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Emerging Scholar
RESEARCH
Editor's Note: The American Compensation Association has awarded $150,000 in research grants to 32 emerging scholars during the post three years under its Emerging Scholar Research Program. ACA invites Ph.D. candidates and new Faculty to submit proposals for research in rewards, compensation and benefits. Research grants of $5,000 each are awarded to the chosen scholars.
Compensation systems currently are seen as a source of potential competitive advantage (Lawler 1991). Implicit in this view is that organizations have discretion in compensation decision making and that the decisions made have implications for employee attitudes and behaviors, costs and organizational success (Gerhart & Milkovich, 1992).
This strategic approach means organizations have to make choices on a broad range of pay issues, including pay structure. The research on pay structure and its affects is limited. This case study provides a comparison of a flat rate and hierarchical pay structure from a Midwest manufacturing company that uses both types of pay structure. It examines the structure's affects on relations between co-workers, supervisory favoritism, payfairness, employee perception of recognition for good performance and job satisfaction.
Theories of Pay Structure
Researchers suggest that there are two broad types of pay structure: egalitarian and hierarchical. Egalitarian structures have fewer levels and smaller differentials between adjacent levels and the highest and the lowest paid workers. A hierarchical structure has more levels and greater differences between them.
A number of factors make the study of pay structures important. First, decisions about pay structure have been defined to be of a strategic character in that they can influence the ability of an organization to achieve its overall objectives (Lawler 1991; Gomez-Mejia & Balkan 1992, Milkovich 1988). For example, Gomez-Mejia & Balkin (1992) contend that if pay is linked to upward mobility in an organization, this will create an organizational hierarchy based on a pecking order, which encourages employees to work for their own advantage.
On the other hand, an organization that de-emphasizes traditional job differentials will foster a more egalitarian atmosphere, which may allow companies to deploy employees into new areas without the need for changes in formal grade levels.
This study compares two divisions within the same company with two different pay structures for their production employees. Division H...