5.8 Determining base pay  (Page 7/7)

Pay secrecy

Besides the compensation techniques, the companies should consider whether the compensation system should be secret. Historically, employees and businesses both expressed concerns about the public discussion of salary; however, such discussions should not be prohibited (Kulik, 2004). Companies need to conclude what information they should reveal in their pay systems. Some US companies select to announce salary ranges. For example, for each position American Express posts the market pay ranges so that its employees can compare them with their salaries. Some companies disclose the formula and the factors they may use to calculate salaries, such as education and experience.

Good outcomes of paying for performance

Dr Cynthia Fukami notes that reward system is a powerful tool if pay links with performance (Fukami, Reward Systems, 2007):

1. Strategic objectives of the organization will be achieved.
2. The reward system will support the organizational culture.
3. Employees’ working performance will be improved from the right pay practice.
4. Competitive advantages have increased continuously.

Folly of reward systems in different organizations

In politics : Politicians are separated from the general population when they speak only of official goals that are purposely vague and generalized. In contrast, the electorate will punish the candidate who frankly informs about the source of fund.

In universities : According to Steven Kerr, “Society hopes that professors will not neglect their teaching responsibilities but rewards them almost entirely for research and publications” (p. 9). While it is easy to recognize those professors who receive awards, quantifying a dedication to teaching is more difficult. To resolve this problem, it is essential that university leadership should emphasize teaching and doing research equally.

In sport : Coaches talk about teamwork, not individuals. Clearly, in a reward system, the best player will receive the biggest reward. Therefore, players normally think of themselves first and their team second. To correct this problem, the team manager needs to reduce the gaps of pay among team players.

Cautions for introducing a pay system

• Much advice about pay is wrong (Kerr, 1995).

  Many executives learn that the employees will certainly work more effectively in case that the company gives them higher compensation. Pfeffer said that the executives may not be “spending as much time and effort as it should on the work environment-on defining its jobs, on creating its culture, and making work fun and meaningful” (Six Dangerous Myths About Pay, 2000). Sometimes, companies pay well to create proactive work environment and get new innovative ideas in return. This policy does not surely work, especially when the top executives and employees are lacking of trust with each other.

• Pay systems need to align with the company culture.

  The top management should adjust the pay system when it is not fit with the current business strategy. However, changing the internal culture is a wrong idea because it is embedded in the employees’ minds. The confusion can make the growth of the company stagnant.

• Implementing the reward system is hard and takes management time

  Most companies believe that employees will work effectively when they get rewards for their efforts. Because of this concern, the HR managers cannot maintain the policy in compensation. From Mercer survey, “nearly three-quarters of all the companies surveyed had made major changes to their pay plans in just the past two years” (Pfeffer, Six Dangerous Myths About Pay, 2000). In addition, an example of changing reward system occurred in Sears. Sears had to eliminate its commission system because Sears’s employees wanted high commission, so they offered unneeded services to customers.