MADISON, Wis. (AP) _ A federal jury has recommended that five Marathon County employees who became unwitting ''hostages'' in a terrorism exercise should receive $117,074 in damages.

John Stevens, the attorney for the five, had argued for $805,000 in compensatory and punitive damages, citing emotional stress and ''psychologica l injuries'' they may bear the rest of their lives.

But after 41/2 hours of deliberation Wednesday, the jury decided on the lower amount, which includes $27,500 in punitive damages. Each employees will receive a different amount.

The award is subject to approval by Judge Barbara Crabb.

''The fact that punitive damages were awarded, I think, was unjustified,'' said Tim Yanacheck, attorney for the county. He said he would recommend that Sheriff Louis F. Gianoli appeal.

The employees - Myrna Wiederhoeft, Alice Holzem, William Forrest, Ross Hoffman and Gilbert Butzlaff - were taken ''hostage'' by police science students Feb. 28 in a training exercise at the courthouse in Wausau.

Mrs. Wiederhoeft, 58, a copy machine operator, testified she ''thought I was going to die'' when a man grabbed her around the neck and pointed a gun at her head during the incident.

Yanacheck said there was no question some of the employees felt some ''anxiety'' as the events were recalled in the courtroom, but predicted those feelings ''will go away after this trial.''

''My clients don't deny that (the employees) had the bejabbers scared out of them, (and) I don't minimize that,'' he said. However, he said, ''this case has been blown way out of proportion from the very beginning.''

The employees originally asked $2.75 million in compensatory and punitive damages from the county. In December, the county offered to settle out of court for a total of $75,000. The offer was declined.

Last week the six-member jury dismissed the students and three deputies as defendants but said Gianoli had shown ''reckless disregard'' for the employees and that they could seek damages from him.

Dr. Burr Eichelman, a psychiatry professor at the University of Wisconsin- Madison, testified the employees remained ''psychologically vulnerable'' because of the incident, and that all five had shown a ''post traumatic stress disorder.''

Michael Spierer, a clinical psychologist who interviewed the employees in December, testified they all had returned to work and appeared to be leading somewhat normal lives.

Spierer said that had he interviewed the employees the day after the incident, ''I probably would not have recommended therapy for any of the five.''