Question

Design a compensation plan appropriate to Hierarchy Culture

Answer 1

Hierarchy culture of the organization will have a top down leadership. The authority and levels of responsibilities are obvious for a role. I feel person based pay structure is appropriate for the organization with hierarchy culture.

Person based pay structure:

This is also called Competency based pay structure, skill based pay structure, merit based pay structure or knowledge based pay structure. In this type, the structure of salary is based on the job responsibilities but also includes the knowledge and skill set of the employee. Hence, this structure is called person based pay structure.

The advantages of this system are:

• Encourages the employees to deliver efficient performance.
• Provides job satisfaction.
• Lower costs.
• Lower turnover and absenteeism.
• Encourages teamwork.
• Makes an employee loyal to the organization.
• It enhances the productivity.

Let us consider why job based pay structure is not apt for this kind of organization.

Job based pay structure:

The structure of salary based on the job roles and responsibilities is called Job based pay structure.

In Hierarchy culture, various job designations need to be paid more as they are arranged in a hierarchy. This increases the cost to the company without any efficient returns. In addition, this method is less compatible for team based work cultures. Employee’s performance is not rightly recognized. This leads to an increase in turnover rate.

Hence, person based pay structure suits well for an organization with hierarchy culture.