Effect of Market on Pay Rates and Structures
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This assignment is based on two parts. Part A is focused on what is happening in the market of pay rates and structures. How management decide to pay to their employees and factors affecting the pay systems? Part A is mainly discussed on the factors that affecting to the pay rates in organisations. The role of management to deciding the pay structure and the system, they should follow to decide the pay rates. It consists of many illustration and examples in the way of case studies. It includes an overview of the scope in reward management, a description of the factors of pay rates coming in this context. The careful review and analysis are performed on deciding the pay rates, the conclusions are judged with suitable references and examples.
In part B of this assignment, the topic of dismissal is discussed. The types of dismissals procedure and the methods of managing the dismissals in organisations. In this assignment, we discuss the need of the dismissals and how to manage it properly. The is supported with literature reviews and case studies. What is the affect of the dismissals on the employers as well as employees and how society is affected by this? This part will discuss on fair dismissals and the legal aspects of the dismissal process.
Do you think “management freedom of action in deciding relative pay rates is constrained by the product market, the labour market, collective bargaining, technology and the internal labour market ” Discuss and debate. What factors should management consider in your opinion? Substantiate with many examples.
The skills of managers had explained that there are several ways of connecting different types of efforts and rewards relying on what is being occurred and by which method. There are many varieties of pay distribution structure. Payment by outcome plans of different types, system then connect time-related encouragement to achievement criteria group and individual schemes, bonus plans relates to plan outcome. Sometimes payment systems are determined to work in some conditions but not in all. Sometimes, management's experience with the payment system is not planned in a proper method to show which payments are suitable for which situations, its objectives?
The management indicate to some of the characteristics in choosing proper payment systems such as- product market, labour market, trade unions, technology and the expectations and manners of workplace. There are further factors which also need to be considered by the management while deciding or modifying the pay system. Each factor is present in every situation, but differs in their application depending on the time and situation. The management should organise systematically the payment systems and would require a method of calculating the differences applied in these factors.
The management's experience need a process of designating payment schemes in such a manner that it should match with the conditions. Although, there is no specific criteria or any particular system designed, which can provide management to classify payment systems, especially to help at the time of choosing payment system. Also there is no particular format or method which is available to suit unusual or unpredicted situations. It has been said that when basic necessities are satisfied, like food, shelter, clothing, then other higher needs comes further. Therefore employees expect from the management to redefine their jobs, so that their jobs can be enlarged and they get work promotions, which could enlarge their range of skills. There is need for training to enlarge the skills of employees, which they expect more from the management's side to be classified as continuous process. Management have to deal with all these problems. Firstly, they have to classify the schemes and motivate the workers. Secondly, they have to add the procedure that provides them opportunity of the design of organisation. Thirdly, to add the aims of the managers which they would need to set themselves. Consequently, there are many other factors while discussing the pay rates by the management.
The time, management selects the pay rate for their workers, they have to choose how they will reward them. The system's transparency is the basic key to make certain that everyone knows the system of their payment calculation and on what basis they are receiving their bonouses or enhancements.
What is Pay Structures?
According to Armstrong and Brown, Definition: “Pay structure gives a structure for managing base pay and other aspects of reward”
Some main types of pay structures are
- Traditional graded structures
- Broadbanded structures
- Graded pay structures
- Job families
- Mixed model ( broadbanded and job family)
- Pay spines
- Individual job structures
In many organisations, there is lack of formal pay structures and they use ‘spot rates' for different jobs or people. There is no scope of progress in pays, just what they think at that time the pay should satisfy minimum needs for the workers & that will be the pay of that worker. For example, Thistle Hotels acquired a market-driven spot rate approach. According to the authors, in the UK ,there are great numbers of organisations with less than 100 employees have no formal pay structure, just what they think at the time of the appointment of the employees, they are worth, that will be the pay structure of them. But in other big organisations, they use the formal structure of pay which
- Appoint pay scales grouped into grades.
- Progress the actions for pay progression.
- Specify the criteria on which individuals or jobs can shift between grades, bands or levels.
Factors Affecting Pay Rates
Managers freedom of action make manager more flexibility in determining an employee's pay rate within a specified salary range. With this flexibility comes accountability, however, requiring managers to apply sound judgment using a set of established pay factors to justify an employee's rate of pay.
Salaries are “managed” normally around market rates depending on departmental needs, the work unit's needs, and budget availability or constraints. Applicant and employee situations may make one or more of these factors more important in determining the pay rate. Managers may also consult with Human Resource staff experienced in applying pay factors as a resource when making pay decisions.
There are primary pay factors to consider when making a pay decision in career. Those pay factors are described below.Pay decisions should be made fairly taking into consideration all of the following.
There are several things and issues which management to kept in mind because these issues are important and core issues could make a impact on management in terms of relative these core issues are under.
On first stage we need to discuss these issue then after that recommendations could be make easily
1) Labour market:
In labour market, labour organization is usually showed as a complication for adjustment. But responses of unions are aggressive opposition to acceptance or even explicit cooperation. There are three main characteristic responsible for this kind of events. These are mention in the below diagram.
A) Strength of labour movement:
In industry, the labours an aggressive attitude on wages tends to be associated with relatively strong unions. As expected, the small or week unions are less aggressive. The large or powerful unions are more responsible because they are greatly participation in discussion and decision making at the national level. On the other hand in the developing countries this kind of formality is totally different. Only a few unions have strong labour movement and among this the aggressive attitude is common.
B) Economic Cycle:
In the developing as well as industrial nations, the depression is reduces aggressive attitude of labour regularly.
