CHAPTER 5

S ATISFACTION WITH P AY AND N O N -E C O N O M I C O U T C O M E S

CHAPTER SYNOPSIS

An employee's satisfaction or dissatisfaction with a reward item can greatly enhance or impair
the motivational effectiveness of that item. The comprehensive motivational model discussed in
the previous chapter provides a conceptually sound but rather general explanation for an
individual's satisfaction or dissatisfaction with outcomes, and the consequences for the
individual's work motivation This chapter probes the satisfaction issue in some detail through a
focus on pay, the major item of an organization's compensation system. Specifically, the
chapter addresses three important questions: What factors contribute to or determine an
employee's satisfaction with his/her pay? What are the consequences to the organization of the
employee's dissatisfaction with his/ her pay? What are some practical guidelines for enhancing
pay satisfaction? The non-economic outcomes generated by the job content through the process
of job design have been found to play a critical role not only in determining pay satisfaction, but
also in moderating the consequences of pay dissatisfaction, The chapter will therefore examine
the theory and the process of job design, which the organization can use to increase the non-
economic outcomes component of the compensation system.

LEARNING OBJECTIVES
• To understand the meaning of satisfaction, which is derived from a combination of notions
from equity theory and discrepancy theory.
• To understand the elements and the process of the determinants of the pay satisfaction
mode!, with a special emphasis on the critical notion of social comparison.
• Satisfaction with Pay and Non-Economic OutcomesTo identify the components of person
related, job-related,, referent-other-related,, and context-related factors, and to learn how
these factors influence an Individ ual'E satisfaction with his/her pay.
• To understand the process of the consequences of pay dissatisfac tion model.
• To identify the components of job context factors, job content factors, and external
environmental factors, and to explain how these factors moderate the consequences of pay
dissatisfaction.
• To leam how to use the practical guidelines for increasing pay satisfaction that flow from
the determinants of pay satisfaction and the consequences of pay dissatisfaction models.
• To understand the nature, objective, and consequences of the classical approach to job
 design.
• To understand the nature and objective of the approach of the growth theories of
Herzberg and Maslow to job design.
• To distinguish between the classical and growth theories approaches to job design.
• To understand the elements and the process of Hackman and Oldham's (1980) job
characteristics model.
• To learn how the job characteristics model can be used to generate non-economic outcomes.

INTRODUCTION
From the discussion of expectancy theory, it can be seen that its basic elements — effort-to
performance expectancy, and the saliency, valence, and contingency of rewards — have a direct
influence on employee motivation, and provide practical guidelines for rewards management. A
compensation system that does not respect these guidelines is not effective in motivating
employees towards the desired work behaviours. As a result, the organization is placed in triple
jeopardy. First, the ability of the organization to function effectively through the high performance
of its employees is seriously impaired. Second, to the extent that the compensation items are
unsuccessful in promoting the desired work behaviours, the dollars expended on these items are a
waste of scarce, valuable resources of the organization. Third, the employee dissatisfaction
thairesults from such a reward system also produces consequences ranging from poor
organizational performance to job dissatisfaction and turnover. An exploration of the issue of
employee dissatisfaction with one or more of the reward items promotes awareness of the critical
aspects that contribute to dissatisfaction, of the consequences that result from dissat-
isfaction, and of the factors that are likely to contribute to satisfaction or dissatisfaction with the
compensation system.
At the present time the only systematic approaches to reward satisfaction and
dissatisfaction that have some relevance for management practice are Lawless (1971) models
on the determinants of pay satisfaction and the consequences of pay dissatisfaction. These
models focus exclusively on pay and do not consider the other compensation items.
Nevertheless, these models are useful to compensation managers for two reasons. Firs*, pay is
the largest component of the reward system and constitutes from 50 to 75 per cent of the total
operating costs of the organization. Second, the models illustrate the fact that satisfaction or
dissatisfaction with a compensation item, and the resulting consequences, can be anticipated
and incorporated in (he design and administration of that compensation item. These models are
discussed in the next section. In view of the dominant role of job content factors in moderating
pay satisfaction, this chapter concludes with a discussion of the place of job design in the
compensation system.

