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Just-Meaningful Pay Increase

Essay Questions
1- Discuss the concept of a "just-meaningful pay increase."

A successful answer should contain several elements. First, a student should discuss the notion of perception. The pay increase must be seen by employees as making a meaningful change in compensation. A discussion of equity theory would be appropriate. Second, students should discuss cost-of-living differences among individuals. Students may also want to discuss the link between pay and motivation. Will the pay increase necessarily have the performance effects a company is looking for?

2- A company of 15 employees has recently decided to overhaul its performance appraisal system. Which plan would be most appropriate for the company to adopt? Why?

An answer should consider why the size of the company is of importance in considering the adoption of a performance appraisal plan. Further, the students should discuss the relative merits and liabilities of the different categories of performance appraisal methods (trait systems, comparison systems, behavioral systems, and goal-oriented systems). Students may also consider the supervisors' appraisal approaches as well as the compensation specialists' skills in designing and implementing such plans. The corporate and compensation strategies, respectively, are also important.

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1- The concept of just-meaningful pay increase

Pay increase is given by a company for some reasons - as a motivation strategy, as a fulfillment of social responsibility, as a way to compensate certain level of performance, or as a way by which the employees will be given a share in the company's profits.

As a motivation strategy, it is important that the employees' perception must be taken into account. Employees tend to have different perceptions as to what is meaningful or not meaningful pay increase or change in compensation. Their perceptions may vary depending on their needs and the extent of which these have been achieved. An employee that is still in the stage of fulfilling its physiological needs (based on Maslow's hierarchy of needs), a pay increase that would significantly increase his purchasing power or his ability to purchase basic commodities would be meaningful and motivating. For another employee who works primarily because of the prestige of being a part of a well-known company, the pay increase would not be a big deal. What is more important to him is maintenance of good image of the company in the community.

Furthermore, employees have different perceptions of a pay increase that is meaningful or not meaningful because of their cost of living differences that are significantly affected by: size of family, age of members of family, and current socio-economic status of the household.

In determining what is just, the equity theory may be utilized. Equity theory states that an employee compares his or her jobs' input-outcomes ratio with that of relevant others and then corrects any inequity (Robbins and Coulter, 2003). This theory was developed by J. Stacey Adams who proposed that employees perceive what they get from a job situation in relation to what they put into the job and then compare this with the output-input ratio of others. The perceived comparison will be their basis in assessing whether the compensation given by employers is just or fair. This theory implies two comparisons made by an employee- his pay in ...

Solution Summary

The solution discusses the concept of a "just-meaningful pay increase."