Case Study: Compensation
Problems in the Pay System
(Note: Provide a 1,200 word response to the following case). Read the case titled, "Problems in the Pay System" and related exhibits. Answer the following questions: Reading is at the end

1. Are the CCUA department's current pay practices concerning data processor IIs and computer analysts Is externally equitable (i.e. competitive)? Explain your answer.
2. What specific action, if any, do you recommend be taken now? Be specific and justify your recommendations as fully as possible.
3. What specific strategies do you recommend for the future so that these types of problems can be anticipated and avoided.
4. As is often the case in business, we typically find that we must make decisions or recommendations on the basis of incomplete, imperfect information. What additional information in this situation would have enabled you to improve the quality of your recommendations?
Scenario
Denise Nance is the director of the Computer Center/User Assistance (CCUA) department of a large manufacturing company in the rural Southeast. Last year's revenue was $23.5 million. Profit was in line with expectations.
Recently, a serious problem has developed in her division. A growing percentage of her employees have left the company in the past year, which has affected unit productivity and costs. While turnover in her department has always been a problem, things appear to have gotten out of hand. Until now, turnover had run around 20 percent per year for lower division staff personnel and 15 percent per year for middle division employees.
However, in the past three months, CCUA has lost five data processors (50 percent of the total) and six (75 percent) computer analysts. Previously, Ms. Nance had no policy regarding exit interviews or turnover control, but informal discussions with the individuals who
*Contributed by James R. Harris and Lee P. Stepina.
have left has led to the hypothesis that many employees leave because they feel they are underpaid.
To complicate matters, Ms. Nance's supervisor, Julie Linquist, the vice president in charge of technical services, is becoming increasingly concerned about the costs associated with the human resource function at CCUA. Exhibit 10.1.1 presents a recent memo from Ms. Linquist to Ms. Nance concerning the problem.
Following Ms. Linquist's orders, Ms. Nance conducted phone interviews with 12 former employees (the only ones available) and distributed questionnaires to her current workforce.
The survey results indicated a number of interesting findings, which are summarized in Exhibit 10.1.2. The dominant reason for individuals leaving CCUA was pay. The current workforce also indicated strong dissatisfaction with current pay levels. Although the survey was not limited to data processing IIs and computer analyst Is, both Ms. Nance and Ms. Linquist believe that these two positions are of particular concern. Responses from both current and past employees from both job classifications were similar to those of the entire sample.
The data processor II position currently carries a salary range of $11.00 to $12.70 per hour. The average actual pay of the seven incumbents is $12 per hour ($24,960 per year based on their 40-hour workweek). In addition, employees receive 40 hours of paid leave for the first year with an increase of 5 hours every 1,000 hours of service. Health insurance plus basic life insurance are provided by the company at a cost of $950 per year per employee. CCUA usually employs 10 DP IIs, but the current level is only 7.
The computer analyst I position currently carries a
salary range of $25,500 to $32,500. The average actual salary paid to the eight incumbents is $31,500. Paid leave for CA IIs is 9 days for the first year of service increasing by 2 days for every following year with a limit of 21 days of paid leave. Health and life insurance coverage costs the company $950 per year per employee.
Recruitment costs for data processor IIs is $450 and $850 for computer analyst Is. Costs are low for the DP IIs because they have been obtained, primarily, from the local marketplace. Entry-level individuals are hired 75 percent of the time and the organization spends considerable resources to train them. By contrast, the computer analysts are recruited from the regional market. Prime candidates typically possess either considerable experience in a similar position or a college degree in information systems management with light, but related, part-time (or summer) work experience.
Ms. Nance budgets $255,490 for data processing IIs and $293,984 for computer analysts. The company is in
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the sixth month of its fiscal year. During this fiscal year, the CCUA department has been using a 3.5 percent salary increase budget to reward its performers and to keep pace with the marketplace.
Ms. Nance obtained a pay survey conducted by Decision Sciences, Inc., a reputable, information systems consulting firm. The data are depicted in Exhibit 10.1.3.
EXHIBIT 10.1.1
To: Denise Nance, Director of CCUA
A compensation analyst at DSI has suggested that, based on the verbal descriptions provided by Ms. Nance, the data processor II position would probably most closely match the survey's "data processor" position, while CCUA's computer analyst I job is most comparable with the survey's "junior analyst and programmer" position.