SATISFACTION WITH PAY

The psychological phenomenon of satisfaction has been dealt with by fulfilment theory,
discrepanq' theory, and equity theory. According lo fulfilment theory, satisfaction results when
one's needs are fulfilled. In the work context, fulfilment theory predicts that an employee who
receives a greater amount of positively valued outcomes will fulfil his/her needs to a relatively
greater extent and will therefore be more satisfied than an employee who receives a lesser
quantity of the positively valued outcomes. It-has frequently been found, however, that this
proposition does not reflect the reality. For example, it is common to see an employee perfectly
contented with an annual salary of $50,000 and another employee in the same organization
totally dissatisfied with annual salary of $100,000. An insight into this anomaly is provided by a
version of *>discrepancy theory that defines satisfaction as the perceived discrepancy^ between
what one has received and what one believes one should receive. Thus, the employee with an
annual salary of $50,000 is contented because that employee does not perceive any discrepancy
between the amount received and the amount that should have been received. On the other hand,
the employee with an annual salary of $100,000 might be dissatisfied because he/she perceives to
be inequitable the discrepancy between the amount received and the amount to which he/she
was entitled. But how does an individual determine what is fair and equitable? This question is
addressed by equity theory.
According to equity theory,' feelings of equity or inequity are generated by the individual's
perceptions of his/her outcomes-inputs ratio andjthe* outcomes-inputs ratio of the person
with whom the comparison is being made/ When these ratios are perceived to be equal,
the individual regards the outcomes to be equitable and is satisfied with them. On the
other hand, when these ratios are perceived to be unequal, the individual regards the
outcomes to be inequitable or unfair and is therefore dissatisfied with them. Equity theory,
then, leads to an understanding of the pay satisfaction of the employee earning the $50,000
and the pay dissatisfaction of the employee earning $100,000, The satisfied employee
perceives his/her own and the relevant other's outcomes-inputs ratios to be equal; the
dissatisfied employee perceives those ratios to be unequal. Unlike discrepancy theory,
equity theory explains satisfaction through the use of social comparison and the
individual's perceptions of the outcomes-inputs ratios. ^Discrepancy theory explains
satisfaction through the difference in perceptions between what the outcome is and whafit
should be.
Combining the notion of social comparison (from equity theory) and the notion of
difference in perceptions of what is and what should be (from discrepancy theory),
Lawler (1971) concluded that an employee's satisfaction with pay is the difference between
his/her perceptions of the amount o( pay received and of the amount of pay that should be
received'. When the two perceptions are equal, the employee experiences pay satisfaction;
when they are unequal, the employee experiences pay dissatisfaction. What then are the
factors that influence the employee's perceptions of the amount of pay received and the
amount of pay that should be received? In other words, what are the determinants of the
employee perceptions that promote pay satisfaction? And what are the consequences of
pay dissatisfaction? These questions are addressed in the next two sections.

DETERMINANTS OF PAY SATISFACTION"

According to the model (Figure 5.1), the two sets of employee perceptions, the
amount of pay received and the amount of pay that should be received, can be explained by
a combination of four categories of variables: person-related, job-related, referent-other-re
la ted, and context-related. A proper understanding of the component elements of each
category of variables and their impact on pay satisfaction is essential for the successful
management of the several design and administrative issues in compensation.

Person-related Variables
This category can include a variety of inputs that an employee brings to the job, for
example, knowledge, skills, and abilities; specialized training; the many outcomes received
by employees. When employees perceive other outcomes to be more instrumental than pay
in satisfying a need, then employees will value the other outcomes more than pay. Such
employees will not be dissatisfied with a lower pay when the other more valued outcomes
are provided. For example, in periods of severe unemployment, employees tend to prefer
the outcome of job security to that of higher pay. Likewise, it is not uncommon to find
employees with high growth needs accepting jobs in an organization with relatively lower
pay, because the jobs offer opportunities for challenging and interesting work, or greater
participation in decision making. To summarize,.when employees perceive that non-
economic outcomes satisfy their important and salient needs better than pay, then to that
extent employees will not be dissatisfied with pay. Their perceptions of the amount of pay
that should be received will tend to be low. Other things being equal, the non-economic
outcomes, when they are regarded as a substitute for pay, will promote pay satisfaction.

