The principle of pay for the job
The purpose of this paper is to discuss whether the two principles of pay for the job’ and the ‘pay for performance’ are mutually exclusive in the actual practice of pay determination and discuss the applicability of performance-related pay in the non-for-profit or public sector context. The first point to be discussed is the principle of ‘pay for the job’, ‘pay for the performance’ and ‘pay for person’. Then, we start with answering the question whether the two principles are mutually exclusive in the actual practice of pay determination.
The second point to be discussed is the applicability of performance-related pay in the non-for-profit/ public sector context in which we will apply the case in Hong Kong. At last, we will have a conclusion. Explain the principle of ‘pay for the job’; the principle of ‘pay for performance’. Are the two principles mutually exclusive in the actual practice of pay determination? Before turning to the answer, we must draw attention to the concept of the principle of ‘pay for the job’, ‘pay for performance’ and ‘pay for person’.
‘Pay for the job’ is a so called traditional compensation is what is termed job-based compensation. The primary determinant of differences in pay, certainly within an organization, is the job held by an individual (the job role, experience and skills required for the job role, working conditions, qualifications and skills required). Job-based compensation emerges with industrialization, development of the factory system, and mass production. Its development is consistent with the practice of scientific management.
It is more feasible in organization characterized by bureaucracy ; traditions of scientific Management and the standardized production of limited varieties of good or services is accomplished through standardization of tasks performance. Therefore, coordination is accomplished through the sequencing of task performance in which dominant perception of work is characterized by job tasks. The job sizes or job values in turn are based on the outcomes of job evaluation.
Such job compensation is the most appropriate for organizations employing routine technologies in relatively stable conditions since ‘pay for the job’ is consistent with a very stable career-based system with relatively stable job roles. It is also consistent with a ‘bureaucratic’ structure based on clear-cut pattern of functional division of labour. Classical examples are mass production manufacturing, insurance policy issuance, service, administrative activities in financial services and the middle management positions (Mahoney, 1989). Pay for the output/performance
Pay for the output or performance’ is so called a non-traditional plan. One of non-traditional plans is skill-based pay (Lawler and Ledford, 1985; Luthans and Fox, 1989). Its basis for pay for individual is most feasible as the employment relationship approaches that of independent contractor. The objectives of the output/performance can be clearly defined and measured, and their achievement is significantly influenced by the employee, so which the reward received is dependent on the output level. It provides clear direction for performance and closely control costs per unit.
The point to observe is that the organizational choice of reward system is based on the principle of ‘minimizing costs’, this pay for output or piece rate system is adopted for situations in which there may not be any employer-employee relationship. Work is viewed as the production of outputs, not the performance of tasks, by relatively independent employees. Classical examples of output compensation are Sales commissions, Executive performance shares, Garment manufacturing piece-rates, and Compensation of automobile body repair on the basis of standard hours (Mahoney, 1989). Pay for the person
Pay for the person appears most commonly for works that is not easily defined in terms of specific and stable tasks since the pay is related to the personal attributes of individual worker or employee. We should not overlook that the distinction between ‘job holders’ and ‘jobs’. Attributes like skills, competency, capability to learn, capability to make genuine contribution to the firm are all linked up with an individual (the job holder) and not on the job role(the job). (Patrick’s notes, 2008) Reward practice like ‘skill-based pay’ and ‘competency-based pay’ are more in line with this approach of ‘pay for the person’.
Classical examples are maturity pay for scientists, teacher career ladder pay, and the seniority-based pay. (Mahoney, 1989)The question which we may consider next is that if two principles mutually exclusive in the actual practice of pay determination? It should be noted that ‘pay for the job’ and ‘pay for the person’ and ‘pay for output’ are not mutually exclusive. We may consider the subject under the following heads: (1) Dimensions of work contingent compensation (2) The changing environment (3) Real case in Hong Kong .
This figure helps to illustrate the principle of ‘pay for the job’ and ‘pay for performance’ are not mutually exclusive in the actual practice of pay determination. Firstly, we should understand that different pay plans can be compared in terms of these different contingencies or bases: job, performance and person (Figure 1). We can see that there is an intersection point (job-rate + merit) between the Job and Performance. Mahoney pointed out that all three bases for compensation have been used in the past and are reflected in the many pay plans discussed today.
Also, reliance on output or performance contingency was placed by reliance on job contingency and thus there is an evidence today of shifting emphasis to person and performance contingencies Therefore, they are inseparable and not mutually exclusive. (Mahoney, 1989). The three basis ; their applications are less easily recognized when task, skill ; performance are merged in a single job descriptive for job-based pay since there were increasing in competition from developed economies. It leaded to increase in rapid rate of technology ; product development and thus created instability in markets.
Therefore, there is a need to improve standard of living ; changed demographics of the population (Mahoney, 1989). It caused the participation in the workforce has contributed to change in product ; industrial mix and shrift from production of goods to services. All these changes have contributed to an overall shrift in orientation from product design and customer satisfaction (i. e. through product variety, improved quality, lower cost ; faster delivery). At the same time, Organization ; management changes over the same period have sought to increase flexibility, responsiveness, innovation, ; corporation.
Matrix organization, project ; product teams, QC circle was introduced to change the org. Manage by objective (MBO) began to replace traditional job descriptive. Thus there were increasing calls for the linkage between compensation ; organizational strategy (Lawler, 1981; Sears, 1984). The re-introduction of output/performance ; person-based pay contingencies provides the opportunity for greater customization of pay plans to complement varying situation ; strategies (Milkovich, 1988).
For example, all members of a team will receive the same job base pay. Member will receive higher rates as they master more of the skill needed in the team and at the same time, team bonuses will be provided based on specific performance goals. When more fine-tuning is needed and when the reward system is adopted as a means of reinforcing new management culture, the ‘pay for person’ and ‘pay for performance’ are brought into the picture to reinforce the new corporate values. (Mahoney, 1989).
It is difficult to argue against the point that the two principles are mutually exclusive, the real case shown by the interactive employment service of Hong Kong Labour Department shakes their argument against the point. In Hong Kong, for the practice of pay for performance, in most cases, the financial payoff in terms of one-off bonus or merit increment (the old form) is still based on the salary range which is largely based on job value. The following example shows that company would like to recruit a human resource officer in which there is a fixed salary and bonus increment for his or her performance.