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A comparative examination of traditional and skill‐based pay plans

Atul Mitra (Department of Management, College of Business Administration, University of Northern Iowa, Cedar Falls, Iowa, USA)
Nina Gupta (Department of Management, Walton College of Business Administration, University of Arkansas, Fayetteville, Arkansas, USA)
Jason D. Shaw (Carlson School of Management, University of Minnesota, Minneapolis, Minnesota, USA)

Journal of Managerial Psychology

ISSN: 0268-3946

Publication date: 3 May 2011

Abstract

Purpose

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The purpose of this paper is to make a comparative assessment of the relationship between types of pay plans and several workforce‐level outcomes in 214 organizations. The plans include pay that is skill‐based, job‐based, and market‐based. The types of workforce‐level outcomes include workforce flexibility, attitudes, membership behaviors, and productivity. The paper also assesses the relationship between the success of pay plans and workforce productivity/membership behaviors.

Design/methodology/approach

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Survey data from 214 organizations are used to test the hypothesized relationships using hierarchical regression analysis and partial least square techniques.

Findings

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Results support a significant and positive relationship between skill‐based pay plans, workforce flexibility, and workforce attitudes. Skill‐based pay plans, when compared with market‐based pay plans, are found to positively relate to workforce membership behaviors, and workforce attitudes mediate this relationship. Similarly, workforce flexibility mediates the positive relationship between skill‐based plans and workforce productivity. The success of skill‐based plans depends on significant improvements in workforce productivity and membership behaviors. The fit between the pay plan and the facility's climate/culture moderates the relationship between workforce productivity and the pay plan's success.

Practical implications

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The results indicate that skill‐based pay plans are superior for achieving several organizational and employee outcomes. The authors discuss the implications of these results for research and practice.

Originality/value

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Limited comparative empirical evidence exists on the effects of different types of pay systems on organizational outcomes. The paper seeks to address this gap.

Keywords

Citation

Mitra, A., Gupta, N. and Shaw, J.D. (2011), "A comparative examination of traditional and skill‐based pay plans", Journal of Managerial Psychology, Vol. 26 No. 4, pp. 278-296. https://doi.org/10.1108/02683941111124827

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Publisher

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Emerald Group Publishing Limited

Copyright © 2011, Emerald Group Publishing Limited

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