Six Dangerous Myths About Pay
“Six Dangerous Myths About Pay” – Jeffrey Pfeffer (8/18/14)
Topic of Paper: Decisions regarding compensation and their effects on organizational performance
Purpose of Paper: Organizations are trapped in unproductive ways of approaching pay, which they find difficult to escape. Pay cannot substitute for a working environment high on trust, fun, and meaningful work.
Why prof chose it: Interesting notion of higher ROI on spending to improve the culture of the firm than the individual compensation.
Outline:
Four decisions about compensation:
How much to pay employees?
How much emphasis to place on financial compensation as a part of the total reward system?
How much emphasis to place on attempting to hold down the rate of pay?
Whether to implement a system of individual incentives to reward performance?
Leaders can’t delegate matters of pay
The Myths:
Labor Rates = Labor Costs
Rates need to be discussed in relation to productivity
Cut Labor Costs by Cutting Labor Rates
Labor Costs are a significant portion of total costs
Low labor costs are a potent competitive strategy
The most effective way to motivate people to work productively is through individual incentive compensation
People work primarily for money
Myths are disseminated through media, economic theories and compensation consultants
Compensation
Studies show that individual comp programs don’t increase productivity. Rather, they tend to undermine teamwork, lead employees to focus on the short-term, and lead employees to think that compensation is linked to political skills
When individual compensation programs are eliminated, grievances decreased, product quality increased, teamwork improved
Collective systems work much better
Important to create a work space where people can have fun and feel valued, and are exposed to variety and opportunity
Advice on Pay
Include increased collective rewards in employee compensation packages
De-emphasize pay as the main reward for working at a company
Make pay practices
Topic of Paper: Decisions regarding compensation and their effects on organizational performance
Purpose of Paper: Organizations are trapped in unproductive ways of approaching pay, which they find difficult to escape. Pay cannot substitute for a working environment high on trust, fun, and meaningful work.
Why prof chose it: Interesting notion of higher ROI on spending to improve the culture of the firm than the individual compensation.
Outline:
Four decisions about compensation:
How much to pay employees?
How much emphasis to place on financial compensation as a part of the total reward system?
How much emphasis to place on attempting to hold down the rate of pay?
Whether to implement a system of individual incentives to reward performance?
Leaders can’t delegate matters of pay
The Myths:
Labor Rates = Labor Costs
Rates need to be discussed in relation to productivity
Cut Labor Costs by Cutting Labor Rates
Labor Costs are a significant portion of total costs
Low labor costs are a potent competitive strategy
The most effective way to motivate people to work productively is through individual incentive compensation
People work primarily for money
Myths are disseminated through media, economic theories and compensation consultants
Compensation
Studies show that individual comp programs don’t increase productivity. Rather, they tend to undermine teamwork, lead employees to focus on the short-term, and lead employees to think that compensation is linked to political skills
When individual compensation programs are eliminated, grievances decreased, product quality increased, teamwork improved
Collective systems work much better
Important to create a work space where people can have fun and feel valued, and are exposed to variety and opportunity
Advice on Pay
Include increased collective rewards in employee compensation packages
De-emphasize pay as the main reward for working at a company
Make pay practices