Referent-Other-related Variables*
The term referent-other has the same meaning as, and is used synonymously with,
the term relevant .other person discussed under equity theory. This category
includes^rhpl6"yee'perceptions of relevant other persons' inputs and outcomes,"and
'employee'perceptions of nay received by relevant other persons, It will be recalled that
in equity theory the employee's determination of equity or inequity is based on the
comparison of the employee's perceptions of his/her own inputs-outcomes ratio with,
his/her perceptions of the inputs-outcomes ratio of the relevant other person. When
equity theory is applied to pay, the employee's perception of the amount of pay that should
be received will be influenced by his/her perceptions of the outcomes the relevant other
person wili likely receive relative to that person's inputs. For example, Elijah perceives
that his colleague Melanie is likely to receive the following set of outcomes; a pay raise of
$3,000, spedal recognition from the department head, and preferential treat ment in the
choice of assignments. Elijah recognizes that Melanie has specialized training, but that he
has substantially more work experience and has put in a consistently superior job
performance. Based on this assessment of Melanie's in puts-outcomes ratio relative to his
own, Elijah develops an expectation of a pay raise of $4,500. It can thus be seen how an
employee's perceptions of the relevant other person's inputs-out- conies ratio relative to
his/her own will influence the amount of pay that should be received.
The other variable in this category, employee perceptions of the pay received by
t h e relevant other person, has a direct impact on the employee's perception of the
amount of pay received. Elijah believed that a pay raise of $4,500 would be equitable.
Assume that Elijah receives the expected $4,500. Assume also that Elijah perceives that the
actual pay raise received by Melanie is not the $4,000 that Elijah had earlier believed that
Melanie would receive, but $4,200. Before Elijah formed any perceptions of Melanie's
actual pay raise, Elijah had attributed a certain value to his actual pay raise of $4,500. As
discussed in the previous paragraph, this value or valence resulted from, among other
factors, a comparison of Elijah's perceptions of his inputs-outcomes ratio and his
perception of Melanie's inputs-outcomes ratio. The valence was also based on what
Elijah believed the $4,500 would fetch him in terms of the goods and services he
needed. The reference here is to the instrumentality-of-the- outcome determinant of
valence as postulated by expectancy theory. After Elijah perceives that Melanie's actual
pay raise is $4,200, the value or valence he attributes to his $4,500 undergoes a change.
The $4,500 will now have a relatively lower value or valence for Elijah. True, Elijah's
$4,500 can and will still buy the same quantity of goods and services, regardless of
what Melanie actually receives. In other words, the potential instrumentality of the
$4,500 to satisfy certain needs is undiminished. What, then, is the reason for Elijah's
lower valence of the $4,500? The answer is to be found in the expectancy theory model.
As will be recalled from the model, valence is determined by both the instrumentality
to satisfy needs and the equity of outcomes. The inequity of outcomes, which he
perceives relative to Melanie, explains why Elijah now values the $4,500 much less
than he did before his perceptions of Melanie's actual pay raise.
The discussion of the referent-other-related variables strongly underscores the
significant and powerful effect of the notion of social com parison as a determinant of
pay satisfaction, and the profound practical implications that flow from it.

