Introduction
This paper entails an analysis of a case study titled ‘A Dead-End Street.’ The analysis identifies the human resource management issues related to the incident presented in the case study. Additionally, the analysis further highlights the specific human resource management technique that can be applied in resolving the problem.
Case summary
The case study presents a workplace issue encountered by Rogers Tomlin, an engineer at Zee Engineering Company. According to the case study, the company’s management team undertook an annual salary review on Rogers’ salary. The management team resolved to increase his salary by 10% in recognition of his 10-year tenure at the company. Within the 10 years that he has worked at Zee Engineering, Rogers has been promoted twice, and his annual salary increased from $42,000 to $86,000. Despite the fact that Rogers was initially happy with the salary increment, he later discovered that the company had set the salary scale of a newly hired engineer fresh from college at $ 59,000. The realization of the fact that the starting salary of the newly hired employee was much higher than his starting salary increased Rogers’ dissatisfaction hence motivating him to raise the issue with the company’s human resource manager, Joe Dixon.
Analysis
Fair payment
The fundamental human resource management issue highlighted in the case study relates to employee pay structure. Durai asserts that the process of fixing the pay scale involves a delicate balancing act due to its potential influence on the employees’ level of commitment, performance, and satisfaction (319). Subsequently, organizations should implement effectively designed pay structures. One of the essential elements that the organization’s human resource managers should take into account entails ensuring that employees are compensated fairly and equitably. If employees perceive the pay structure to be fair, they are more likely to be motivated hence improving their productivity.
Durai hypothesizes that the “purpose of developing a pay structure is to achieve an effective differentiation of pay based on knowledge, skills, abilities, commitment, performance, and productivity of employees” (319). The process of designing the pay structure is further based on the prevailing labor market conditions and the job evaluation report. Therefore, it is imperative for HR Managers to ensure that the pay scale takes into account the concepts of internal and external equity.
Internal equity underscores that organizations should ensure that employees performing similar jobs in accordance with the job evaluation report should receive equal pay. Thus, HR Managers should integrate a high degree of objectivity in the job evaluation process. Some of the factors that should be taken into account relating to the employees’ seniority, competencies, and merit. Furthermore, HR Managers should desist from discriminatory practices in the evaluation process (Durai 322). The concept of external equity is concerned with ensuring that the pay scale adopted by an organization is comparable to the industry average. This aspect is critical in improving an organization’s competitiveness in the labor market.
Despite the fact that the pay scale is subject to the forces of demand and supply in the labor market, it is imperative for organizations’ HR Managers to appreciate the importance of wage differentials due to external factors on an organization’s long-term competitiveness. Results of a study conducted on the determination of pay scale for the newly hired employee by Galuscak et al. assert that external labor “market conditions are relatively less important than internal pay structure in determining the hiring pay” (7).
The decision to set the wage for the new employee at $59,000 only took into account the prevailing conditions in the labor market. On the contrary, the pay rise implemented on Rogers’ salary over the past ten years did not take into account the prevailing rate of inflation, which indicates the existence of unfair practices in implementing the pay structure.
The salary increment was not due to the company’s commitment to appreciate the effect on the prevailing rate of inflation. On the contrary, his salary increment was also because of the two job promotions that he had received. The firm’s decision to promote Rogers was a result of his exemplary job performance. Job promotions mean that Rogers was faced with additional job responsibilities. To commensurate with the new job responsibility, Zee Engineering was required to increase Rogers’ salary. Sims asserts, “In addition to the overall salary increase, employees should be awarded salary increment due to their performance” (437). Thus, Rodger would be earning a higher amount if the firm had factored in the changes in the rate of inflation. Therefore, one can argue that Rogers was not fairly remunerated.
Renz and Herman are of the opinion that newly hired employees with no or little work experience should be paid at the minimum rate (732). However, the company, the salary level, paid to the newly hired employees indicates a significant wage differential as compared to Rogers’ starting salary of $42,000. Renz and Herman assert that employees base their perception regarding the fairness of their pay by comparing with the level of their input, experience, credentials, and effort in performing the assigned job roles (735). The maximum rate of payment should reflect the highest value that the company expects to receive from a particular job. Renz and Herman emphasize that even if “an incumbent performs the job superbly and has done so for the last fifty years, the job simply worth no more than the maximum” (732).
Mankiw asserts that the rate of inflation is one of the fundamental aspects that organizations should take into account in determining pay rise (514). Sims adds that an organization’s compensation system should be consistent (437). One of the ways through which a firm can achieve this goal is by taking into account the prevailing Consumer Price Index [CPI], which is a metric that is used in assessing the overall change in the cost of goods (Mankiw 514). After assessing the change in CPI over the past 10 years, Rogers recognized that if his salary was aligned with the rate of inflation, he would be earning $85,000.This salary level is not inclusive of the promotions that he had received within the 10 years. However, he expects to earn an annual salary of $86,000 after the pay rise and promotion.
According to Mankiw, organizations are not required to adjust the pay structure with the same rate as the change in the CPI (514). On the contrary, they should ensure that the pay rise takes into account approximately 50% of the prevailing CPI.