C) Political institutions:
The nature of the political command is only associated with how governments handle labour relations. More important things are that behaviour of labour unions towards the nature of political party and how these unions are connected with these parties. The workers' cooperation is related to those things which encourage the business to invest. The current sacrifices will ultimately relate to future gains or profits. (Booth, A. (1995), The Economics of the Trade Union, Cambridge, CUP.)
Case Study: Labour Market Outcomes and Trade Reforms: The Case of India*
The Policy Reforms of 1991
In 1991, modifying labour laws to enhance flexibility in labour markets was envisaged as part of the economic reform program that commence. However, the lack of harmony and political instability has postponed industrial relations reforms. A handful of changes have been initiated in recent years. For instance, as part of the restructure of unprofitable public-sector enterprises, a voluntary retirement system was institute by the government to reduce their workforce. In 2002, the government decided to modify the Industrial Disputes Act of 1947 allow companies to lay off employees without seeking its permission, if they employ less than 1,000 workers. This change is likely to impact 95 percent of Indian enterprises, provide employers with greater freedom in their labour decisions and improve labour market flexibility.
Labour Markets: Regulations and Rigidities
The informal sectors of the economy, which account for the bulk of employment, have remained outside the scope of labour laws and labour-market Institutions. Furthermore, the informal nature of employment contracts, the illiteracy of the workers, and the surplus labour in the rural economy have condemned attempts to unionize these workers. In India, Most labour laws are applicable to the organized sector. The organized sector offers what can be called “good” jobs and failure of the sector to draw out labour from unorganized sectors leads to a general decline in employment conditions.
Labour Market Rigidity
India's labour market is ranked 45th labour market flexibility in the GCR 1998. Rigidities include rigidities in the deployment of human resources, in work practices, and in wages. While India is a labour surplus economy, wages are often set at above market clearing levels, particularly in the organized sector. The downward demands on wages are mitigate by labour market imperfection such as the existence of monopolistic trade unions and minimum wages guaranteed by law. These conditions apply especially to the public sector. The government fixes minimum wages for workers in the unorganized sector. However, constitutional minimum wages have been largely ineffective in influencing wages in unorganized sectors due to weak enforcement, irregular revisions, and lack of proper indexation to cost of living.
In an economy where state-sponsored social security is nearly absent and where “good jobs” are unusual, employment security in the organized sector is of apparent value. The issue is not simply one of removing rigidities; it is also one of concurrently ensuring the economic and social security of the workers. While labour market flexibility will make possible readjustment and restructuring, it must be accompany by some kind of insurance and social security to the huge unorganized labour force in the country. Employment provided under the “Jawaharlal Rodger Yolanda” — a form of unemployment benefit where the government provides employment through labour-intensive infrastructure projects.
(Pushan Dutt, Department of Economics, University of Alberta, 2005.)
2) Product Market:
A full understanding of how product market regulation affect labour market out comes requires a systematic measurement of the channels through which these regulations affect equilibrium outcomes in various economic environments. In this framework, job insecurity generates a perverse effect on workers incentives, which shifts up the real wages schedule and may yield employment losses. Product market regulation and redundancy payments contribute to reducing labour turnover, thus easing the workers incentive constraint. Consequently, and against conventional wisdom, regulations may have a positive impact on employment, and a substitution effect may emerge across deregulation policies. Moreover, in some cases a complementarily arise between regulation in product and labour markets, both interacting to ensure more stable labour regulation.(oxford journals, industrial and corporate change, 2006)
Product market reforms can give significant economy advantages. All organisation for economic development (OECD) countries rely essentially on competition in product markets to organize product. The advantages of competitive markets over command and control system is generally recognized. It is regularly difficult to provide experiential evidence of the effect of incremental changes in the intensity of competition for aggregate economic performance. This is partly because product market competition is only one among many factors influencing key aggregate performance indicators, such as productivity and employment. OECD has a rational connection between strong competition in markets for goods and services and better productivity and employment outcomes.( Product Market Regulation and Market Work: A Benchmark Analysis, Lei Fang and Richard Rogerson, NBER Working Paper, February 2007)
BT- telecommunications company increase marketing response rates by 100 percent.
BT needed to identify customers' propensity to purchase and then calculate their likely competitive value once they become customers, to obtain the greatest value from its marketing budget. After creating accurate customers profiles, BT planned to develop new product targeted to specific customers groups.
BT selected PASW Modeller (one type of software) to analyze data and build exploratory models for its “business highway” campaign, which was aimed at small business customers. A higher response rates to marketing campaigns, increase product revenues, and an even greater market share for the company.
1) Improved direct mail campaign response rate by 100 percent.
2) Provided sales and marketing with a targeted “best prospects” list the once peaceful telecommunication industry has turned competitive. To retain its customers, gain new customers, and maximize sales, the company needed facts about exactly who was buying its products and services. To identify these customers, the company established a customer and campaign analysis team, headed by Senior Consultant Stephen O'Brien, within its business connections division. The team's first assignment was to model customer profiles for BT's Business Highway product, which provides small business customers with three telephone numbers, one standard and two digital, on a single line. The launch included a major direct mail campaign and national media coverage. (http://www. Financial times.co.uk, 2007)
3) Collective Bargaining:
Collective bargaining is specifically an industrial relations instrument or device for employment relationship. In collective bargaining, the union always has a combined interest for the benefit of several employees. Where collective bargaining is not for one employer but for several, cooperative interests become a characteristic for both parties to the bargaining process. Further, in labour relations involve the public interest on pay which can impact on
need to be satisfied, such as the subsistence of the freedom of association and a labour law system. The nature of the relationship between the parties in collective bargaining distinguish prices. (Sriyan de Silva, Collective Bargaining Negotiations, 199, INTERNATIONAL LABOUR ORGANISATION)
Governments are interfere in collective bargaining because the negotiations are of interest to those away from the parties themselves. In collective bargaining certain essential conditions the negotiations from normal commercial negotiations in which the buyer may be in a stronger position as he could take his business elsewhere. In the employment relationship the employer is a buyer of services and the employee the seller, and the latter may have the more powerful authorize in the form of trade union action. (Blau, F.D. and Kahn, L.M. 1996: International Differences in Male Wage Inequality: Institutions versus Market Forces, Journal of Political Economy, 104, 4, 791-837.)