Cor.text-related Variables
These variables concern the outcomes the employee receives from the job
context. The critical factors that affect pay satisfaction in this category are employee
perceptions of the pay received in the past (wage history), the actual pay now received,
and the methods of pay determination and 'administration.
The employee's perceptions of his/her wage history affect pay satisfaction by
influencing employee perceptions of the amount of pay that should be received,
andaisoof the amount of pay received. For example, employees who have had a record
of high salaries and pay raises will generally expect their present pay to be consistent
with that record of high salaries and pay raises, In other words, their high wage
history leads to higher expectations, which influence their perceptions of the amount,
of pay that should be received. This phenomenon is similar to that of university
students with a past record of a high cumulative grade point averages who develop
higher expectations for their present course grades. The high'wage history also afiects
employee perceptions of the amount of pay received. Employees who have had a high pay
history tend to perceive their present pay as low. The magnitude of the dollars involved is
viewed through the perspective of past pay history. Therefore, /or the reasons discussed here,
the higher the past pay level, the greater the pay dissatisfaction will be unless the amount of
pay now received is also high, consistent with the expectations generated by the high wage
history.
The actual pay received is, of course, the direct source of the employee's
perception of the amount of pay rexeivedAThe-ubser.-the example, performance-based pay will
be perceived as equitable if it is determined by a fair performance appraisal system/ and
administered by a process that is open rather than secret, and involves the employees
concerned. In other words, pay ought to_be_de_termined and adnjin-istered in a manner that
permltsftKe"employee to see a linkage_between pay and performance, that is/the (P-O)
relationship of expectancy theory When pay determination and administration methods enable
employees to see dearly the performance-outcomes linkage, then employees are found to
experience greater pay satisfaction (Lawier 1966). To summarize, each of the four sets of
variables determines pay satisfaction by its influence on employee perceptions of either
the amount of pay that should be received or the amount of pay received or both. The person-
related variables function as inputs, 2~he more of these inputs the employee brings to the job, the
greater the employee's expectations that he/she should receive more pay, Hence,^the person-
related variables are more likely to cause pay cu5satisfaction! The job-related variables include
some factors that function as inputs and other factors thai function as outcomes. If the employee
perceives his/her job to have more of the input factors, then he/she will have greater expectations
that he/she should receive more pay. The input factors, therefore, are more Ukely to cause pay
dissatisfaction.fThe outcome factors (e.g., job status, challenge) will, on the other hand, serve to
generate satisfaction with the level of pay even if it is low, because the more of these non-
economic factors are perceived by employees to exist in the job, the more tolerant they will be of
lower levels of pay. These outcomes are often perceived as acceptable substitutes for pay.
The referent-other-related variables operate either to increase or (to
decrease''paysatisfaction.Mrhen the employee compares his/her perceptions of the inputs-outcomes
ratios (own and those of the relevant other person), such a comparison could lead to an expectation
of more pay or less pay. Likewise, the employee's perceptions of the relevant other person's
actual pay could lead to an increase or decrease in the value attributed to his/her payf Therefore,
both factors have the potential either to promote pay satisfaction or to cause pay dissatisfaction.
The last set of variables, the context-related variables, operates in two ways. The
"employee's .wage history functions as an input. A past record of high salaries and pay raises
will lead the'employee to expect more pay. A high-wage history, therefore, has the potential to
generate pay dissatisfaction. Depending upon employee perceptions of the other factors,
the.actual An*J.the methods by. which it is determined "a nH administered, has the potential to
promote either pay" satis faction or" pay dissatisfaction.
This section concludes with two observations that have already been mentioned but
need to be reiterated. First, the elements of the model and its underlying process are essentially
based on the perceptions of the employee. Second, the notion of social comparison is absolutely
critical to the model. In a study by Shapiro and Wahba (1978), social comparison, actual pay, and
wage history were the significant factors that explained the variance in pay satisfaction. From
these observations flow several implications of practical interest to the compensation specialist
and to managers. An in-depth treatment of these implications will be undertaken when the
techniques, methods, and processes of the compensation system are considered. These
observations do, however, reinforce the point that the effectiveness of the compensation
system depends on the extent to which it takes into consideration and responds to the percep-
tions and expectations of the individual employee.

