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In: Operations Management

Is seniority-based pay or performance-based pay good for knowledge management? Under what conditions will experienced employees...

Is seniority-based pay or performance-based pay good for knowledge management? Under what conditions will experienced employees be or not be willing to share their knowledge with younger ones?

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Expert Solution

ANS. Performance-based and seniority-based pay remain among the most popular and widely used pay policies to incentivize employees and maximize workforce performance. We take a structural contingency approach and present a macro-level study determining when these policies are effective in improving firm-level workforce productivity. First, building on the unique benefits and disadvantages of both pay policies, we argue that they are effective in different industries. In particular, we expect that performance-based pay is more effective in core manufacturing industries where tasks are generally standardized and employee performance is measurable whereas seniority-based pay is particularly effective in core service industries where typically, employee commitment and loyalty is desirable. Second, given that performance-and seniority-based pay create competing incentives, we argue that a performance-based pay policy undermines the success of seniority-based pay and, therefore, that both pay policies are incompatible.

Experienced Workers Can Teach Younger Workers:-

  • Hard Times: “Younger workers didn’t go through the recession of the 1970s, and there are still people in the workplace who remember the Depression,” says Ben Dattner, an industrial and organizational psychologist and consultant. “They can pass along wisdom about economic cycles and provide a long-range view of things.”
  • Loyalty: It may be out of fashion these days, but sticking with one employer or boss has its own rewards. Older workers know what it means to commit through thick and thin, Dattner says. It may not be easy to stay the course with one company -- especially when a quick job change may bring instant gratification, more pay and better perks -- but older workers know that some companies do take care of the employees who stay and take care of the company.
  • Experience: Whether it’s corporate policies, company politics or industry knowledge, older workers know the ropes, Dattner says. Most of them are happy to pass along what they know about people, jobs and success.
  • Interpersonal Skills: “Older workers are social animals [who are] very skilled at one-on-one relationships,” says consultant Chuck Underwood, author of The Generational Imperative: Understanding Generational Differences in the Workplace, Marketplace and Living Room. “All the technological knowledge of younger workers doesn’t compensate for their lack of interpersonal time.” Older workers can teach younger ones about basic workplace interpersonal skills such as common courtesy and team play.
  • Regrets: “Older workers usually have a good understanding of what they regret in their career choices,” says Penelope Trunk, blogger and author of Brazen Careerist: The New Rules for Success. “People usually regret not what they did, but what they didn’t do. Older workers can use those regrets to pass along ideas on how to steer your career so it can be more fulfilling.”
  • Independence: “For years, younger workers have been taken care of by parents and their communities, but now they’re on their own,” Trunk says. “Older workers know how to depend on themselves. They can teach new workers that when they’re at work, they can’t count on anyone to take care of them.”

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