Posted: July 27th, 2022



EthicsThis little story illustrates an important point about the connection between
performance appraisal and compensation. An organization can choose to award
compensation increases based on performance, or based on in#ation, or based
on position and longevity, or based on some combination of these factors.2
However, these are di”erent bases for making compensation decisions, and the
organization needs to be clear about what it is trying to do in order to manage compensation rationally. Managers generally seem to prefer merit systems,
whereby at least part of any increase in compensation is based on performance.
Some workers, particularly those in union environments, seem to prefer some
basis other than merit, so that individual managers will have no say in which
workers receive how much increase in their compensation.
Since this book is primarily written for managers, I suspect that most readers
will take it for granted that merit compensation is the right and natural way to go.
But, as I regularly remind my MBA students, the whole world is not made up of
people who think that managing is a !ne and noble profession, and that it is so
complex that an investment of time and money such as they are making is helpful
in learning how to do it well. Less than three miles from the university where
I teach is the world-famous Las Vegas Strip. There, in huge hotel-casinos, tens
of thousands of union workers perform tasks that provide services to millions of
visitors annually. Many of these workers have higher pay and bene!ts than they
would otherwise have because of the in#uence of the Culinary Union. Ask these
workers if management is a !ne and honorable profession, and many of them will
say no. One of the reasons that some workers pay union dues is their perception
that they will fare better as employees with a union than without one.

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