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Dr. Fred Carroll, a professor at Regency State, a large university in the Southeast, stopped in to talk to his department chairman, Dr. Ken Winston, about a likely change in the summer faculty pay plan. Rumors were circulating that summer teaching compensation would be cut. Winston, in an uncomfortable situation, replied that the College faced a serious budget shortfall, and the administration was looking at ways to reduce costs, in particular, the high costs of summer instruction. Carroll, who formerly had been a department chair, countered that summer compensation was just one of many possible areas for reducing costs and identified several other options. He did not accept the explanation that the budget must be balanced by reducing summer pay, and remarked that it was unfair, even discriminatory, and contrary to University policy. He vowed to investigate the situation and talk with Winston again. Along with Carroll several other faculty members had expressed their concerns about changes in summer pay to Winston. Faculty summer pay at Regency State was based on a percentage formula that was tied to the faculty member's academic year; those with higher salaries earned higher pay for a summer course. To reduce the summer compensation budget by about 25%, the dean, associate dean, and department chairs were looking at various ways of cutting costs. With the tradition of many year-round students and large summer enrollments, many faculty members were accustomed to getting significant summer pay to supplement their academic-year salaries. Winston, along with the other College administrators, were challenged in identifying alternatives and finding a satisfactory solution to the budget problem that would reduce summer compensation costs yet minimize adverse effects on faculty morale.

Dr. Jeff Foreman, Professor and Chair of the Marketing Department at Carroll State University, had just left a meeting with the Dean of the College and other department chairs about the upcoming salary increase program. Since pay increases had been small in recent years, Foreman was quite pleased that there would be four percent merit money this year, in addition to the previously announced two percent across-the-board (ATB) increase. The ATB raise would be effective in July, and the merit pay would be implemented the following January. At the meeting, the Dean of the College informed the chairs that the merit-pay policy was subject to change, in order to reward the highest performing faculty. He stated that at a recent meeting with the Provost, the idea of a more "aggressive" approach to rewarding top-performing faculty members was discussed. This approach, it was advanced, would help the University retain its most productive and most mobile faculty members - those who had the talents to really advance the programs of the school. Subsequent discussion at the chairs' meeting was animated, and they expressed a variety of opinions about the advisability of the proposed changes in the merit-pay policy. As the meeting ended, the Dean asked each of the chairs to study the proposal and make a recommendation about the pay plan with a justification, noting that the group would meet again to make a policy decision for the College. Back in his office, Professor Foreman reviewed the existing policy on salary increases, salary information on his faculty, and their performance ratings for the last three years. He thought about the philosophy underlying the aggressive approach to compensation and the implications of rewarding only the top performers. But he also wanted to look at the actual impact of the proposed change on the salaries of his faculty members. What would it do to salary differentials? How would it affect faculty motivation?