Photo: RetailWire [checkout associates]
By Knowledge@Wharton staff
Presented here for discussion is a synopsis of a current article published with permission from Knowledge@Wharton, the online research and business analysis journal of the Wharton School of the University of Pennsylvania.
Look across the ranks of almost any office, retail floor or faculty lounge and you’ll see many workers doing essentially the same job. Peek at their paystubs, though, and you’ll likely find disparity. Pay differences among workers can hinge on objective matters like experience. But salary disparity is often a function of more arbitrary factors, raising the question of why establishing compensation hasn’t evolved into a more fair, equitable and objective system. How do qualities as intangible and unpredictable as work ethic, creativity and esprit de corps get translated into compensation?
One of the big hurdles to a better model is the distorting effect that extremely high executive compensation has had on the entire compensation conversation.
But part of the reason firms haven’t been able to develop a better way of setting salary is that it’s really difficult, says Wharton management professor Adam Cobb. “You could make the case that this is the biggest HR challenge in most organizations: How do you pay people fairly, in a way that’s motivating and encouraging the right kinds of behaviors? Because it’s a moving target. We are human beings, and our perception of these things changes over time. What you think is fair and equitable might not be what I think is fair and equitable.”
Some companies are experimenting with more equitable solutions:
- Safelite Glass Corp, the large auto glass company, moved to a system of piece rate pay from hourly pay. More ambitious workers were found to have less incentive to differentiate themselves when hourly wages were paid than when piece-rate pay is used.
- Haier Electronics reorganized its workforce of 60,000 into about 2,000 small teams. The goal of the “microdivisionalization” was to create teams that would operate like business units, accountable for financial performance, with their continuation and compensation dependent on that performance.
- Buffer, a social media management tool firm, adopted what it calls an “open salaries” system, publishing all of its salaries, as well as the standardized formulas with which those salaries were calculated: Salary = job type x seniority x experience + location.