CONSEQUENCES OF FAY DISSATISFACTION

What are the consequences of pay dissatisfaction? If this question were posed to ten
managers, more than ten different answers might result, including low productivity; poor
quality of products and service; high reject rates and wastage; unnecessary overtime; tighter
supervisory controls; low morale and turned-off employees; strikes; attempts to unionize; high
grievance rates; job dissatisfaction; pilferage and vandalism; tardiness, absenteeism, and
turnover; psychological withdrawal and poor mental health. The answers of all ten managers
would be right, because the managers would have witnessed such events when, for one reason
or another, they could not satisfy an employee's desire or demand for more pay, or when an
employee felt unfairly treated in the matter of a pay raise relative to the pay raise of a colleague,
This question of pay dissatisfaction needs to be addressed because of the implication that
huge expenditures on pay appear to be futUe and fruitless. Besides, the consequences weaken
the organization and sometimes threaten its very survival. It is an irony that expenditures such
as pay, which are intended to motivate employee work behaviours towards organizational
objectives, can themselves become the cause of work behaviours that frustrate, if not thwart,
the objectives of the organization. How is pay dissatisfaction related to the consequences
attributed to it? Uwler (1971) proposed a model of the consequences of pay dissatisfaction (see
box A and box B in Figure 5.2). According to this model, when employees experience pay
dissatisfaction, the numerous consequences — including tardiness, absenteeism, and turnover —
usually attributed to pay dissatisfaction do not automatically follow. Instead,/the mode! posits
that employed.
Let us pursue the first scenario;-employees experience a.desire'for/ more pay (box 1),
In this scenario, employees will be motivated to increase their performance, rather than lower
it, if the compensation system is designed to pay for performance (box 2). If pay is not perfor-
mance based, then employees will not be able to satisfy their desire for more pay by increasing
or improving their performance. ..In .such an event,:.employees will pursue other options to
obtain more pa/. Such options include union pressures on management, which if unsuccessful
may eventually result in a strike (box 3); grievances filed by employees in an attempt to
demonstrate their dissatisfaction (box 4); or a search for a higher-paying job (box 5). This last
action would, acording to the model, lead to absenteeism (box 6) and possibly turnover (box 7).
The reason for the absenteeism is that the employee must be absent as he/she explores job
opportunities and attends interviews .with placement agencies or prospective employers. If the
search efforts prove successful, there will be turnover. Thus, in the first scenario, turnover
would appear to be a measure of last resort.
In the second scenario, pay dissatisfaction is postulated to lead toja lower attractiveness
of the"job(4Tx>x8). The lower rewards attached to the job do not make it attractive any more.
The employee's efforts in this situation are directed towards looking elsewhere for a job. The*
search" efforts lead to absenteeism (box 9) and, if successful, to turnover (box 7^. The employee
could also use absenteeism as a strategy (i.e., reducing inputs) to restore equity, provided the
absence does not result in a loss of pay. If" the job search efforts are not successful, then the
employee continues in the present job. At the same time, the employee's dissatisfaction with
the job (box 10) also continues. If not addressed, this dissatisfaction will likely lead to illnesses
(box 11), poor mental health (box 12), or psychological withdrawal (box 13).
Lawler's model identifies the psychological consequences of pay dissatisfaction — the
desire lor more pay, or the lower attractiveness of the job. However, the subsequent events
posited by the model do not explicitly take into account a variety of other factors and
considerations that may intervene. These factors can be categorized as job context factors, job
content factors, and external environmental factors (see Figure S.2). An examination of the
role of these factors will give a more comprehensive understanding of pay dissatisfaction that
will lead to developing appropriate remedial strategies.
Job context factors include, in addition to pay, items such as benefits programmes, job
security, status, congenial co-workers.and.superiors, and a..caring climate that reflects the
company's concern for (its employees. As was noted in an earlier discussion on the
determinants of pay satisfaction, these factors can serve as substitutes for pay.''For example,
employees might tolerate a lower pay in exchange for job security or some benefit
programme or even a congenial working environment." To' the extent that job context
factors compensate for a lower pay, these items will reduce pay dissatisfaction that might
other* wise be experienced. In Figure 5.2, the arrow from the job context factors box to box
A (Pay dissatisfaction) shows the moderating effect of job context factors.
t'Jdb'TOonten.t.factors include items such as-.chaUenging assignments,/rachievement-
recognition, responsibility,,^autonomy,.opportunities foj. growth, participation in
dedsioj\_maJdrig,_Tnese factors can also be viewed by employees as substitutes for pay
and, as a result, willlikevdse have the effect of moderating the pay dissatisfaction
experienced'by employees. |For example, an employee, particularly one with high
growth needs, might accept a job with a relatively lower salary if the job offers challenging
assignments and opportunities for growth. The moderating effect of job content factors is
depicted in Figure 5.2 by the arrow from the job content factors box to box A (Pay
dissatisfaction). To summarize, employee satisfaction with job context and/or job content
factors will tend to lower the employee's pay dissatisfaction.
It might well happen that job context and job content factors do not significantly
weaken pay dissatisfaction. Will pay dissatisfaction lead inevitably to turnover and to the
other consequences depicted in box B in Figure 5.2? One would expect that employees
who are dissatisfied with their pay and do not receive alternate valued rewards to
compensate for the lower pay will leave for higher-paying jobs elsewhere. But this
consequence need not necessarily follow, primarily because of external environmental
factors that often intervene in the decision to leave the organization. As shown in Figure
5.2, these factors include limited j6b opportunities, especially in times of high
unemployment; family responsibilities such as a house mortgage and disruption-of
the'children's schooling; the possible effects on the career of the spouse if the move
