Jeff Arvidson is the president and CEO of Cisca Engineering Limited (CEL). Arvidson faces a selection dilemma of employee compensation triggered by the urgent need for a pipe stress analyst. CEL needed to hire Grubb as a stress pipe analyst to increase its revenue and serve its clients better. However, Grubb requested a higher salary than the CEL president had hoped. The CEO had several choices, such as paying Grubb the high salary he needed and risk angering other employees if they discovered Grubb’s wages. Additionally, Arvidson could offer a low wage to Grubb and risk the chance of rejection (Risavy et al., 2019). Arvidson can also choose to revamp CEL’s compensation system and raise the salary levels of all engineers.
Each of the three options has different challenges, and it is crucial to evaluate all possible consequences before making a recommendation. The choice of offering the job to Grubb at a lower salary and risk the chance of rejection has several implications. According to the motivator-hygiene theory, pay is a crucial factor that can foster a spirit of motivation in the workplace. An organization’s compensation should be reasonable, appropriate, and competitive to employees in the same industry (Badubi, 2017). Grubb is a highly skilled employee who knows that CEL wants his expertise; therefore, he is not afraid to ask for a competitive salary based on his experience. Offering a salary lower than CA$90,000 will potentially upset Grubb and ruin any chances of further negotiations. Grubb’s qualifications are high, and he should find a job in the labor market easily. As a result, offering a low salary to Grubb and hoping he accepts it is not a good option if CEL wants to increase its revenue through pipe stress analysis.
Arvidson’s second option is to offer the high salary Grubb wants and potentially upset other workers if they discover Grubb’s pay. Securing the services and skills of Grubb will be enough for CEL to increase its revenue and serve its clients better through pipe stress analysis. However, the increase in revenue will be achieved at the expense of employee trust and satisfaction. If the employees find out that Grubb is earning a higher salary than all the engineers, the incident can negatively impact perceptions of organizational justice and trust. Employee satisfaction is vital to achieving organizational goals; however, should Arvidson consider the second option, employees can be dissatisfied. Furthermore, employees can reduce their work performance to reflect their salaries, as explained by the equity theory. The equity theory stipulates that employees can reduce their input to reflect what they think is fair (Badubi, 2017). Therefore, the second option is not ideal because of the possible adverse outcomes.
The third option that Arvidson can consider is revamping the whole compensation system at CEL and increasing the base salaries of all engineers. Under the circumstances, the third option is the most suitable one for various reasons. First, the option will allow Arvidson to hire Grubb by offering a competitive salary hence serving clients better and increasing revenue in pipe stress analysis. Second, the choice will enable Arvidson to reevaluate CEL’s compensation system and eliminate inefficiencies. Third, increasing salaries will improve employee performance because it shows that CEL cares about its workforce. While employees may not always complain about pay, it is one of the primary reasons for stress and job dissatisfaction (Shields et al., 2020). For instance, according to the expectancy theory, employees choose their behaviors based on the perceived outcomes of their actions. Therefore, employees can perform better and work hard if they anticipate receiving a monetary or intrinsic reward (Badubi, 2017). CEL employees will show improved work performance if they are fairly compensated.
CEL faces a critical challenge to its operations because it needs to ensure that all the needs of employees are met. The first part of the plan involves hiring Grubb to tap into the pipe stress analysis business. Grubb can help the company to expand its business interests because of his vast and specific skills. However, paying Grubb higher wages than other engineers can demotivate employees (Risavy et al., 2019). Therefore, it is important to consult employees to learn what they want to be included in the compensation packages. Some employees may prefer getting higher salaries and low benefits, whereas others may want many incentives and a lower wage.
External and Internal Pay Factors
A revamped compensation package should be able to attract the best people working in companies similar to CEL. If CEL does not meet the industry salary range, it will not hire top talent, which can cumulatively lead to poor company performance. In addition, compensation can improve satisfaction, motivation, and morale, reducing turnover and low work quality (Shields et al., 2020). CEL should evaluate which compensation strategy to use, which will be the market compensation policy. Cost is a crucial factor to consider since CEL is a small company. As a result, the going industry rate for particular jobs will be based on salary studies and market research. A market compensation policy with an added 5% will enable financial feasibility and be attractive for employees. CEL will have average levels of salaries for employees in comparable positions in different labor markets. Additionally, the compensation program will be determined by industry type, capability to pay, and specific skills needed for a job.
Job Evaluation, Types of Pay and Pay System, and Pay Theories
Job evaluations will influence the compensation program to determine the individual value of specific jobs. A job classification system will rank each job based on skills and knowledge needed for a job, experience level, and amount of job authority. The next step is setting pay scales for certain jobs. CEL will use a combination of competency-based and skill-based pay systems, which consider employees’ specific skills and traits and what an employee can develop into (Shields et al., 2020). The following step is evaluating various theories of motivation to determine which payment structure to use. CEL will consider equity theory and expectancy theory in the compensation program. External and internal pay equity is significant because it promotes employee satisfaction. It is crucial to ensure that the work and pay match fairly to avoid the impacts of the perception of organizational justice (Shields et al., 2020). The expectancy theory will enable employees to work hard because of the expected benefits if they achieve organizational outcomes.
CEL will use three categories of a pay structure regarding the pay structure: the standard pay for hours worked, incentive plans, and other compensation types. However, CEL will conduct a survey to determine the essential compensation programs since most employees do not remember the specific remuneration benefits they get from CEL. The regular pay can include salary or hourly wages depending on the employee type. On the other hand, incentive plans will consist of commission, profit-sharing and bonus plans, and stock options. Other benefits may include paid sick leave, vacation time, daycare services, free snacks and lunch, and health benefits. The final step is the communication of the pay system to employees to enhance motivation, fairness, and equity (Shields et al., 2020). In addition, Arvidson should ask employees for participation through pay attitude surveys which can promote transparency, resulting in higher worker performance. In retrospect, paying for outcomes is more effective than paying for performance.
Badubi, R.M. (2017). Theories of motivation and their application in organizations: A risk analysis. International Journal of Management Science and Business Administration, 3(3), 44-51. Web.
Risavy, S., Macmillan, K., & Munn, S. (2019) Show me the money: Compensation at CEL. IVEY ID: 9B19C021.
Shields, J., Rooney, J., Brown, M., & Kaine, S. (2020). Managing employee performance and reward: Systems, practices and prospects (3rd ed.). Cambridge University Press.