Response to Rogers
In response to Rogers’ complaint, Joe Dixon, the HR Manager at Zee Engineering Company, continued to emphasize that the company’s decision to set the salary of the newly hired engineer at a relatively higher point was motivated by shortage of supply in the labor market. Mankiw accentuates that the wage level for newly hired employees tend to go down if the supply conditions in the labor market are favorable (514). Thus, if the supply at the labor market at the time of hiring were high, the newly hired employee would have received an absolute minimum. However, this approach would have adversely affected the organization’s long-term competitiveness in the labor market. Instead of over-emphasizing on the effect of labor supply and demand on the pay scale, the HR Manager should have emphasized on the company’s commitment to ensure that its employees are compensated fairly and equitably. Therefore, to achieve this goal, the HR Manager should have portrayed greater appreciations on the dissatisfaction amongst employees regarding the firm’s pay structure. This move would have made the employees feel appreciated.
Wage survey
The perception of unfairness might trigger voluntary turnover intention amongst an organization’s workforce. Zee Engineering is likely to experience an increase in the rate of voluntary turnover as evidenced by increase in the level of dissatisfaction amongst the firm’s employees. A significant proportion of employees were dissatisfied that they were actually making less money compared to when they first joined the company. Such an occurrence might adversely affect an organization’s long-term productivity. The employees might consider joining Zee Engineering competitors. Alternatively, the competitiveness of the firm in the labor market would be impacted negatively.
As a way of averting the occurrence of a high rate of employee turnover and a decline in employee productivity because of the perceived unfairness, it is imperative for Zee Engineering HR Manager to consider making the necessary adjustments. The firm can achieve this goal by implementing the concept of salary or wage survey. Through this approach, the organization will be in a position to implement a fair pay scale. The salary survey process involves gathering data on issues associated with employee compensation such as the wage levels, bonuses, salaries and other benefit provisions (Grobler 360).
The rationale for conducting salary survey is to integrate a high level of comparability in determining the salary levels. This means that the likelihood of an organization setting salary levels for specific job groups that are comparable to other firms in the industry is increased (Grobler 360). Wage surveys provide organization’s insight on how to set the salary. For example, some companies set the pay scale by separating the junior and senior salary levels based on their experience. Conducting wage surveys will therefore enable the HR Manager at Zee Engineering to benchmark its compensation practices against other industry players.
Pay grades
One of the concepts that Zee Engineering HR Manager should consider in fostering a high level of employee satisfaction and retention entails implementing the concept of pay grades. Therefore, to achieve this goal, the organization’s management team should consider undertaking an extensive job evaluation. The job evaluation report should form the basis of determining the most appropriate pay system. The pay grade approach involves setting the minimum and maximum levels of compensation in accordance with the employees’ job grade. The concept of pay grades will aid in streamlining the company’s employee compensation policy. This arises from the fact that employees’ will receive salary increment based on their progression trough the stipulated pay grades. Thus, the likelihood of newly hired employees being paid higher than the incumbent employees in the same job grade will be eliminated. However, Grobler states that it is imperative for organization’s managers to ensure that the pay grades are set by taking into account the concept of internal and external equity (358).
In the process of implementing pay grades in the firm’s pay system, the HR Manager should ensure that the pay grading system is optimally designed. One of the issues that the firm should consider entails overlapping the pay grades. The underlying principle behind overlapping the pay grades is to improve the ease with which the firm promotes employees without necessarily having to increase their salaries. This goal can be achieved by ensuring that the maximum pay level of a particular job grade is relatively higher than the minimum pay level of the subsequent job grade. Through this approach, Zee Engineering will be in a position to develop a strong human capital base. For example, the firm will be able to promote or transfer employees across different job responsibilities. Consequently, implementing the concept of pay grade is likely to foster employee development.
Conclusion
The case study highlights the importance of implementing effective human resource management practices to develop a strong human capital base. The compensation strategy has a significant effect on an organization’s capacity to attract and retain productive workforce. However, it is imperative for HR Managers to ensure that the compensation system is equitable and fair. The case study illustrates existence of unfair and inequitable pay structure at Zee Engineering. However, the firm can improve the pay structure by implementing the concept of pay grades.
Works Cited
Durai, Pravin. Human resource management, New Delhi: Pearson India, 2010. Print.
Galuscak, Kamil, Mary Keeney, Daphne Nicolitsas, Frank Smets, Pawel Strzelecki, and Matija Vodopivec 2010, The determination of wages of newly hired employees; survey evidence of internal versus external factors. Web.
Grobler, Pieter. Human resource management in South Africa, London: Thompson Learning, 2006. Print.
Mankiw, Gregory. Principles of macroeconomics, Mason: Cengage, 2009. Print.
Renz, David, and Robert Herman. The Jossey-Bass handbook of non-profit leadership and management, San Francisco: Jossey-Bass, 2010. Print.
Sims, Ronald. Human resource management; contemporary issues, challenges and Opportunities, Greenwich: Information Age Publishers, 2007. Print.