches to Education: A Panel Discussion for ABSEL: Las Vegas, 2004 MANDI: Learning Management Through Field Sales Experience An International Capital budgeting Experiential Exercise A Primer To Combating Terrorism: Playing It Safe While On Overseas Assignment (An Experiential Exercise) Integrating The Business Curriculum With A Comprehensive Case Study: A Prototype The Case Brief: A Model For Case Analysis, Writing And Discussion Technology Infused Pedagogy And Delivery – A Sure Bet? A Proposal For Panel Discussion Absel Conference 2004 Research Strategy And The Bkl: Getting The Most From The Absel Archives Simple But Effective: Rediscovering The Class Discussion Needle And Thread: An Activity For Examining Various Management Behaviors A Customized Excel Data Analysis System For Use In Undergraduate Marketing Research Team Leader Selection - Does It Matter? The Power Of Perspective: Reframing Your Framing Skills For Innovative Instruction In Leadership And Influence Exercise: How Should Merit Raises Be Allocated? An Online Situation For Problem-Based Learning In A Junior-Level Management Course The Eden Alternative As A Roadway For Change: A Service Learning Quality Improvement Project Avoiding Catastrophe: The Role Of Individual Accountability In Team Effectiveness Omega Systems: A Change Management Exercise The Risks And Rewards Of Providing Students A Structured Cheating Opportunity Experimentation With Assessment Techniques: A Proposal For Panel Discussion Using A 2 - Page Case To Introduce Concepts Of Business Strategy Interactive Session The Integration Of Appreciative Inquiry And Experiential Learning For Peak Performance Appreciative Inquiry Case Story: New York City Leadership Challenge Individual Achievement Versus Team Performance: An Empirical Study With Business Games Some Strategists Don't Learn Or Can't Learn Computer Simulation: A Design Architectonic On The Value Of Bugs In Simulation Environments Online Sales Forecasting With The Multiple Regression Analysis Data Matrices Package Simulation Exercises And Problem Based Learning: Is There A Fit? A Study Of Business Game Stock Price Algorithms Assessing Individual Performance In A Total Enterprise Simulation Information Use In A Business Game Determining The Value Of A Firm Unsorting Algorithms For An Ordered List And Its Application To Business Simulations Teaching Public Finance Management Through Simulation Antecedents Of Game Performance Student Expectations Of Classroom Teaching Practices In Developing And Presenting Course Information In Hong Kong Implementation And Impacts Of The Balanced Scorecard: An Experiment With Business Games Impact: Shocking The Legacy Mindset Implementation Of The Eepad Framework Of Business Processes In An Accounting Information Systems Course Are Business Games Really Delivering What Students Are Led To Believe?? Reporting Lessons Learned: What Gets Reported; Who Gains Value Teacher Expectations Of Classroom Teaching Practices In Developing And Presenting Course Information In Hong Kong Student Reactions To The Use Of A Computer-Based Simulation As An Integrating Mechanism For A Mba Curriculum A Cognitive Investigation Of The Internal Validity Of A Management Strategy Simulation Game The Casino Challenge: Making Simulation Delivery A Safe Bet! Accounting For Company Reputation: Variations On The Gold Standard Foreign Currency Hedging: A Simulation The Influence Of Variables Easily Controlled By The Instructor/Administrator On Simulation Outcomes: In Particular, The Variable, Reflection. Absel Awareness Among Business School Faculty Validating Business Simulations: Does High Market Share Lead To High Profitability? Simulation Debriefing Procedures Coaching And Business Simulations: A Formula For Success? A Seminal Inventory Of Basic Research Using Business Simulation Games The Influence Of Scorecard Evaluation On Decisions And Outcomes