The Overpaid Bank Tellers
The State Bank is located in a southwestern town of about 50,000 people. It is one of four banks in the area and has the reputation of being the most progressive. Russell Duncan has been the President of the bank for 15 years. Before coming to State Bank, Duncan had worked for a large Detroit bank for ten years. Duncan has implemented a number of changes that have earned him a great deal of respect and admiration from both bank employees and townspeople alike. For example, in response to a growing number of Spanish-speaking people in the area, he hired Latinos and placed them in critical bank positions. He organized and staffed the city's only agricultural loan center to meet the needs of the area's farmers. In addition, he established the state's first "uniline" system for handling customers waiting in line for a teller. Perhaps far more than anything else, Duncan is known for establishing progressive personnel practices. He strongly believes that the bank's employees are its most important asset and continually searches for ways to increase both employee satisfaction and productivity. He feels that all employees should continually strive to improve their skills and abilities and hence cross-trains employees and sends many of them to courses and conferences sponsored by banking groups such as the American Institute of Banking. With regard to employee compensation, Duncan firmly believes that employees should be paid according to their contribution to organizational success. Hence, ten years ago he implemented a results-based pay system under which employees could earn raises each year from 0 to 12 percent,depending on their job performance. Raises are typically determined by the bank's Personnel Committee during February and are granted to employees on March 1 of each year. In addition to granting employees merit raises, six years ago the bank also began giving cost-of-living raises. Duncan had been opposed to this idea originally but saw no alternative to it. One February another bank in town conducted a wage survey to determine the average compensation of bank employees in the city. The management of the State Bank received a copy of the wage survey and was surprised to learn that its 23 tellers, as a group,were being paid an average of $22 per week more than were tellers at other banks. The survey also showed that employees holding other positions in the bank(e.g., branch managers, loan officers, and file clerks)were being paid wages similar to those paid by other banks. (See Exhibit 4.1.)After receiving the report, the Personnel Committee of the bank met to determine what should be done regarding the tellers' raises. They knew that none of the tellers had been told how much the raises would be but that they were all expecting both merit and cost-of-living raises. They also realized that, if other employees learned that the tellers were being overpaid,friction could develop and morale might suffer. They knew that it was costing the bank over $26,000 extra to pay the tellers. Finally, they knew that as a group the bank's tellers were highly competent, and they did not want to lose any of them