There are some cases – especially in star roles, such as sales, professional athletics, and surgery – in which it is viewed as legitimate to pay a nominal subordinate more than his or her nominal supervisor. No one quibbles with paying a top athlete more than his coach or a star surgeon more than the director of her hospital. This legitimacy is often market-based or, at least, market-excused; the extraordinary compensation is legitimate because this is what it takes to retain the individual.

But with these exceptions noted, superiors are generally paid more than their subordinates. This promotes status consistency and generally confers legitimacy both to status distinctions and to the compensation system. But it raises some substantial problems when we discuss promotion.

Firms will often pay higher wages to more experienced workers based on their seniority, either in terms of chronological age or, more often, tenure in the job or organization. This tendency for earnings to rise with age and seniority is well-established empirically, though the magnitude of the age-experience premium varies considerably across settings.

Numerous explanations have been offered for these rising age – and seniority earnings profiles. In settings governed by collective bargaining, unions will generally favor contract provisions that reward the most politically powerful members within the union, who are often the older, more senior employees.

Older workers and/or workers with greater seniority may be more valuable to their employers. Their skill level is usually greater and they are more stable workers (lower absenteeism and quit rates). Or, looking at the other side of this coin, firms may be providing inexperienced workers with on-the-job training, which will benefit the employee by raising his pay in the future, in this job or in others. The classic case of this is the apprenticeship system, in which a trainee works for very low wages-perhaps below the value provided by the worker – to learn a trade. However, the slope of observed age-earnings profiles seems too high and persists for too long for these to be entirely adequate explanations.

Other explanations stress the role that such wage patterns can play in motivating and screening workers. Rising wage profiles can serve as a dynamic incentive device by which firms seek to reduce turnover. Employees are paid less than their value to the firm early in their careers but later are paid more than what they produce for the firm. In a sense, the firm is \”saving\” some of the employee\’s early earnings, releasing those savings to the employee later in life. An employee who quits the firm before retirement would forfeit a portion of his or her accrued savings; this ties the employee to the firm more effectively than if the age-earnings profile were flatter and reflected current contributions to the firm. In a related fashion, rising wage profiles will be more attractive to prospective employees who believe they are more likely to remain with the firm long enough to harvest these \”savings.\” Put the other way around, individuals who are highly mobile are on that account alone less likely to apply for and take a job where rewards are received after long tenure. Thus, organizations with these pay policies will attract an inherently more stable workforce.

Allied to these explanations are several that are more social-psychological in nature. In a variant of gift exchange, workers who have just joined the firm may be thought of as initiates into the \”clan,\” whereas those who have high tenure have become full-fledged members. There is substantial symbolic appeal to the notion that the gifts given by the firm in the form of premium compensation should go more to those whose long service has established their loyalty to the enterprise. And because compensation confers status, at least to some extent, a firm that rewards longevity will promote the status of its more senior workers. This has a positive impact to the extent that the organization wants its more senior workers to be \”leaders\” in the workforce.

The practice of rewarding chronological age or longevity has some drawbacks, however. Insofar as the worker faces some uncontrollable uncertainty about his or her tenure in the job – for example, the worker\’s spouse may get a good job in another location – this injects a degree of uncertainty into the employee\’s compensation that isn\’t necessary. In other words, although such arrangements may have positive incentive effects, they may be sub-optimal in terms of risk. And because these rewards are delayed and, therefore, somewhat contingent on the employer\’s continued good will, they place employees in an increasingly poor bargaining position vis-a-vis their employers. Employees who appreciate either of these effects will demand higher average wages, averaged over the life of their employment, to compensate.

Indeed, the willingness of workers to delay receipt of their rewards decreases as average tenures in a particular job become shorter. The shortened tenures can result from: voluntary turnover, as worker mobility increases; less-voluntary turnover (for example, as the need for two-earner families to find suitable employment for both parties rises); and involuntary turnover, caused for instance by the recently fashionable practices of downsizing and re-engineering.

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,