The ILO Right to Organize and Collective Bargaining Convention (No. 98), 1949 describes collective bargaining as: "Voluntary negotiation between employers or employers' organizations and workers' organizations, with a view to the regulation of terms and conditions of employment by collective agreements."( ILO, Collective Bargaining Convention, 1949)
According to Marginson and Sisson. There are several essential characteristics of collective bargaining, all of which cannot be reflected in a single definition or description of the process:
- It is not corresponding to collective agreements because collective bargaining refers to the process, and collective agreements to the possible result of bargaining.
- It is a method used by trade unions to develop the terms and conditions of employment of their members.
- It seeks to restore the imbalanced bargaining position between employer and employee.
- Where collective bargaining impinges on government policy.
- Where it leads to an agreement, it modifies the individual contract of employment because it does not create the employer-employee relationship.
(Marginson, P. and Sisson, K. 1998: European Collective Bargaining: a Virtual Prospect?, Journal of Common Market Studies Vol 36, 4, 505-28.)
Case Study: Bargaining Power for Farmers, or The More Things Change…
Richard A. Levins is Professor and Extension Agricultural Economist in the Department of Applied Economics at the University of Minnesota.
Since the closing of the frontier in the last quarter of the 19th Century, the encounter with an increasingly dominant urban-industrial society has emerged as the major force in American agricultural development.The dramatic impact of this encounter during the last two decades has contributed to a crisis in social organization in both urban and rural areas.This crisis has resulted in intense concern by farmers and farm organizations over agriculture's changing role in the national economy. “Bargaining power for farmers” has turned into one of the leading issues in current agricultural policy discussion.
The milk holding action by the National Farmers Organization (NFO) in March 1967 dramatized, both to the general public and the national political leadership, the seriousness of the efforts some farmers were willing to make in order to achieve greater bargaining power in the marketplace.
In response to this new evidence of rural unrest Secretary of Agriculture Freeman took to the country for a series of “shirtsleeve” conferences with largely hostile farm audiences across the Midwest.Task force studies and meetings with farm producers and marketing organizations to explore the interest and economic consequences of strengthening the power of farmers to bargain about terms of sale and market prices were conducted by USDA during the fall of 1967. In his January 1968 State of the Union Address and his February 27 Agricultural Message, President Johnson recommended that Congress give serious attention to legislation “to help farmers bargain more effectively for fair prices.”
The issue of bargaining power for farmers is not new in the history of agricultural policy discussion. Farmers have long used organization as a means of improving their political and economic bargaining power.The National Grange, oldest of U.S. farm organizations (founded 1867), grew rapidly in response to the long period of rural distress in the 1870s.The Farmers Alliance Movement in the 1880s represented a second major attempt by farmers to organize themselves, an effort that led to the formation of the Populist Party in 1891.The Farmers Union, organized in 1902, drew heavily on the old Farmers Alliance-Populist movement for its leadership and support. In contrast to earlier political efforts, however, the Farmers Union placed major emphasis on achieving economic power through cooperative marketing. The most dramatic effort by farmers to achieve direct marketing power occurred during the 1920s. Farmer cooperative associations achieved protection from antitrust action through the Clayton Antitrust Act (1914) and the Capper-Volstead Act (1922). Under the leadership of Aaron Sapiro of California, national commodity cooperatives for wheat, cotton, tobacco, peanuts, and many other crops were formed.The objective was to obtain control over a sufficient portion of the entire crop to become a dominant factor in the market. Control of producer deliveries were to be achieved by means of long-term contracts with members. (http://www.choicesmagazine.org/2002-4/2002-4-02.pdf)
Technology also plays an important part in terms of pay rise or relative pay rate because now a days technologies like work process engineering has minimise the labour role also because in the past labourer do so many things with hand but now a days those things could be easily done by the help of technology has some how overtaken the place of labour work .So management also bare in mind that if they are going increase relative pay or they going to invest in technological side they can save a lot of money while investing in technology. So technology also plays important role in terms of pay rise .
5) Internal labour market:
Internal labour market also plays an important part on relative pay rates because now a days even though free capital market concept but all of this some countries at present they protect internal labour market .Because now a days internal labour market peoples enjoyed more benefits instead of peoples who came from some where else .Internal labour market also gives management some so management they believes internal labour market is bit more expensive then international labour market.
6) Financial Resources Available:
Generally , it is HR staff for how much the salary will be paid to workers but there is also the responsibility of the manager as well to promote their workers. Often, when manager want to promote their staff the financial of the organization will become the challenge for the manager. Therefore manager should be aware of budget resources of all decision will be made. They have to weigh the available budget that company has against with the other factors for the best solutions. Managers should insight of the competencies and how HR used to recruit, hire, evaluate, develop, and pay their staff. The manager probably get help form consulting with HR staff for more information. Before promote any staff for more pay that is the duty of manger to make sure that the company have the budget available for that position for the promising a pay rise, which means if no fund available that is no point for manager to post or advertise for a higher position to their staff. As a managers that is necessary to work with all level position in the organization such as subordinates, upper management and most important is cousulting with HR for get the information as much as possible to decide what range of performance will be the most required for employee in each section to move from one level to another. As the employee , they have right to use their new ability or their specific competence they gain for a increase pay. Normally, if the employees who have the higher-level skills which not needed for the work the skills they have will be not considered for higher paid. Employees must be able to use their new competencies within the work unit to qualify for a pay increase. Managers must make sure that they have a plan and are allocating pay raises fairly and equitably rather than haphazardly or under changing “rules” for different employees.
