The paper 'The Theory of Pay Effectiveness 'is a wonderful example of a Business Assignment. Pay or compensation is a very sensitive issue in organizational management. The manner in which employees are rewarded according to rank, roles and responsibilities, qualifications and other considerations determine how an organization is perceived by the public and stakeholders while this also impacts on the overall organizational performance. Some organizations are accused of underpaying some of their top executives while others are alleged to overpay them judging from the profit margins of some companies.
For instance, J.P. Morgan an American investor with many investments across the globe is argues that he cannot invest in an organization where the CEO earns more than 50% above the immediate executives (Compensation standards, 2009). This basically borders on internal issues while external issues usually involve pay levels offered by competitors or prevailing economic conditions in a specific country or region. In most cases, external and internal pay equity determinants are at loggerheads thereby placing the organization in a difficult position in setting up fair and acceptable pay, rewards, and compensation levels for their employees. In analyzing the possible difficulties arising in such situations, this paper will in the first part consider a number of theories and models developed in relation to pay and compensation matters, then look at the organization which is a government-funded hospital in the UAE, Dubai and then give the findings and makes conclusions.
The hospital is facing stiff competition in employee compensation and pays issues from overseas markets and the domestic private health care sector. Due to privacy issues, the name of the organization has been withheld and takes up the name organization X for the purposes of this paper only.
However, the issues discussed herewith are real and currently pose a challenge in pay matters to the organization. Internal pay equity is the primary methodology used by many organizations in setting up compensation levels for all employees. A ratio is established whereby the topmost ranking employee, in the case the CEO is paid a fixed percentage of the next level employee, a figure that is discussed and set by the board of directors. This figure when adjusted therefore requires that all employees are affected by the changes in order to maintain the equity across all the layers.
However, this type of model faces a challenge due to diversity in organizational structures. Originally the model was developed to suit a vertical structure where employee ranking is precise and very obvious. With the model being adapted to suit other structures, managers face the problem of layering employees where there is no direct flow of authority and power in the organization to warrant a mathematical ordering of pay levels (Armstrong, 2002). In organization X, there is a hybrid organizational structure bordering on horizontal and vertical.
It is horizontal in the fact that members are ranked according to job groups and qualifications. Qualified doctors are grouped together and receive the same basic pay. Nurses across all the departments also form a different level in the vertical structure where they receive the same pay. The horizontal structure seems to encourage the formation of work teams where team performance determines the individual level of compensation and mostly applies to the nonmedical staff.
Given that this is a government agency, the ordering of employees in levels is often hard and the adopted structure rigid plus that employment levels have to be in harmony with government policy and not market forces (Jackson & Schuler, 2004).
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