Types of Pay Structures in Organizations - Assignment Example

? Module 4 Case Assignment This paper intends to compare and contrast skilled-based pay structure and job-based pay structure. Furthermore, this paper entails determining the most prominent pay structures that are currently used by the organizations. Accordingly, determining pay structure is considered to be a paramount aspect for ensuring efficient performance of organizations and retaining competent employees. Accordingly, skill-based pay structure has been ascertained to be offering numerous advantages over traditional job-based pay structure. At the same time, skill-based pay structure has gained considerable popularity over the last decades, especially since 1987. However, most of the organizations are currently using market- based pay structure. Module 4 Case Assignment Pay is regarded as one of the key elements affecting management-employee relationship at the workplace. The level and distribution of pay along with benefits is believed to impose considerable impact on the efficiency of any organization and also on the morale as well as on the productivity of the workplace. It is thus, crucial for organizations to use appropriate pay systems that provide worth for money and compensate workers fairly for the work that they perform. In general, pay systems are the methods of paying people for their contribution that they make towards the organizations. It is essential that an ideal pay system is clear and simple to be followed, so that workers are satisfied with the pay system adopted by the organizations and are motivated to perform their respective tasks with utmost dedication and commitment. With this concern, this paper intends to compare and contrast the two pay system namely skill-based pay structure and traditional job-based structure. Furthermore, this paper attempts to identify the most popular pay structure, which is currently being followed in today’s organizations (Acas, 2012). Compare and Contrast a Skill-Based Pay Structure with a Traditional Job-Based Pay Structure Skill-based pay structure begins with the identification of those tasks that need to be performed in the organizations. It is often been considered as an alternative to traditional job-based pay structure. In relation to skill-based pay structure, skills required to perform certain organizational tasks are identified and tests are developed to determine whether an individual has learned the skills involved in performing a particular task. On the contrary, in traditional job-based pay structure, pay is generally based on a job, wherein employees are eligible to receive compensation, even if they are not skilled in performing any task. However, skill-based pay structure does not necessarily exclude the idea of paying for individual performance, instead it involves evaluating individual performance for assessing employees’ skills towards particular tasks for which they are paid. Nonetheless, under skill-based pay structure, pay is determined by the mix and the depth of the skills that possess by an individual rather than a particular job assignment. At the same time, organizations applying skill-based pay structure are often encountered with difficulties, when they try to price skills in the marketplace as compared to traditional job-based pay structure. Moreover, under traditional job-based pay structure, employees’ pay changes with the alteration in the job, while in skill-based pay structure, employees’ pay does not alter regardless the change in the job position. At the same time, employees under job-based pay structure may frequently perceive inequalities in the pay system due to the way the jobs are defined and rated for pay purposes. On the other hand, once employees become accustomed with skill-based pay structure, most of the employees prefer it over traditional job-based pay structure. The element of seniority act as a crucial determinant in traditional job-based pay structure, while in skill-based pay structure, skills rather than seniority is considered to be the prime factor of determining the pay structure (Ledford, 2011; Lawler & Ledford, 1998). Detailed Analysis of Skill-Based Popularity in Organizations Since 1987 It can be argued that skill-based pay structure owns significant benefits over traditional job-based structure. Undoubtedly, skill-based pay structure offers obvious and numerous advantages for organizations applying it. More importantly, this pay structure provides organizations with elasticity in their production process. Individuals within a particular organization with skill-based pay structure are able to perform multiple tasks, resulting in enabling the organizations to gain considerable flexibility upon their overall performance. Skill-based pay structure fosters organizations to develop culture that value human development and are relatively optimistic about the capabilities and potential of people working in the organizations (Lawler & Ledford, 1998). Thus, based on the above discussion, it can be affirmed that the authors were indeed correct in their views relating to skill-based pay structure. The popularity of skill-based pay structure can be justified with the following example. It has been ascertained that almost 17 percent of the companies in the United States and 60 percent of 1000 Fortune listed companies are making widespread use of skilled-based pay structure. It has further been identified that skill-based pay structure is more prevalent in the manufacturing organizations, while its popularity is also gaining momentum in the service sectors. Accordingly, service sector skill-based pay structure is observed to be increased by almost 75 percent in late 1980s and early 1990s. Currently it has been ascertained that around 75 percent of the US county governments, 65 percent of state governments and 50 percent of city governments have implemented skill-based pay structure. Apparently, the popularity of skill-based pay structure is viewed to be constantly increasing almost in all business sectors (Boyett & Boyett, 2004). Prominent Pay Structure in Private Sector It has been apparently observed that market-based pay structure has attained much prominence especially in private sector over the preceding decades. It can be argued that since the year 1987, skill-based pay structure has acquired tremendous popularity in almost all the sectors and is still being used in most of the prominent organizations throughout the globe. Organizations currently are identifying this system to be most appealing for retaining skilled and competent employees within a particular organization. Concurrently, professionals are also viewing this system as a way of enhancing their skills and knowledge base. Despite its rapidly gaining popularity, it has been ascertained that market-based pay structure are predominately used by organizations across the globe. According to the study of “2012 Survey of Salary Structure Policies and Practices”, which conducted by WorldatWork and Deloitte, it has been ascertained that almost 64 percent of total survey participants affirmed that they use market-based pay structure (WorldatWork, 2012). For example, the compensation and the career program in University of Richmond comprise a salary along with a career structure based on market-based pay structure (University of Richmond, 2013). This can be better understood with the help of the following graphical representation. Types of Pay Structure Source: (WorldatWork, 2012). Conclusion To sum up, it can be stated that skill-based pay structure has offered significant benefits to the organizations over traditional job-based pay structure. Moreover, it is rapidly gaining popularity in both manufacturing and service sector. Regardless of its gaining popularity, it has been ascertained that market-based pay structure is commonly found as a prominent pay structure in today’s organizations. References Acas. (2012). Pay systems. Retrieved from http://www.acas.org.uk/media/pdf/o/3/pay_systems-accessible-version-Jun-2012.pdf Boyett, J., & Boyett, J. (2004). The skill-based pay design manual. United States: iUniverse. Ledford, G. E. (2011). Skill based pay. Society for Human Resource Management, 1-23. Lawler, E. E., & Ledford, G. E. (1998). Skill-based pay: a concept that’s catching on. Compensation and Benefits Review. University of Richmond. (2013). Compensation structure. Retrieved from http://hr.richmond.edu/compensation/structure.html WorldatWork. (2012). Salary structure policies and practices. Retrieved from http://www.worldatwork.org/waw/adimLink?id=65885 Read More