7) Appropriate Market Rate:
As managers, it is crucial to understand of market labor value of particular job for making decisions about the salary. Sometimes market rate not fixed all the time therefore the manager can justify paying higher rate on some case. Managers should be aware of the competencies and skills that already listed as minimum qualifications for the job. Managers should ask HR to establish a higher Market Reference Rate that exceeds the established market rate (if verified by market conditions). HR regularly monitors market rates for certain jobs but can do special reviews at the request of managers in situations like these. Generally, management should not pay too high than the established market rate for new employees for the task that only worth for certain amount. Hence, management have to study and always updated the established market rate for each position and level that will be promoted. The best way for manager to update is to consult closely with the HR offices for market salary information.
8) Internal Pay Alignment:
Manager should attempt to equalize the pay amount of the worker at the same level, same task , same job and performing in the same unit as much as possible The manager have to make sure that the person who will be paid more than the others, will be justified by more than one factors not only the years of services. When the manager becomes aware of any possible unjustified pay inequities among peers, these inequities should be investigated and resolved or justified to maintain fair treatment and to avoid legal problems based on possible discrimination or equal employment issues. The HR office is available to assist with reviews of internal pay equity issues. Fair salary offer for new employee should be consider with the existing employee's salary and benefit package compare with the market rate. The manager may decide to make some salary adjustments. Or the manager may decide that this is not an important factor compared to other pay factors, and may not need to make any adjustments. Managers might again consult with HR staff for help in analyzing differences in pay and benefit package comparisons.
For more example, a chosen experienced applicant may be coming from another state with a comparable salary but where the cost for family health insurance was significantly less than the company rates. The manager may decide to add a proportionate increase to the salary offer to make up for the applicant's increased insurance costs. In another example, a chosen experienced applicant may be coming to us from another state with a much higher salary (above the market rate for this position). The manager decides to offer the company standard market rate salary and considers this a fair offer since the cost of living in the company area is significantly less than in the applicant's former state.
9) Required Competencies:
That is the managers duty to make sure that the staff or an applicant has the minimum qualifications of the job. Qualifications are the competencies such as the knowledge, skills, abilities and traits which is determine and employee's perform. These things are the factors of how applicants are hired and staff appraisals. Hence, it is very crucial that the competencies is expected for each person to categories their level in a particular job. Manager should make sure that any pay rates accurately reflect an employee's competency level and the correct associated market rate.
Moreover, managers have to make sure that a current staff have the minimum skills which required of the job. In filling a vacant position, the manager should consider on the level before posting and lists minimum and preferred qualifications. Also the pay range for the job at the suitable contributing, journey or advanced level. The duties and responsibilities for the job also counted for recruit employee. An applicant who only has the minimum qualification is not possible to qualify for a higher-level job therefore they can not be paid at higher level. Manager must check that the duties, responsibilities and ability are consistently applied to the correct levels. Basically, the more education and experience a person has got , the higher the level of competencies. Managers should be aware that employees' or applicants' years of experience do not always equate with levels of competencies, however. This means that two individuals working in the same class may have equal years of experience, but be at a different competency levels therefore different pay rate.
Pay strategy at Eastern Power plc
Prior to Eastern Power plc becoming a privatized electricity supply company, pay awards were across-the-board annual pay increases and personal progression through salary grades until the maximum of the grade was reached. Annual pay awards were based on cost of living indexes nationally negotiated between the employers and trade unions on an industry-wide basis. With the formation of independent and competing electricity supply companies, the pay system was identified by senior management at Eastern Power as an important means of demonstrating the company's new, more autonomous, market-driven nature. Furthermore, it provided a tangible mechanism for reinforcing the cultural change required of individuals accustomed to working in a large public utility.
Performance-related pay was introduced with no real preparation of the workforce and minimal, if any, training of line managers about either its intended purpose or application. During the first two years of operating PRP , the reported employee and managerial experience was far from positive. Complaints of inequitable treatment grew, many managers were uncomfortable with their increased discretion and pay decisions were frequently viewed as unfair, subjective and over-dependent on personal managerial preferences. Line management reported feeling unclear about what was expected from them in the new organization, which was reflected in the difficulty they had in setting clear and measurable targets for the employees for whom they were responsible.
At Eastern Power plc, moving to performance-based pay strengthened the power and influence of line managers in the employment relationship but it also increased their supervisory responsibilities, accountability and emphasized the importance of demonstrating fairness and consistency in their decision-making. In a rapidly changing organizational context, it may well provide an immediate means of ‘signalling a changed organizational climate' but clarifying mutual expectations of the wage/effort bargain at the level of the individual remains of paramount importance in the employment relationship. The process of achieving the desired alignment is widely recognized as complex and ‘reward management can be seen as indicative of the contradictions that exist within the discipline labelled human resource management'(Kelly and Monks, 1998:113). In part this is due to the very tangible nature of pay compared with many other human resourcing strategies. The contradictions observed in rewards policies certainly provide plentiful illustrations of a dilemma long identified in strategic human resourcing: how to elicit organizational commitment through the development of employee potential( Walton, 1985) while optimizing the use of human resources just as any other economic factor ( Storey, 1992 ).
