Organization: Contemporary Principles and Practice, 2nd Edition

CHAPTER 8

Payment Systems

WHAT THIS CHAPTER COVERS

This chapter concentrates on the major source of extrinsic reward – pay – and in particular on the choice of payment systems. This focus is justified by the undoubted importance of pay and also because some coverage has already been given to the organizational aspects of intrinsic rewards in connection with teamwork (Chapter 5), new approaches to control (Chapter 6), and employees' criteria in evaluating such rewards (Chapter 7).

Pay matters a great deal to most people, and reasons for this are discussed in the first section. We then classify different methods of payment in terms of four underlying dimensions: the features to which pay is tied, whether an incentive element is built into the method of payment, the frequency and scheduling of payment, and the organizational unit to which payment relates. Flat time rates, output incentives, merit rating, performance-related pay, gain sharing, and profit sharing and stock ownership are discussed. The chapter then highlights considerations in the choice of a payment system, and trends in payment policies that are consistent with new organizational forms.

The Importance of Pay

Although it is rightly said that happiness cannot be bought, money as the universal medium of exchange is obviously the key to a great many things that matter to people. As it says in the Bible: “Wine gladdens ...