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Traditional and Modern Employee Compensation Systems

The practice of providing a title rather than substantial compensation

The business environment today is different. The difference has been brought about by new knowledge of work, global competition as well as outsourcing. The employee compensation plan of many companies, however, is still rooted in past practices.

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Modern employee compensations borrow heavily from the traditional system that developed from the wages given to hourly workers and the practices of the labor-based hierarchy. Those with jobs had fixed wages which included extra money from overtime. Workers were also guaranteed an annual increment based on the years served and bonuses are given occasionally and the security of employment (Pinto, 2007).

This archaic system has ensured that most companies give periodic reviews, pay ranges, and routine annual pay increments. The employees are used to this arrangement and when annual increments do not come forth resentment develops because the cost of living keeps increasing. Employees who have served their companies for a long end up being overpaid in the long run. This becomes a problem when the companies cannot cope with the huge wages. Their failure to compete in the modern business environment results in cutbacks and the highly paid employees are let go as companies can outsource services at lower cost (Pinto, 2007).

To substitute for high wages companies give attractive job titles in lieu of pay. The titles in most cases are not equivalent to the pay. Manager, senior VP, Director Assistant, Supervisor, Executive VP are examples of titles. Companies have hierarchical ladders for the succession of titles.

The titles are given in lieu of pay. They are promotions that make both employees and employers happy. For the latter, the arrangement comes with no additional costs except new business cards (Rosenstein, 2009). Does the happiness last? Not really, companies, as studies have shown often get negative results from these seemingly harmless plans. Over titling leads to excess senor staff and this often leads to tensions as well as gaps in their tasks. The same people who had taken the promotions in lieu of pay soon are not satisfied with their new positions.

Not all title inflations result from lieu of pay. Others are given by managers who want to send a message of compensation. They hope that the new title will counteract a discussion about reduced or no bonuses. Other title promotions are given to make junior employees believe they are under an experienced person. This may not be the case as soon the junior employees discover. However this may work with the clients who feel reassured by the title that they are getting appropriate services (Rosenstein, 2009).

The title promotions are often given without proper evaluation and with bloated senior staff pay pressures may be created (Rosenstein, 2009).) This is due to the high salary expectations that come with the titles. When the employees are paid salaries that are lower than the market rates they choose to defect from the companies. This creates a gap in the company as the top level personnel leaves. Therefore the productivity of the company goes down as they cannot afford to hire competitive employees to fill those positions because they have less money to run around.

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The morale of the junior staff is affected because they have the hope of rising through the ranks of the company. Therefore when they discover about the empty job titles they may opt to go to other companies where promotions are genuine so that they can climb the cooperate ladder and fulfill their ambitions.

Title inflation is a real problem in companies. It creates problems both short term and long term. This practice should be tackled by making the promotion process tight. The promotions should be given according to market data. Responsibilities for the workers should be reviewed and the pay based on their responsibilities. The employees should improve their performance to match the titles or get paid for the job done. The General Electric transformation model should be borrowed by companies to deal with the title inflation crisis (Pinto, 2007).

Herzberg, in his seminal work, found that training is a significant factor in employee retention. Do you agree or disagree? Explain why? Schweitzer

The technology employed at the workplace is dynamic. Companies have had to adapt it or risk being edged out of competition. Therefore, I agree that companies need to train their employees so that they can cope with the new changes at the work place and retain them.

Companies have discovered the need for training employees for example a survey conducted in by Ontario’s Skills Development Office found out that about 63% of the respondents had a plan to introduce technology in their workplaces that would require employee training. Others felt that the training would help to boost the performance as well as retain the best employees.

Training employees leads to retention because they are able to be more productive hence are satisfied with their performance. This makes them feel good about the job and themselves thus stay longer (Reh, 2009). For example American International Assurance is committed to train its employees. It acknowledges that “training and development knowledge, attitude and skills of the staff and agency field force are fundamental to its continued efficient and profitable performance.” (Reh, 2009). In addition the kind of training students get in school is often not adequate to make them labor ready (Reh, 2009). This means that the companies have to train them on the job.

Training costs may be high but the cost of lack of training is even higher. For instance in a 2004 survey called security breaches by PricewaterhouseCoppers found out that most of the security breaches resulted from undereducated security workers. This means that resources must be allocated to train personnel adequately (Schweitzer, 2004). In the case of security training will reduce the likelihood of security breaches stemming from the undereducated workers.

By training workers a company may actually cut expenditure spent on outsourcing. For example a security company that cannot manage its security in house has to enlist for the services. However if it trains its employees on how to handle in house security they can handle the issue themselves (Schweitzer, 2004).

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Employee training is important in making workers feel at home in their work places. They are able to work efficiently as they know what is expected of them. This increases the financial gains of the companies. They are also able to adopt new technologies which give them increased morale. Furthermore training improves the image of a company as the employees are trained on how to handle their customers. Therefore with happy customers comes more business. This may translate to training programs hence job retention. More importantly employees are a company’s biggest asset. When they learn the business learns.

Reference List

Pinto, J. (2009). Empty Titles in Lieu of Pay.

Reh, J. (2009). New Employee Training – Is It Worth The Investment.

Rosenstein, W. (2009). Letting the Air Out of Title Inflation. Web.

Schweitzer, D. (2004). Employee Training A Little Knowledge Goes A Long Way Toward Security. Web.

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"Traditional and Modern Employee Compensation Systems." StudyCorgi, 5 Nov. 2021,

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StudyCorgi. "Traditional and Modern Employee Compensation Systems." November 5, 2021.


StudyCorgi. 2021. "Traditional and Modern Employee Compensation Systems." November 5, 2021.


StudyCorgi. (2021) 'Traditional and Modern Employee Compensation Systems'. 5 November.

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