(John Leopold Lynette Harris Tony Watson , The strategic Managing of Human Resources, Prentice Hall ,2005 p 211-220)
Smart's are a niche retailer with 300 shops across UK high streets, specializing in a selection of high-quality goods. In total they have 2,500 employees, including 350 at their head office in North London. In 1993 they introduced a new system of performance-related pay to match changes in the business requirements towards a higher-quality service and to make the shops a more self-reliant, integrated force. Previously, the recruitment of staff, the window displays and much of the ordering systems were centrally controlled, but this had now been changed so that staff needed to be competent in more areas and prepared to assist in the three above activities. The new scheme has four key measures of performance: personal commitment, Job knowledge, qualification and experience, achieving objectives, capabilities. Each of these attributes is measured once a year by means of a thorough discussion between job-holders and their supervisors or managers, all of whom have had training in the process of performance management. ( John Stredwick and Steve Ellis, Flexible working practices, google-ebook, pp 175)
NHS managers in 1997 and 1998 showed that performance-related pay did not contribute to improve performance but did cause jealousies between staff and undermine moral. (Dowling and Richardson, 1997, Marsden and French, 1998).
Case study:Water firm widens scope of performance-related pay( Katie Hope, people management, October 13 2005)
Severn Trent Water has introduced performance-related pay for all front-line staff . The water company, which has 5,000 employees, has agreed a two-year deal linking total award to overall company performance based on profit, safety and attendance records.
‘This is an important step in terms of alignment and marks a shift in culture, pay practice and trade union partnership by enabling genuine pay progression linked to performance,' said David Akers, HR operations manager for Severn Trent Water. As part of the deal, Severn Trent Water would be sharing the books detailing company performance with the unions, Akers said. The new deal follows a two year agreement introduced in 2004. This standardized pay across the company and, for the first time, allocated a performance-related award based on individual employees' performance, in addition to a basic award applied to all who qualified for a pay increase. Akers said the new pay method required training so that line managers who were responsible for determining the award became comfortable with rating their staff. ‘ in the first year we had more people rated above average as managers were reluctant to say staff were average. HR had to stay close to the process to check managers were being consistent,' he said.
Since the new pay structure was introduced there has been a 20 per cent increase in the number of employees who say that they feel fairly rewarded and recognized for what they do, according to an internal employee survey.
Aker said the driver to introduce performance-related pay came from a changing regulatory environment which meant performance was increasingly important.
German women prefer fixed salaries, men performance-related pay
( HRM GUIDE, April 2006)
From the survey, the men earn more than women but this is not necessarily the result of discrimination. If we give the choice to the women to chose between fixed salary or performance-related pay, women prefer former even they could earn more by chose the latter. The results revealed by the Institute for the Study of Labor and the University of Bonn.
‘In our experiment only 44 per cent of all women taking part chose the performance-related options, although many of them could have earned more if they had,' is how the Bonn economist Professor Armin Falk summarizes the results. ‘By contrast 68 percent of the men chose this option.' According to this, in the public sector has 33 per cent of all women works in there, a field in which fixed (though relatively low) pay is the norm. In contrast, only 21 per cent of men are employed in this field.
Professor Falk carries out research at the prestigious Institute for the study of Labor ( IZA, i.e. Institut zur Zukunft der Arbeit), at the same time working as the head of the University of Bonn's Laboratory for Experimental Economic Research. In the study he and a member of his team, Dr. Thomas Dohmen, wanted to study what the factors that effect the choice of a pay incentive scheme.
Performance is a key management should bare in mind because performance is a key if employee is doing good and his performance is good management should give him a chance to prosper his career so this is the important factor in terms of pay rise and relative pay rise if employee performance is good he must get a pay rise.
11) Company reputation or performance:
This is also very important factor in terms of relative pay management should keep in mind that if the company is doing well they should consider this factor that will make a good impact on employee .So management should consider this factor in terms of pay rise. Examples management keep in mind in terms of relative pay rise Gold man Sachs an international bank on investment decided to give extra incentives and bonuses after the bank first quarter performance .So company performance is also important in terms of pay rise management must consider this point if company doing well they must passed the benefit to their employees.
It is also important factor or consideration in terms of pay rise or relative pay rates it depends on performance of company economic situation and employee performance some major companies in the world they pass the benefit to its employees in terms of bonuses .If management consider this factor it will make a lot of difference on employee in terms of performance achievements target goals economic growth.Jp Morgan Barclays HSBC and all major companies every year they give bonuses to its employees and they believe it will enhance the performance of employee and will make a good impact on company in terms of business and growth so management also consider this important factor
13) Union influences on compensation decision:
Pay plan design is influenced by the Unions and labor relations laws . The national labor Relations Act of 1935(Wagner Act) and related Legislation and court decisions legitimized the labor movement. It gave power to unions legal protection and approved employees the right to unionize, to bargain collectively, and participate in concerted behavior for the purpose of collective bargaining or other mutual aid or protection. However union also consult with the management other pay-related issues, including, time off with pay, income security cost of living adjustments, and health care benefits.
The 1935 Act created the national labor relations Board (NLBR) to oversee employer practices and ensure that employee receive their rights. Its rulings underscore the need to involve union officials in developing the compensation package. For example, employers must give the union a written details of the employers “wage curves”.-the graph that relates job to pay rate. The union is also allowed to know its members' salaries. (Human Resource Management) -Garry Dessler/Eleventh Edition)Page-425.
