The Concept of New Pay

Stranger in Light By Stranger in Light, 23rd Sep 2011 | Follow this author | RSS Feed | Short URL http://nut.bz/209ztc29/
Posted in Wikinut>Money>Pensions

It is easy to see that the new pay system will require lot of work on part of human resource and strategic decision makers. This could mean manipulating the whole system or even bringing the new one. Organizations are currently not willing to take such risks and financial burdens on their parts. However it is also apparent that sooner or later they would have to come up with new reward systems if they want employees’ retention and positive contribution.

New Pay

The concept of new pay was first given by Edward Lawler iii in early 90’s. It is not a concept of alternative pay but rather it is approach towards the pay strategy that organizations carry. Lawler argued that currently organizations pay is very much reliant on the best practise. Usual rehearsal is to link the pay with grade structure, and seniority levels. The concept of new pay is to link the pay and rewards system of the employees with the business strategy and change. (Lawler III, 1995) The concept was further developed by academics by arguing that contemporary HRM needs to change its approach towards remuneration. The problem with current structure of pay is that it brings insecurity among employees regarding their pay and benefits. With current pay system linked to job grades rather than employee’s performance, It makes it hard for employees to make extra effort for organization’s performance. (Heery, 1996)
The new pay theories have become popular in the last decade as academics have been criticizing the old pay systems due to many reasons. It is often argued that the old pay system is not directly related to organization performance and employees feel they are not being acknowledged for their contribution in organization’s performance. (Heneman, 2000) Schuster and Zinghiem criticized the old system and represented the approach of new pay. Their argument was that by linking the pay and rewards to organization strategy and performance will bring benefits. The new pay system will be strategic, business aligned, and performance driven.(Schuster and Zingheim, 1996) The reasons for emphasising this pay system are quite clear; the pay system needs to be aligned with organization strategy and needs rather than a standard bureaucratic system that has been followed for decades. Schuster and Zinghiem extensive research is the force behind the idea of making pay a positive tool for achieving excellence in organizations.

Case Study Example:
Although the new theory is well received and appreciated in academia, it is far from implementation in the industry. New pay system is likely to bring discrimination among the employees as people will be paid rather than the job. Another issue could be legal responsibilities that an organization has for its employees. (Sturman and Short, 2006)
Case Study: An extensive research into the banking sector regarding new pay system brought out some issues. The research was carried within Finbank reward strategy for managers. The idea behind the research was to align the rewards system with the business strategy, and to see how it changes individual behaviour towards organizational performance. Three main elements of rewards system were tested; these elements were organization values, implementation process, and structure. The data was collected from managers and their views were taken on implementing the new reward strategy according to Lawler’s new pay model. The research suggested that Lawler’s new pay structure make it sound all very simple. The reality is otherwise and while implementation it occurred that strategy formulation is very complex and can’t be given equal importance with value structure and process. The process of strategy formulation turned out to be the most difficult one of all and needed far more attention than suggested in Lawler’s model. The main problem was to create a strategy where managers are rewarded on the change they make in the organization and their contribution towards it. It came out that at the end of the day it becomes more of a personal decision than an organizational strategy decision. It was also hard to identify such individuals on regular basis. With absence of proper strategy throughout the organization, new pay was hard to implement and created discrimination among managers. This discrimination created a negative impact on organization performance rather than add value to it. (Lewis, 2000) This case study is one of the few examples of new pay structure implementation. Although it does not suggest that the model is complete failure but it does recognizes flaws in the model which need to be fixed before a complete implementation in the industry.

It is easy to see that the new pay system will require lot of work on part of human resource and strategic decision makers. This could mean manipulating the whole system or even bringing the new one. Organizations are currently not willing to take such risks and financial burdens on their parts. However it is also apparent that sooner or later they would have to come up with new reward systems if they want employees’ retention and positive contribution.

Tags

New Pay, New Pay Case Study Banking Sector

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