COM 230 Module 7 Compensation and Benefits Example

Paying Universal Bankers Fairly and Visibly: A Compensation Review for a Community Credit Union

Student Name

Business Administration Program, Aspen University

COM 230: Human Resource Management

Instructor Name

Month Day, Year

Paying Universal Bankers Fairly and Visibly: A Compensation Review for a Community Credit Union

In Module 1, exit interviews at Blue Ridge Community Credit Union showed that pay was the most common reason tellers left. Now the credit union is creating the universal banker role, which asks more of employees than teller work did. HR director Denise Carter must set pay for the new role. Pay too little, and Blue Ridge will keep losing people to banks and retailers. Pay without structure, and employees will compare notes and find differences they cannot explain. This paper reviews the market, draws on research about pay and recommends a structure.

The Labor Market

Blue Ridge competes for frontline staff with banks, other credit unions, retailers and health care offices in the Asheville area. Denise gathered starting pay and benefits for five comparable employers from posted job ads and a regional salary survey.

How Much Pay Matters

Rynes et al. (2004) reviewed research comparing what people say about pay with what they do. In surveys, employees often rank pay below factors such as interesting work or good supervisors. Yet in studies of actual behavior, such as job choices and responses to incentive plans, pay has strong effects. The authors suggested that people understate pay's importance partly because valuing money is seen as less admirable. They cautioned managers not to rely on surveys alone when deciding how much pay matters.

For Blue Ridge, the lesson is that friendly culture and community mission, which employees praise in surveys, will not offset pay well below the market.

Incentives and Quality

Jenkins et al. (1998) conducted a meta-analysis of studies on financial incentives and performance. Incentives were positively related to performance quantity, such as output, but not to performance quality. The relationship was strongest in experimental settings and for tasks where quantity was easy to measure.

Universal banker work depends on quality: solving problems correctly, explaining loans honestly and teaching members patiently. Large individual incentives tied to counts, such as accounts opened, could raise quantity at the expense of quality, which is the failure mode noted in Module 6. Blue Ridge will therefore use only a modest branch-level incentive tied to member satisfaction and loan applications.

Pay Comparisons

Card et al. (2012) studied the effect of pay information on employees of the University of California after a newspaper published every employee's salary online. They randomly informed some employees about the website. Those who found out they earned less than the typical colleague in the same department and job title said they liked their jobs less and reported more interest in leaving. Employees above the median showed no significant gain in satisfaction. Pay comparisons, in other words, hurt more on the downside than they help on the upside.

Blue Ridge employees already compare pay informally. Clear ranges with published rules for movement reduce unexplained differences, which are what make comparisons damaging.

The Recommended Structure

The universal banker range will run from $17.50 to $22.00 an hour, in four published steps. Employees move up a step on completing defined training modules and after a year of fully performing results, as described in Module 6. Current tellers who complete the retraining in Module 5 move to at least the first step. The branch incentive, paid quarterly, is up to $400 per person when the branch meets member satisfaction and loan application targets.

Benefits

An employee survey found that the high-deductible health plan was the most disliked benefit. Blue Ridge will offer a lower-deductible option at a modest premium increase, which costs the credit union about $90,000 a year.

Moving Through the Range

Ranges only feel fair if employees understand how to move through them. Each of the four steps carries a written requirement: step one on completing the universal banker training, step two after a year of fully performing results, step three on completing an advanced lending module, and step four for employees who also coach new hires. No step depends on a manager's discretion alone, which reduces the unexplained differences that Card and colleagues found so damaging. Employees who join from outside with relevant experience can start at step two, but the reason is recorded and the same rule applies to every hire.

What Is Not Recommended

Two options were considered and rejected. Individual commissions on accounts or loans were rejected because of the quality risk Jenkins and colleagues' findings suggest and the service strategy Blue Ridge follows. A one-time retention bonus for current tellers was rejected because it would raise costs without fixing the underlying gap with the market, and employees would likely leave once it was paid.

Is the Cost Worth It?

The added cost is larger than the direct turnover savings. The case rests on more than turnover: universal bankers who stay longer handle more kinds of member needs, start more loan applications and help more members move to digital banking, which lowers branch costs over time. Denise will present the structure to the board with these assumptions stated, and propose a review after eighteen months.

Cost and Communication

The new structure adds about $640,000 a year in pay and benefits. Against that, reducing teller turnover by a third would save about $100,000 in direct costs and improve service. Denise will explain the ranges and rules in branch meetings and in writing, so every employee knows where they stand and how to move.

Conclusion

Rynes, Gerhart and Minette show that pay matters more than people say, Jenkins and colleagues show why incentives should not drive a quality-focused role and Card and colleagues show why transparent, fair ranges matter. Market-level pay, clear steps and modest team incentives give Blue Ridge a structure that attracts and keeps universal bankers.

References

Card, D., Mas, A., Moretti, E., & Saez, E. (2012). Inequality at work: The effect of peer salaries on job satisfaction. American Economic Review, 102(6), 2981-3003. https://doi.org/10.1257/aer.102.6.2981

Jenkins, G. D., Jr., Mitra, A., Gupta, N., & Shaw, J. D. (1998). Are financial incentives related to performance? A meta-analytic review of empirical research. Journal of Applied Psychology, 83(5), 777-787. https://doi.org/10.1037/0021-9010.83.5.777

Rynes, S. L., Gerhart, B., & Minette, K. A. (2004). The importance of pay in employee motivation: Discrepancies between what people say and what they do. Human Resource Management, 43(4), 381-394. https://doi.org/10.1002/hrm.20031