The Paycheck

One of the most common understandings of the human condition is that at some point we transition from adolescence to adulthood, at which time we are expected to “earn a living”. Consider the two components of that phrase. “Earn” suggests that we will have to engage in activities that would justify payments for some type of work. Some people live quite well an entire lifetime from bequests and other transfers of wealth; however, most of us “earn” a living by going to job most business days. And the word “living” suggests the need to receive sufficient compensation to support ourselves. We might contrast “earn a living” with “eke out a living”, which suggests an inadequate or barely minimal income.

This lesson will focus on the most commonly debated area of compensation: the paycheck.

The Paycheck: An Employer’s Perspective

The text provides students with an excellent description and analysis of the variety of issues an employer must address in developing comprehensive policies resulting in pay structures. From the employer’s point of view the structures must accomplish a variety of objectives related to the organization’s mission.

• It must be constructed consistent with the employer’s need to attract fully qualified applicants to the types of positions that are required to produce products and services required to achieve the organization’s strategic objectives.
• It must be constructed in a manner that will help retain talented incumbents. In this respect it must be viewed as “fair” by employees in order to prevent voluntary turnover that would otherwise be preventable.
• It must not be so generous as to unnecessarily burden the organization’s balance sheet, which could in the extreme affect its ability to adequately reward or serve other stakeholders, particularly in for-profit enterprises: the shareholders.

The employer therefore will think of the pay structure as a balancing act, always having to reconsider the needs of employees, shareholders and others as it competes in an increasingly competitive environment.