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Flat Rates
In the unionized firm where wages are established by collective bargaining,
single flat rates rather than different rates are often paid. For example, all
Clerk Typist Ils might make $8.00 per hour, regardless of seniority or
performance. Flat rates correspond to some midpoint on a market survey for
given job. Using a flat rate does not mean that seniority and experience do
not differ, It means that employers and the union choose not to recognize
these variations when setting wage rates. Unions insist on ignoring
performance differentials for many reasons. They contend that performance
measures are inequitable. Jobs need cooperative effort that could be destroyed
by wage differentials. Sales organizations, for example, pay a flat rate for a
job and add -i bonus or incentive to recognize individual differences.
Choosing to pay a flat rate versus different rates for the same job depends on
the objectives established by the compensation analyst. Recognizing individual
differences assumes that employee are not interchangeable or equally
productive. By using pay differentials to recognize these differences,
managers are trying to encourage an experienced, efficient, and satisfied
workforce.
Payment for Time Worked
The majority of employees are paid for time worked in the form of wages or
salaries, defined as follows:
Wage - Pay calculated at an hourly rate. Nonexempt employees who are covered
by overtime and reporting provisions of the Fair Labor Standards Act are paid
wages. SalaryPay calculated at an annual or monthly rate rather than hourly. Those
who are exempt from regulations of the Fair Labor Standards Act and do not
receive overtime pay receive salaries.
Pay ranges, pay classifications, and similar tools are developed for
individual pay determination, the final step in a time-based pay system.
The wages and salaries of employees are typically adjusted at some point
during the year. Historically, the adjustments have resulted in pay increases.
Most employees expect to get at least one raise annually. However, when the
general economy isnt healthy r in the case of increased foreign competition
in some industries, employees have actually accepted decreases in pay.
Pay is usually adjusted upward through four types of increases: (1) a general,
across-the-hoard increase for all employees; (2) merit increases paid to some
employees, based on some indicator of job performance; (3) a cost-of-living
adjustment(COLA) based on the consumer price index (CPI); and (4) seniority.
Typically, hourly employees in unionized firms are likely to receive general
increases whereas
exempt salaried employees are more likely to receive merit pay increases.
Variable Pay: Incentive Compensation

International competition and global economic restructuring are requiring

businesses to become measurably more productive. Pay strategies and pay
systems used for years are outdated, and continued reliance on outdated pay
systems is one reason why American business organizations cannot successfully
compete internationally.4 An article in HRMagazine reported this growing
realization that traditional pay systems do not effectively link pay to
performance or productivity.5 As a result, managers have increasingly turned
to variable pay plans. Variable pay can he defined as Any compensation plan
that emphasizes a shared focus on organizational success, broadens
opportunities for incentives to nontraditional groups (such as nonexecutives
or non managers ), and operates outside the base pay increase system.