The Pay Model and Pay Strategy

The Pay Model comprises three main aspects: policies, objectives, and techniques. Organizations use the Pay Model to review their compensation systems, make comparisons with other players, and adjust or enhance the same frameworks (Milkovich & Newman, 2011). Thus, the Pay Model is used to improve compensation. Compensation is an element of returns found in entities that entail cash and benefits.

Describe the objectives of the pay model. Give an example of each. How do the objectives set the standards to judge success?

The Pay Model’s objectives include efficiency, fairness, compliance, and ethics. Efficiency entails performance, quality improvement, ensuring that clients and stakeholders are delighted, and controlling labor costs. Objectives differ from one organization to the next to suit the sector. For instance, Medtronic, a cardiac pacemaker manufacturer, may seek to reduce fixed costs and attract top talent in the market. Whole Foods, a grocer, may seek to ensure that they achieve shareholder value on a long-term basis (Milkovich & Newman, 2011).

Fairness is important in compensation, which ensures that all employees receive fair pay. For Medtronic, fairness revolves around the equal treatment of all staff and recognition of the employee’s family and personal well-being. Whole Foods ensures that employees receive pay that reflects their contribution, experience, needs, training, and performance (Milkovich & Newman, 2011). This mode of determining pay is known as procedural fairness.

Compliance highlights the need to adhere to the rules and regulations that govern pay in a particular state. If changes in the pay system are instituted, the companies need to review their pay systems. When operating on a global scale, they are expected to comply with the laws in each country. For instance, the minimum wage in Illinois is $15, which compels Whole Foods to increase the pay for all employees who earn less than the figure. However, the adjustment reduced the hours that Whole Foods’s employees worked (Sainato, 2019).

Ethics addresses the strategy used to acquire certain results in an organization. It is common to find values in organizations that guide behavior, decisions, and business actions. However, it is usually difficult to enact these values and have employees practice them daily. Some of the common values found in organizations include integrity, honesty, respect, and excellence. For instance, a company such as Enron provides a perfect example of unethical practice effects as it pertains to the compensation of employees (Milkovich & Newman, 2011). The managers used unethical practices to pay themselves excessive wages through the manipulation of the company’s financials. This example demonstrates the importance of observing ethics in the pay system.

Objectives set the standards that a company should use to judge their success. The pay objectives set the pay system’s design for a company. For instance, if a company seeks to ensure that more clients are satisfied, employers may choose to utilize pay based on merit and additional incentives to motivate employees’ performance. Such strategies enable a company to determine and monitor its progress in achieving its main objectives (Milkovich & Newman, 2011). Thus, an organization can introduce changes to the various strategies to ensure the achievement of pay objectives. Pay or compensation is the main denominator in the entire process.

Explain why one company can have different pay objectives for different business units.

An organization can have different pay objectives for different business units because each department has different responsibilities. For instance, the sales and marketing department at Whole Foods may intend to increase sales through intensified marketing campaigns. The human resource department at the same company may aim to increase employee motivation and pay based on merit, which eventually leads to higher sales due to return clients who are satisfied with the services at the company. The procurement department may seek to ensure that the suppliers provide the best quality of farm produce. This can be achieved using strategies such as training and monitoring the farmers. The eventual goal of this department is to ensure that clients access the best groceries when they need them. Despite having different pay objectives, some strategies may be similar (SHRM, 2021). All the business units create pay objectives that lead to the organization’s overall goal.

Define the four (4) policy choices in the pay model. How do the policies create guidelines to manage pay? Give examples of each.

The pay model highlights four policies that every employer must fulfill. These include internal alignment, external competitiveness, employee contribution, and pay system management. Internal alignment is the comparison that can be made between different positions and skill levels of employees within an organization. The different positions and skills required are viewed in terms of the contributions they make to achieving an organization’s objectives (Milkovich & Newman, 2011). As a result, the internal alignment affects the pay levels of employees doing similar work and those performing different roles.

External competitiveness highlights the compensation comparisons that can be made within the market. The organization can decide on the compensation rates compared to its competitors. In most organizations, the market rates directly affect the payment systems. Therefore, some employers may choose to set higher compensation rates to attract the best talent in the market. Others may choose to set standard rates to manage the labor cost. The policy works to ensure that employees are satisfied with their pay and control the cost of labor by avoiding high prices of products and services, which should be competitively priced (Milkovich & Newman, 2011).

Employee contribution is critical in the pay system because it determines the differences in the compensation of individuals within the same position. Some organizations, such as General Electric, use performance-based pay systems. Other pay systems include team-based and profit-sharing plans. Some entities, such as Whole Foods, combine these payment systems and incentives, which motivate better employee performance. An organization should choose a payment system that employees perceive as fair to avoid resentment. It is clear that rates above the market rates are better if they are combined with increased employee productivity because they provide an additional competitive advantage (Milkovich & Newman, 2011).

Management of the pay system refers to the organization’s ability to ensure that all individuals receive the right pay for achieving the right goals. The means of achieving these goals should also be considered during management. The policy or decision’s impact should be known. More strategic approaches are used to manage the payment system today. The managers must analyze the impact that all the pay-related decisions have on the employees’ behaviors as well as the success of an entity (Paydata Inc., 2019). For instance, the pay system should attract and retain top talent while ensuring that employees achieve and retain high levels of productivity (Milkovich & Newman, 2011). Each of the policies creates a guide for pay systems by determining the compensation rates, the impact of the pay decisions, and suitable pay plans, and enables managers to determine the required improvements.

References

Milkovich, G. T., & Newman, J. M. (2011). Compensation (11th ed.). McGraw Hill Irwin.

Paydata Inc. (2019). What are the different types of pay structure?

Sainato, M. (2019). Whole Foods cuts workers’ hours after Amazon introduces minimum wage. Guardian.

SHRM. (2021). What are the advantages or disadvantages of a lead, match or lag compensation strategy? Retrieved from https://www.shrm.org/resourcesandtools/tools-and-samples/hr-qa/pages/cms_024253.aspx

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