14) Other incentives:
There are many other consideration in terms of pay rise or relative pay rate management has to consider .Because they have to keep in mind due to economic growth and other factors if management do not react on time it could cost them so many things because first of all it will not make a good impact on employee and that could affect employee performance and could cost company a lot of money .Generally it has been noticed that company who fail to comply with the issues such as relative pay rates or pay rise bonuses incentives it could harm company reputation as well as employee performance. Employee do not take interest because they are aware of the fact that they do not have any chances to prosper themselves in the company .
Establishing Pay Structures
There are many factors which play important role in terms of pay salary. Job evaluation is really important in terms of deciding relative pay it is important factor for management to keep in mind. There are two important factors which plays important part in terms of pay rise or salary
- Internal factor
- External factor
Firstly internal factor is important in terms of pay rise what is internal factor .Internal factor is like information must be collected like internal external factor both are really important for pay structure.
External factor; Second main issue for management in terms of pay structure and relative rate because management has to decide which of incentives and salaries they are going to offer and it must be based on equality and filled with justice because some societies people complaint about injustice in terms of salaries and pay structure is of different kind few of them are under
All these categories mentioned about relative pay rates and structure. It has been recorded in all four structure types people they get paid differently .
To establish a pay structure the job evaluation process to be considered by the management of the organisation. Job evaluation process includes the formal pay structure and comparison of the job or employees based on different jobs. Job evaluation is focused on establishing a job's relative worth. It is a process of making judgement of people and their jobs and it need a close correlation among supervisors, HR specialists and employees and union representatives. Identifying the requirement for job evaluation should not be difficult on the basis of appraisal of employees.
There are many reasons why the employers use the performance related pay for example, engage employees and clarifying objectives with the organisation's goals, employees motivation by relating pay to achievement of targets, rewarding by successful performance and identify under performance; promote teamwork and fairness, to assist to overall developments in productivity; to bring more flexible pay structure or deal with retention and recruitment problems.
In practice of using the performance related pay is strength of any pay system rely on many factors. Nevertheless, there are some difficulties inherent in all performance related pay schemes such as
Staff motivation and moral - Many researches has found that employee effective less than expected. This is might be the cause of cash limits making rewards for high performance ratings too small to motivate staff.
Problems of poor lacking of communication with staff and training for managers have had a negative results on staff moral.
Over all speaking on the topic there are so many things which could be stop management as well as employee from certain things .As we discussed earlier that product market labour market internal labour market and technological factors they are important .But there must be balance on both sides management must act according to situation and employee must act according to company rules and regulation And comply with company laws .Because this is a sensitive issue relative pay rate or pay rise are affected by so many things but over all management has to act according to the situation .Because the factor we discussed earlier are really important need to over come by management .If management want to achieve at present highest goals in terms of growth development and economic achievements they must have to give importance to this issues and they have to make sure that there employee must feel secure in terms of job security.
The way to pay salary in any company seems to have a big influence on determining for what type of person a company is attractive. ‘If, for example, a bank pays its managers on the competitive principle, it risks attracting above-average financial experts who assess their own abilities too positively.' Professor Falk explains, for the customer this could be a dangerous combination.
“It is important in our highly litigious society to manage dismissals properly.” Explain why you agree or disagree with this statement. Discuss and debate.
Dismissal is to terminate employee's resignation with or without notice the expiry of a limited-term contract without its notice, for so in this situation it is important for employer to handle this situation the law on unfair dismissal does no more than to give employees give a right to treated in which fair and reasonable employers treat them, for example the employer must need to give the reason for dismissal and also reasonably handle these reason by handling employee dismissal but in some cases it is important for employer to act in the result of unfair dismissal we also discuss these reasons as well and also about the fair procedure to handle dismissal and also it is the duty of employer to issue the statement to the employee according to the employee's act1996. It is right of employee who is dismissed to request a written statement about the reason of dismissal from his employer and on the other hand special attention is paid to investment in human capital, it shown that that legal protection against dismissal costs with a low variance in UK.
Dismissal is one of the difficult tasks for many firms to encounter with an employee or a group of employees. A lot of companies try to avoid the dismissal by giving an effective recruitment, training and management at the very first stage of employment in order to lessen the risk of poor performance.
In today's business environment the right of the employees are protected by the law, introduced by government legislations to ensure the fairness and equality in the working environment. The dismissal process is considered as a disciplinary activity and plays the important role in human resource management environment of the business. Also the dismissal can be beneficial to the business and could be an important tool for disciplinary activities it could also be fatal for any business if performed incorrectly and may raise legal actions against the company for unfair dismissal and violating the employee rights.
“Employment contracts can terminate in a variety of ways, for example job redundancy, voluntary resignation, death in service, non-renewal of a fixed-term contract and summary termination due to conduct - ‘the sack'.” (I. BEARDWELL, P.447)
It is a fact that jobs are not for life, often employee has to change their job and employers have to change or reduce their stuff. The job life cycle of the employee vary among organisations and individual. The need of dismissal often arise in the organisations under different requirement therefore there are different types of dismissals.
“If you want to dismiss someone for another reason, it could fall into the category of 'some other substantial reason', e.g. dismissal of an employee who was taken on as a temporary replacement for an employee on maternity leave. However, for such a dismissal to be fair, you must have told the replacement employee at the beginning of their employment that the job was only temporary.” (www.businesslink.gov.uk)
Employer can dismiss an employee for many reasons, dismissal have place when employer terminates contract, a contracted ends and it is not renewed, employee's actions requires dismissing him.
