If compensation is not tied directly to performance, what might and should it be tied to? To answer these questions, consider how wages and salaries are set in many organizations. Perhaps the most common approach involves something like the following. The firm looks at compensation rates in the local labor market for similar jobs or for jobs with similar skill requirements. Some adjustment will take place according to the firm\’s experience. If positions are hard to fill, the firm might raise compensation; if there is a long queue of applicants, firms might lower pay rates (or, at least, not move them up with inflation). Sometimes a firm will adjust the rates upward in an attempt to broaden the applicant pool or reduce turnover that is, the firm will pay efficiency wages. Of course, all this is subject to negotiation with a union if the job in question is covered by collective bargaining. Equally of course, it is clear that such a procedure leads to a rough-and-ready approximation to wages set by the economic slogan supply equals demand.

A variety of seemingly more \”scientific\” approaches to wage setting involve formal job analysis and evaluation. These methods begin with a systematic analysis of the underlying attributes and demands of jobs. Each of the jobs being studied is characterized in terms of various common dimensions and distinctions, such as the types and complexity of knowledge required, number of employees supervised and amount of capital overseen, type and unpleasantness of working conditions, and so on. These measures are then used to put all the jobs on a one-dimensional scale of \”value.\” This can be done in a number of ways. To take two examples:

1) The measures may be scaled and then subjectively determined weights are used to compute a weighted average, where the weights reflect what is important to the firm. For instance, a firm whose culture emphasizes human resources management might choose to weigh heavily the number of employees supervised.

2) In other cases, a statistical technique such as linear regression is used to fit wages paid to a sample of jobs, either within the firm or in the relevant external labor market, using the job characteristic measures as explanatory variables.

When a technique like 1) is used, the result is an abstract measure of each job\’s value to the firm. The firm then can determine an average wage it wishes to pay (based on local market conditions, the desirability of paying efficiency wages, and so on) and the amount of dispersion in wages it wishes to have assigning wages to specific jobs based on this value-to-the-firm measure, so that it gets the distribution it desires. Or it might consult local market conditions to peg wages for two (or more) benchmark positions, filling in wages for other jobs based on the value-to-the-firm measure. Of course, when a technique like 2) is used, the result of the analysis is, for each job, an estimated \”appropriate\” wage, although the firm may then choose to increase or decrease the wages it will pay, to change its overall position in the wage distribution of the local labor market.

Compensation consulting firms are particularly sophisticated at these techniques and have large proprietary databases that enable their clients to compare pay rates to a wide variety of possible benchmarks. These firms are often called in as consultants when an organization wishes to reorganize or rationalize its wage/salary levels.

The objective of these techniques is primarily rationalization of the firm\’s pay structure. According to the norm of equity, employees believe they ought to be paid according to their contributions to the organization. Essentially, a system appears to employees to be an objective method for finding appropriate compensation levels, thereby lending legitimacy to the firm\’s wage structure and heightening perceptions of procedural and distributive justice. Moreover, jobs whose characteristics are relatively rare in the local market, for which direct evidence on appropriate pay is lacking, can be priced out \”equitably\” by these methods. Note that perceptions of justice will depend on the firm\’s overall culture: Techniques that follow the rough lines of scheme:

1) Are more in tune with organizations whose general culture is less market-driven, while scheme.

2) Probably has greater appeal to firms that value precision and project a general culture of listening to the market.

http://www.arturvictoria.info/
http://sites.google.com/site/cliptheschoolbeginning/
http://sites.google.com/site/arturvictoriasite
http://adesg-europa.blogspot.com/

http://www.arturvictoria.info/
http://sites.google.com/site/cliptheschoolbeginning/
http://sites.google.com/site/arturvictoriasite
http://adesg-europa.blogspot.com/

Author Bio: http://www.arturvictoria.info/
http://sites.google.com/site/cliptheschoolbeginning/
http://sites.google.com/site/arturvictoriasite
http://adesg-europa.blogspot.com/

Category: Business Management
Keywords: Organization, behavior, human, information, career, responsible, planning, human resources, leader,