new pay

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Is a term coined by the American management writer, Edward E. Lawler III, and has been used increasingly in the USA and more latterly in the UK to refer to current developments in reward management. It encapsulates the belief that changes in business structure and environment require new approaches to the management of reward which break decisively with the ‘old pay’ of job-evaluated pay structures, seniority-based progression, time-rates, and extensive fringe benefits. The ‘new pay’ refers essentially to a model of good practice in the field of reward, and its advocates urge that reward be managed in accordance with a set of broad principles which are derived from the wider, normative literature on high commitment management. These principles include the following. First, that pay should be ‘strategic’ and pay management integrated with the wider management of the business. In practice, this has led to an interest in rewards which can promote quality and innovation, such as quality incentives or share options. Second, that rewards should promote flexibility in work organization, and several new pay writers urge the use of team-based pay and flat, broad-banded pay structures, which maximize the scope for flexible working. Third, that there should be a focus on paying the person rather than ‘paying the job’ and that reward management should be individualized, with pay linked to the competence, market value, and performance of the individual employee. Lawler himself is a keen advocate of skill-based pay. Fourth, that there should be an extensive use of incentives and variable pay to guide employee behaviour and ensure it conforms to the needs of the business. New pay writers tend to favour non-traditional incentives such as award and recognition schemes or pay systems which tie earnings to novel indicators or performance, such as customer satisfaction. Fifth, that line managers should assume greater responsibility for the management of rewards and, in particular, retain extensive discretion over the distribution of payments amongst employees. Sixth, that employee commitment to systems of reward be secured, involving employees where possible in their selection, design, and operation. Lawler advocates employee involvement in project groups tasked with developing employee involvement in pay awards through peer review. Whilst the ‘new pay’ has influenced current thinking on reward it has been subject to criticism. It has been suggested that its constitutive principles may be contradictory rather than reinforcing, that a number of techniques advocated by adherents may have serious disadvantages, and that the central prescription of expanding variable pay is unethical because it involves a transfer of economic risk from shareholders to employees.

Subjects: Human Resource Management.

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