What are the recent issues in the compensation management?

As with other HR activities, compensation management operates in a dynamic environment. For example, as managers strive to reward employees in a fair man­ner, they must consider controls over labor costs, legal issues regarding male and female wage payments, and internal pay equity concerns. Each of these concern is highlighted in three important compensation issues: equal pay for comparable worth, wage-rate compression, and two-tier wage systems.

 The Issue of Equal Pay for Comparable Worth

 One of the most important gender issues in compensation is equal pay for compa­rable worth. The issue stems from the fact that jobs performed predominantly by women are paid less than those performed by men. This practice results in what critics term institutionalized sex discrimination, causing women to receive less pay for jobs that may be different from but comparable in worth to those performed by men.

The issue of comparable worth goes beyond providing equal pay for jobs that involve the same duties for women as for men. It is not concerned with whether a female secretary should receive the same pay as a male secretary. Rather, the argument for comparable worth is that jobs held by women are not compensated the same as those held by men, even though both job types may contribute equally to organizational success.

Comparable worth: The concept that male and female jobs that are dissimilar, but equal in terms of value or worth to the employer, should be paid the same

The Issue of Two-Tier Wage Systems: 
Many organizations affected by deregulation, foreign competition, and aggressive nonunionized competi­tors implement two-tier wage systems as a means of lowering their labor costs. A two-tier wage system is a compensation plan that pays newly hired em­ployees less than present employees performing the same or similar jobs. With some two-tier wage systems, new employees may receive reduced benefit packages. Two-tier wage systems are popular in the airline, aero­space, trucking, retail food, copper, and automobile industries.
Two-tier wage system: Wage system where newly hired employees performing the same jobs as senior employees receive lower rates of pay

 Problem of Measuring Comparability

 Advocates of comparable worth argue that the difference in wage rates for pre­dominantly male and female occupations rests in the undervaluing of traditional female occupations. To remedy this situation, they propose that wages should be equal for jobs that are “somehow” equivalent in total worth or compensation to the organization. Unfortunately, there is no consensus on a comparable worth standard by which to evaluate jobs, nor is there agreement on the ability of present job evaluation techniques to remedy the problem.

The argument over comparable worth is likely to remain an important HR issue for many years to come. Unanswered questions such as the following will serve to keep the issue alive:

1.  If comparable worth is adopted, who will determine the worth of jobs, and by what means?

2.    How much would comparable worth cost employers?

3.   Would comparable worth reduce the wage gap between men and women caused by labor market supply-and-demand forces?

4.    Would comparable worth reduce the number of employment opportunities for women?

The primary purpose of the pay differentials between the wage classes is to provide an incentive for employees to prepare for and accept more-demanding jobs. Unfor­tunately, this incentive is being significantly reduced by wage-rate compres­sion--the reduction of differences between job classes. Wage-rate compression IS largely an internal pay-equity concern. The problem occurs when employees per­ceive that there is too narrow a difference between their compensation and that of colleagues in lower-rated jobs.

-rate compression: Compression of differentials between job classes, particularly the differential between hourly workers and their managers

HR professionals acknowledge that wage-rate compression is a widespread organizational problem affecting diverse occupational groups: white-collar and blue-collar workers, technical and professional employees, and managerial per­sonnel. It can cause low employee morale, leading to issues of reduced employee performance, higher absenteeism and turnover, and even delinquent behavior such as employee theft.         

There is no single cause of wage-rate compression. For example, it can occur when unions negotiate across-the-board increases for hourly employees but managerial personnel are not granted corresponding wage differentials. Such increases can result in part from COLAs provided for in labor agreements.

Other inequities have resulted from the scarcity of applicants in computers, engineer­ing, and other professional and technical fields. Job applicants in these fields frequently have been offered starting salaries not far below those paid to employees with considerable experience and seniority. Wage-rate compression often occurs when organizations grant pay adjustments for lower-rated jobs without providing commensurate adjustments for occupations at the top of the job hierarchy.

Identifying wage-rate compression and its causes is far simpler than im­plementing organizational policies to alleviate its effect. Organizations wishing to minimize the problem may incorporate the following ideas into their pay policies:

1.    Give larger compensation increases to more-senior employees.

2.    Emphasize pay-for-performance and reward merit-worthy employees.

3.    Limit the hiring of new applicants seeking exorbitant salaries.

4.    Design the pay structure to allow a wide spread between hourly and supervisory jobs or between new hires and senior employees.

5.    Provide equity adjustments for selected employees hardest hit by pay compression.

There are two basic types of two-tier wage sys­tems. In a permanent system, the wages of new hires, “B-scalers,” never merge with the wages of senior em­ployees. In a temporary system, B-scale wages will eventually catch up to A-scale wages after a specified period of time. For example, employees on the B-scale at American Airlines achieve pay parity with senior employees after ten years of service.

Unfortunately, lower-paid employees can have feelings of pay inequity when working under either of these wage systems. There is a perceived lack of fairness when new hires and senior employees perform the same job but receive different wages. Feelings of inequity can, in turn, lead to low levels of job commitment, work attendance problems, reduced productiv­ity, and employee resentment.

Whether two-tier wage systems will continue as a method of labor cost con­trol seems uncertain. Recent reports show that employers are phasing out these programs because of high employee turnover and morale problems. Therefore the gap in employee wages caused by these pay plans will likely decline. If this trend continues, employers are likely to implement other cost-cutting pay strate­gies such as incentive pay plans.