Salary Policies

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Salary Policies vs. Pricing Policies: When an employer sets salary policies, salary structures, salary ranges and employee compensation policies (including guidelines on salary negotiation), it faces many of the same concerns and issues as it does when setting pricing policies. Indeed, in compensating employees, many, if not most, employers engage in a process that is completely analogous to selective pricing.

At its most fundamental level, selective pricing is an attempt to maximize revenue by charging different prices to different customers for the same product or service, in line with their willingness to pay. Likewise, employers traditionally seek to minimize employee compensation expense by paying different employees different amounts for roughly similar work, in line with what they are willing to accept. The key to the success of schemes for raising profits via selective (or discriminatory) customer pricing or employee compensation is to be opaque, rather than transparent, about what the firm actually is willing to accept in revenue or incur in pay.

Bonus Schemes: Touche Ross, a predecessor firm to Deloitte, had an unusual scheme for paying consultants. Part of the first year's pay, and the pay for each subsequent year, would be withheld in the form of a "guaranteed bonus" to be paid at the end of the annual pay cycle (which ended with the fiscal year on June 30). Then the full guaranteed pay for the next year would include the full bonus for the prior year.

Expectations Management: One way that employers can keep staff working at relatively low pay is through implicit suggestions (if not explicit promises) about potential future increases in compensation, such as might accrue as a result of added experience or seniority, or subsequent promotion. Managing expectations in this fashion will immediately be exploded as false and manipulative if employees can see hard data on pay ranges that do not support such suggestions.

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Particularly in companies with commission-based pay schemes (as opposed to those paying straight salaries), attempting to build up unrealistic future earnings expectations is a common device for attracting and retaining staff at low current pay, while also keeping them motivated. Unsurprisingly, however, such companies inevitably tend to experience high turnover and short job tenures, as employees come to appreciate, through hard experience, that they unlikely ever to achieve adequate earnings, regardless of the time and effort that they invest.

Selective disclosures intended to raise false hopes among employees also warrant suspicions. These include disclosures along lines of "some employees earn as much as $X" (without stating how many actually do) or "average pay for this job category is $Y" (whereas that average may be highly skewed by a few very high earners, and thus the vast majority earn substantially less than that average figure).