Question

How do Employee Value Propositions differ for those being paid at different levels in two-tier wage plans? What are the implications of these differences for each phase in the human resource management process—attracting, developing, and maintaining a talented workforce?

Answer 1

Two-tier wage system is a payroll mechanism in which one set of employees are paid lesser than the other set of employees. Basically the management has a differential compensation plan for the freshers and the lateral hires. Freshers are those employees, who are directly out of college and have no prior experience. Lateral hires are those, who are switching companies and have relevant work experience. The differential pay is based on the level of experience of the lateral hires.

The advantages of two-tier wage system are:

• This mechanism is a way of companies to implement short term cost reduction. The freshers are paid comparatively less, thus reducing the cost incurred on the company.
• Employee division facilitates a trigger point of performance. The new hires will try to perform their best, so that they can come in the upper tier of wage system.

The disadvantages of two-tier wage system are:

• This mechanism poses inequality among the workforce.
• This differential pay mechanism may provoke employee discontent

The implications of the two-tier wage plans in various HRM process:

• Attracting talent: This mechanism reduces the cost incurred on business as the new hires are paid comparatively less.
• Developing talent: The employees in the lower tier of the wage system try their best to perform and get promoted to the higher tier
• Maintaining talent: This two-tier wage system does not have any implication on maintaining the talent in the upper tier. The employees currently getting high wage, will have no motivating factor to stay with the company. The employees in the lower wage tier can be maintained by offering them incentive and promotion to the upper wage tier, based on performance.