Need of Dismissal
There are four broad categories of dismissal described below:
- In practice, the company has to give the notice of dismissal to employee. However, sometime dismissal without giving notice is acceptable based on an employee's behaviour that makes unfeasible to be bound by a contract of employment. This kind of dismissal called “Summary dismissal”. For example, an employee stealing from employer, persistent drunkenness, violence and determined disobedience or incompetence that immediately impact to the firm's business. (Mullins, 2005)
- The second type of dismissal is known as “Dismissal on notice”. The requisite notice period that must be given will be determined by relevant legislation, an industrial instrument such as award, the contract of employment or the Court. By the common law, companies have to ensure that the reasonable notice must be given. (Stone, 2005)
- Another dismissal based on the employer's commercial or economic decisions regarding the management of the business; this is called “Redundancy”. (Stone, 2005) The employment contract terminated by the employer as a result of elimination of the position. The selection of employee for redundancy must used to be fair and reasonable criteria stated by law. (Mullins, 2005)
- The last category of dismissal occurs when an employee is in actual fact forced to resign. In this kind of dismissal, an employer tend to acts in a manner suggesting that they no longer wish to be bound by the terms and contract of employment; this is known as “Constructive dismissal”. (Stone, 2005)
There are several types of dismissal:
- Fair dismissal: employer dismisses the employee fairly on several bases.
- When employee involved in criminal activates such as theft.
- When the job position became redundant and employee is no longer required
- Statutory requirements
“If you want to dismiss someone for another reason, it could fall into the category of 'some other substantial reason', e.g. dismissal of an employee who was taken on as a temporary replacement for an employee on maternity leave. However, for such a dismissal to be fair, you must have told the replacement employee at the beginning of their employment that the job was only temporary.”(www.businesslink.gov.uk)
It is a safe practice for employers to present their dismissal and disciplinary procedures in written form to avoid any legal claims against them. It is also important for employer to take correct steps in the dismissal process; it is also a good practice to ensure the fairness of dismissal to the employee itself.
“One study found that individuals who reported that they were given full explanation of why and how termination decisions were made were more likely to perceive their layoff as fair, endorse the termination organization and indicate that they did not wish to take the past employer to court.” (G. Dessler. P 576)
Legal aspect for Dismissal
There are many legal aspects related to the dismissal of employment. In this report, we will show a number of significant aspect which related to the four categories of dismissal explained above.
Firstly, for the summary dismissal, it is the right for an employer to terminate employment contract without notice when the employee acts in a manner inconsistent or displaying an intention to no longer be bound by the contract. In this case, the common law restricts the employer's right to summarily dismiss an employee to occasions if the employee's behavior is in direct and serious violation of employment's obligations. (Stone, 2005) Except for a reasonable dismissal without notice, employers have to give the employee sufficient notice looming termination. If not, compensation must be paid. (Stone, 2005) The termination of employment may become unfair, if employers do not tolerate by these regulations. Furthermore, the minimum notice period for dismissal stated by the workplace relations act 1996 (Cwlth) is shown in the below table.
Employee's period of continuous service
Minimum period of notice
Not more than 1 year
More than 1 year but not more than 3 years
More than 3 years but not more than 5 years
More than 5 years
The period of notice is increased by 1 week if the employee is over 45 years old and has completed at least 2 years continuous service.
Anyway, the contract of employment may stipulate much longer, but not a shorter period of notice. If the contract of employment remains silent with respect to the length of notice, the common law implies that the employer has given the reasonable notice to the employee. (Mullins, 2005)
According to the Termination, Change and Redundancy Case 1984 (held by the Australian Council of Trade Unions to amend the Metal Industry award) which is a main significance case of the law and redundancy, the Australian Conciliation and Arbitration Commission placed the general codes to added in a redundancy provision. The suggestion from the Commission concerned in an area of “consultation, information, transmission of business, notice, time off during the redundancy period, an employee leaving during the notice period, the transfer to other duties of an employee, ordinary and customary turnover of labour, incapacity to pay, and provision of alternative employment where possible”. (Stone, 2005)
As stated by the Workplace Relations Act 1996 (Cwlth), the termination of the employment contract may become wrongful unless the employers have a ‘valid reason' to dismiss an employee. (Stone, 2005) In accordance with section 170CG of the Act indicated that in determining whether a dismissal is unfair, the Commission is to have regard to, among other things, whether there is a valid reason for the termination relating to the capacity or conduct of the employee or the employer's operational requirements. Stone (2005) stated that, an illogical reason for dismissal cannot place by employers. To a certain extent, the substantive reason must require.
Where a dismissal is unsympathetic, unjust or unreasonable, the unfair dismissal has occurred but need not involve a fundamental breach of the employment relationship. At the industrial tribunal, employee can challenge the fairness of their dismissal accordance with legislation and federal level. However, the availability, jurisdiction and remedies for an exploit for unfair dismissal diverge from state to state. As well as, the factors judged by tribunals for a claim also vary from state to state. (Stone, 2005)
There are many reasons that could make dismissal unfair. If the dismissal dose not meets the reasons for dismissal that were mentioned above, it could be considered as affair. The main reason of dismissal to be unfair is not following the statutory and disciplinary procedure.
“If you fail to follow the procedure and the issue reaches an employment tribunal, the tribunal will find the dismissal to be automatically unfair - regardless of whether or not the reason for the dismissal was itself fair.” (www.businesslink.gov.uk)
An employee employed since April 2008 verbally hand in their notice 23rd July. I requested a written confirmation which was given 24th July. Employee served notice with effect 23rd July advising her last day would be 21st August.
Company policy is 1 weeks' notice period and she has been employed less than 2 years. Her letter acknowledges that she only has to provide 1 weeks' notice as per company agreement but she would stay to 21st August to allow us to find a replacement. Employee was advised that we would not require her to stay to 21st August, and as she was on annual leave the following week 27th July - 31st July we were satisfied that her annual leave could serve as her notice and therefore she would not be required to turn up for work after that date (24th July) We have ended her employment with effect 31st July and have paid her to that date plus 3days accrued leave not yet taken.
