Discussion:
You just got an email from Dave, an acquaintance of yours who is a sales supervisor with another company. He writes:
“I supervise a salesperson named John. I just found out (don’t ask me how) that he makes more money than me – even though I’m basically his manager! And I’m not talking about commissions, I’m talking base pay! That burns me up!”
You are the compensation expert; how would you respond (professionally, please) to Dave?
In your response, take a stand on the issue of pay grade overlap.
Is this a useful practice? Why or why not?
What alternatives (if any) do you believe are more practical? Be prepared to support your answer with evidence from the textbook or outside sources.
A related issue with pay grade overlap is pay compression; please read the attached article for some updated studies on potential problems with pay compression. Do you see that possibility in the discussion question’s scenario?
Specifically:
· What points would you add to your peers’ discussions to support their positions?
· Where do you and your peers disagree? What information did your peers overlook in their responses to this issue?
· How would you have responded differently regarding the issue of pay grades?
QUOTES FROM OUR TEXTBOOK:
“The actual range of pay grade is frequently an amount arbitrarily selected by an individual or individuals with compensation policy decision-making responsibilities.”
“Certain issues can affect the final value selected.”
“it is a matter of simple mathematics to identify the upper and lower limits of the pay grade.”
“The difference in midpoints and the spread of the pay range then determine the amount of overlap between adjoining grades.”
“An overlap between pay grades provides an opportunity of r the excellent performer in the lower pay grade who has long tenure (high seniority) to earn more than the new, less experienced person in a more senior pay grade.” “The philosophy here is that the skilled high performer in a lower-graded job may be making a greater contribution than the less experienced incumbent in the next-higher grade.”
“The compensation manager must be aware by this time that no firm rules apply for setting specific quantitative guidelines for developing a pay structure.”
“the basic design criterion that determines pay differences in moving through a pay structure is the midpoint-to-midpoint difference.” “Mid-point to mid-point pay difference is the percentage change in the middle value (again, pay policy or market rate of pay for a job) from one adjacent pay grade to the next.”
“a number of logical and rational consideration can be given for having multiple pay structures that focus on the forces that influence the actual pay of the various occupational groups comprising most organizations.”
“forces that includes the pay of each of these groups assists in the clarifying of some relating issues.”
BELOW IS AN EXAMPLE FROM ONE OF MY CLASSMATES, WHICH I BELIEVE DID A GOOD JOB ANSWER THE QUESTIONS (PLEASE NOTE: ABSOLUTELY NO PLAGARISUM FROM ANY SOURCES)
My first question to Dave would be his length of service, skills/training achieved, educational background, and how long has John been employed. This will provide some information that organizations use in determining pay ranges. For instance if Dave is a short term employee who has at least a two year relevant degree with validated training certificates, and someone he is supervising is making a larger base salary, then there is evidence of a pay grade overlap.
Pay grade overlap allows for an “opportunity for the excellent performer in the lower pay grade who has long tenure to earn more than the new, less experienced person in a more senior pay grade (Henderson, 2006, p. 282). Even though Dave feels he is basically a manger, he is supervising which may potentially put him in the same pay grade. A pay grade is a “convenient grouping of a wide variety of jobs or classes similar in work difficulty and complexity requirements but possibly having nothing else in common” (Henderson, 2006, p. 275). Granted, a lot of assumptions in this scenario, but Dave will need to understand that he may have been brought in for skills other than what John has to offer, and these skills will provide him with more opportunities for commissions and advancement that John will not receive in the long run. Yet, John is a valuable resource to the organization and through his results over the years (but lack of leadership abilities), he is being compensated at the maximum while Dave has been brought in on the lower end of his pay scale (either weak job market or didn’t negotiate well or just wanted to leave last job regardless). I would advise Dave to go back to school and get his four year degree in order to be competitive in future salary negotiations given he apparently already has the skills or experience to obtain the positon.
Pay grade overlap is useful in that it allows for tenure or long term employees to be valued as far as equity as higher individuals are brought in. For example, it was a de-motivator when a manager at the next level was brought in making 2oK more than me, yet they were completely oblivious when it came to “our business”. But they had skills necessary to move up the chain and brought new ways of thinking to the organization. Personally, I would have felt better if they started low and earned it within our business, but the pay scales were set at about 10% intervals from highest on low level to lowest on high level, so it varied a lot based on where you were at (in my case-apparently low). The pay ranges on pay grade overlap seem to give more fairness to the equity distribution while allowing for motivation to excel and potentially make just as much as that person you report to. I have often seen that pay (and title) can put egos on an entitlement line of logic which can interfere with organizational goals and the pay grade overlap can inhibit that to a certain extent.