Alternative pay structures

Two alternative pay structures are merit pay, a pay structure which adds performance to a base pay rate, and knowledge based , or skill based pay, a pay system based on the knowledge and skills of the individual instead of the position the individual actually holds. Other alternative pay structures such as gain sharing and profit sharing are based on the performance of the company instead of the performance of the individual.(Knowledge based pay is a pay system wherein workers are compensated according to their skills and abilities rather than their actual position.) Knowledge based pay may lead to greater job satisfaction through cost effectiveness dictating greater worker utilization and job enlargement. Also workers may see skill based pay as more equitable, thus leading to more productivity. Workers might be more inclined to apply special expertise to increase productivity if this behavior is rewarded beyond the norm.  

People who are well compensated are less vulnerable to voluntary turnover. This may be indicative of job satisfaction. The organizational motivation for changes in pay structure may well be to enhance performance, but a concomitant effect could be an increase in job satisfaction.Another alternative pay structure is merit based pay in which increases in pay are tied to productivity. Workers receive bonus pay beyond their base rate based upon their performance. Merit based pay systems do not work so well wherein productivity and performance are qualitatively based and are difficult to measure in a quantifiable manner. For instance, with health care it is demonstrable that, for medical/surgical nursing, an increase in the quantity of care given is directly related to the decrease in quality of care given. There is a negative correlation between the number of patients per nurse, and recovery rates, also there is a positive correlation between the number of patients per nurses and the amount of noscomial infections. Furthermore merit pay systems enhance competitiveness between individuals and teams, de-emphasizing organizational cooperation and cohesion. Increased competition may degrade social interaction and networking and thus actually lead to a decrease in job satisfaction. In many merit pay systems the amount of merit pay compared to the base rate is too small to provide motivation.Gain sharing is a group based merit pay system wherein the attainment of group performance or productivity goals is rewarded with bonuses. Profit sharing is a form of gain sharing which is easier to administer but has the downside of a long interval between instrumental response and reinforcing outcome. Under these conditions association information may be difficult. Profit sharing also shares with gain sharing the drawback of the individual’s contribution to the group effort is difficult to identify and thereby to associate with bonuses. Bonuses may become seen as entitlements and worker dissatisfaction may result from a drop in bonus rewards.Alternative pay structures have their advantages and disadvantages. The advantages are mostly from alternative pay structures providing workers with more attention from management, illustrating the Hawthorne effect, and are minimized over time. The disadvantages are related to employee perception of bonuses as entitlements. Job enrichment and job enhancement would seem to be the less problematic means of increasing job satisfaction.