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the employer and the employee. Chapter 10 focused on the first three of these
criteria: a compensation system should be adequate and equitable and provide
incentives. The remaining four criteria will be discussed primarily in his
chapter; a compensation system should be:
. Secure. This refers to the extent to which the employees pay seems adequate
to satisfy basic needs.
. Balanced. This refers to the extent to which pay is a reasonable part of the
total reward package, which includes benefits, promotions, and so on.
(Chapter 12 discusses benefits.)
. Cost-effective. This refers to cost-effectiveness for the organization.
. Acceptable to the employee. This has to do with whet her employees think
the pay system makes sense. Three aspects of acceptability will be discussed:
whether pay should be secret, communication to achieve acceptability, and
employees participation in pay decision making.
DETERMINATION OF INDIVIDUAL PAY
To the individual employee, the most important compensation decision is how
much he or she will earn. This chapter presents various approaches to
answering the question of individual pay.
To determine individual pay, two issues need to be addressed. First,
management must answer these questions: How should one employee be paid
relative to
another when they both hold the same job in the organization? Should we pay
all
employees doing the same work at the same level the same? Second, if not, on
what
basis should we make the distinctionseniority or merit or some other basis?
Most employers do pay different rates to employees performing the same job.
Pay differentials are based on:
1. Individual differences in experience, skills, and performance.
2. Expectations that seniority, higher performance, or both deserve higher
pay.
Reasons for choosing to pay employees at different rates for the same job
include the following:2

.Pay differentials allow firms to recognize that different employees

performing
the same job make substantially different contributions to meeting
organizational goals
. Differentials allow employers to communicate a changed emphasis on
important job roles, skills, knowledge, and so on.
. Differentials provide organizations with an important tool for emphasizing
norms of enterprise without having employees change jobs, that is,
promotion.
. Without differentials, the pay system violates the internal equity norms of
most employees, reducing satisfaction with pay and making attraction and
retention of employees more difficult.
. Pay differentials allow firms to recognize market changes between jobs in
the
same grade without requiring a major overhaul of the whoe compensation
system.
METHODS PAYMENT
OF Employees can be paid for the time they work, the output they produce,
skills, knowledge, and competencies or a combination of these factors.