Employee is seeking action against us claiming we have sacked her, and claiming she is entitled to be paid to 21st August which was the day she wanted to work to.
Employees are protected by the law and they can raise the case against their employers for unfair dismissal. If the employee claims the case of unfair dismissal to court, tribunal will compare the steps and criteria's of the dismissal to the criteria's of potentially fair dismissal practice and if there is serious mismatch than dismissal will be considered affair. Before going to court employees can turn to statutory dispute resolution regulation which was introduced by employment act 2002 in 2004, that could automatically make dismissal unfair.
“The law of unfair dismissal dates 1971, since when it had been amended a number of times. Although new additions and the outcomes of leading case have made it more complex than it was originally, the basic principles have stood the test of the time and remain in place. The latest major changes were contained in the statutory dispute resolution regulations, which came into effect in 2004. Their aim was to reduce the number of claims being brought before employment tribunals by providing strong incentives for employers and employees to exhaust internal disciplinary and grievance procedure first. “(D. Torrington, P181)
Different from unfair dismissal which is a legal right, it is a contractual right for wrongful dismissal. (Businesslink, 2009) Wrongful dismissal appears when an employee's employment is terminated by an employer for reasons that are violated in the employment term and contract. Due to the short dismissal notice period or failing to give the correct notice, the dismissed employee can claim damages for wages lost. Nonetheless, wrongful dismissal actions are heard in common law courts, and are expensive to run and defend not like an unfair dismissal which place in the industrial tribunal. (Stone, 2005)
Wrongful dismissal, occur when the one or more terms of the contract is broken during the process of dismissal, this will directly make the dismissal wrongful. Employees can complain to tribunal and cause charges against the company.
“Wrongful dismissal occurs when your employer dismisses you in breach of the terms of your contract. The most common instances of wrongful dismissal is where the employer dismisses you without giving you the notice agreed on your contract, or dismisses you without carrying out the proper procedure set out in the contract. “(www.yourrights.org.uk)
Comparison of wrongful dismissal and unfair dismissal
Fundamental violate of employment contract by employer
Dismissal is unsympathetic, unjust or unreasonable
Reinstatements, re-employment or compensation
$33,000 OK'd to end wrongful dismissal suit
SUNBURY — Northumberland County will pay $33,000 to a former employee who sued for wrongful dismissal in 2004.
Joanne Kaminski was working as a licensed practical nurse at Mountain View Manor nursing home in Coal Township when she suffered a nonwork-related injury. Due to the injury, she was transferred to work for the county district courts as a “floater.” In 2003, the “floater” position was cut by the administration, and Kaminski lost her job.
She sued and recently settled the claim with the county and her former union, the American Federation of State, County and Municipal Employees.
On Tuesday, the commissioners announced the settlement and its payout of $33,000 to Kaminski following a 15-minute executive session.(www.dailyitem.com)
Occur when because of employer action employee has to quit their jobs, such actions could be reducing payment, bulling or discrimination such as sexual or racial, employees could complain to tribunal as their rights are protected by law.
“Constructive dismissal refers to a situation where an employee alleges that an employer has acted so contrary to the operation of their contract of employment that the contract is deemed to be unlawfully and immediately terminated. Events that may trigger constructive dismissal include financial loss due to unilateral changes in pay and remuneration, racial or sexual harassment, unilateral relocations to undesirable areas, being unilaterally stripped of authority or persistent victimisation.” (I. BEARDWELL, P.449)
A fund manager who claimed bullying was rife at his former employer New Star Asset Management, founded by City veteran John Duffield, has won the right to pursue a claim for compensation at an employment tribunal.
Patrick Evershed, 67, who was a close confidant of Duffield and one of the firm's star performers, is claiming constructive dismissal under the whistleblower act. He left New Star in September 2008 amid reports his relationship with Duffield had soured. The firm has since been bought by Henderson Global Investors for £115m, after running up heavy debts.
He has a reputation as a hard taskmaster — albeit one who rewards his top-performing employees well. In 1992, however, he paid £10,000 and apologised after a junior fund manager, Fiona Mills, accused him of sexual harassment.
Eligibility to complain to tribunal
In accordance with the Employment Rights Act 1996, employees are protected from terminating employment contract or selected unfair redundancy. The Act stated that “all employees can bring a claim of unfair dismissal after one year of continuous service and a claim for redundancy pay after two years”. (Thomson, 2009) However, there is no minimum period of employment require for a number of dismissals. Beside, dismissals are also automatically set as unfair even if you followed a correct dismissal procedure the tribunal will find that they are unfair. (Businesslink, 2009)
The clarifications of principle set out by the Employment Appeal Tribunal when considering the claim are as follow (Gilhooley, 2009):
- There must be a sufficient serious evidence to go beyond unreasonable conduct and must relate to a breach of contract when employees claim that they have been constructively dismissed by their employer.
- The claim might be rejected from the Tribunal if the employer had taken action in a way that other employers may have acted in those conditions.
- The employee must show that the employer had acted, without reasonable or proper cause, in a manner that was likely to or calculated to destroy the relationship of trust and confidence that should exist between the parties.
- The argument might be place from employers against the dismissal claim even where there is an evidence of constructive dismissal. The “band of reasonable responses” test may be applied in this stage.
Moreover, in accordance to Business link (2009), the right to complain to a tribunal for the unfair dismissal is not relevant to following persons:
- Self-employed people.
- Independent contractor
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