requires a relocation; family and community ties; reluctance to change jobs because of
age.1 One or more external environmental factors can operate to influence an employee
against voluntary turnover.
The preceding discussion briefly illustrated how job context, job content, and
external environmental factors moderate the extent of pay dissatisfaction and also its two
major consequences, turnover and job dissatisfaction. The findings of Flowers and
Hughes (1973) confirm the critical role of these factors, espedaUy in explaining why one
employee who'is'dissatisfied with his/her job might' leave^tKe^'brgaTiizaHbn, whereas
another employee who is similarly dissatisfied might choose^ remain with the
organization despite the dissatisfaction. Employees who experience high job satisfaction
are generally in enriched jobs, those that are high on job content factors. These employees
stay with the organization solely because the enjoyment they experience with the work
makes them "want to" stay, Pay satisfaction, as such, is not the motive for their remaining
with the organization. Flowers and Hughes designate such employees the "tum-ons/'
But any drop in their job satisfaction, usually "resulting from some problem or
deficiency with job content factors, will tend to weaken their bonds with the
organization and cause them to become "turnovers."
job satisfaction (because of enriched jobs) may also be attracted to the
organization by job context factors (pajs benefits, or status, etc), by external
environmental factors_J[ifami|y responsibilities, family or community ties, etc.), or
even by a combina-tion of both "job context'and "external environmental
factors/Such employees can now be said to stay with the organization not only
because they "want to" (the work attracts them), but also because they "have to" (pay
and benefits attract them, and family responsibilities make it necessary for them to
stayJ Because their stay with the organization is doubly guaranteed,they are referred to
as the "turn-ons-plus.V Unlike the tum-ons, an irreversible and fairly permanent drop
in their job satisfaction will not cause them to leave the organization. Job context factors
will continue to attract them, and external environmental factors will make it necessary
for them to stay. Unfortunately for the organization, however, such pressures to stay
will prevent the 'dissatisfied employees from becoming turnovers; instead they wilJ
become "turn-, offs-'/ The turn-offs are likely to be the source of nuisance-value'griev -
ances, work slow-downs, strikes. The other manifestations of turning off could be
psychological withdrawal, drug-abuse, and related mental illnesses.
Job context, job content, and external environmental factors give a much
clearer perspective of the phenomenon of pay dissatisfaction and its consequences.
This perspective provides the compensation specialist with the flexibility to draw upon
the variety of factors in each category (job context, job content, external
environmental) to devise strategies that fit the needs of employees. Some general
guidelines in the development of such strategies are discussed in the next section,
which deals with what organizations can do to ensure pay satisfaction.
PRACTICAL GUIDELINES FOR ENHANCING PAY SATISFACTION
There is no doubt that the consequences of pay dissatisfaction are debilitating both for
the organization and for the employees. It is not surprising that organizations are
concerned to ensure that their employees are satisfied with their pay. What concrete
measures can an organization take to meet this concern? To begin with, it is important to
recognize that any practical measure must be built upon a sound theoreti cal foundation.
In the absence of a theory, the explanation or predic tability of the measure takes on the
characteristic of being merely a guess. A sound theory, on the other hand, provides a
rational explanation of a ,phenomenon, situation, or event, and permits reasonable
predictions. As Kurt Lewin observed, there is nothing more practical than a sound theory.
On the basis primarily of the expectancy theory model (Figure 4.1) and its extensions, the
determinants of pay satisfaction (Figure 5.1) and the consequences of pay dissatisfaction
(Figure 5.2), some practical guidelines can be inferred to ensure pay satisfaction. These
guidelines will be stated in general but concrete terms in this chapter and spelt out in detail in later
chapters, when the specific compensation subsystem to which the guidelines relate will be
considered. For example, one guideline would be that the organization should institute a fair
and systematic job evaluation system in order to ensure internal equity, which contributes to
pay satisfaction, The specific mechanics and the process of the job evaluation system will be
treated in detail in Chapter 10. The first guideline for ensuring hieh paysatis faction would be' to
offer 'a high pay to all employees, resulting in a high average level or pay satisfaction. This,
however, could be costly to the organization, and induce a feeling of inequity.if no differentiation
were made among the poor, mediocre, and superior performers. Hence/the pay level must take
into account the organization Jbusiness strategies V well'as'the'princi-"plesr of internal,
external, and individual'equity.'To ensure internal equity, the organization will need to institute
and implement a job evaluation system that fairly reflects the job's value to the organization.
External equity will bo ensured by periodic salary surveys in the right labour markets. Individual
equity calls for a performance appraisal system that enables the organization to properly
differentiate between the performances of employees in the granting of merit raises. The second
guideline will be to monitor pay satisfaction levels throught, periodic surveys.ilf the level of pay
satisfaction is found to be low, it doe's not automatically follow that pay should be increased. The
organization must do an analysis of the benefits it will likely derive from increased pay and the
costs of the consequences (absenteeism, turnover, etc.) of a low level of pay satisfaction. If, on
the other hand, the pay satisfaction level is high and the organization still experiences high
turnover, the remedy will not be to increase pay but rather to explore other job outcomes that the
employees are likely not receiving.; Pay satisfaction is moderated by job content factors and job
context fartorstouTexthari p'ay)7Managers can 'consider a mix of pay, benefits, and non-
economic outcomes that are valued by the employees. The organization might also consider
caftierif-style plans, which enable employees to pick and choose items of pay and benefits that
they value. Giving employees the choice will greatly enhance their pay satisfaction. The
third guideline relates to the important process issue of commurii-ication and employee
involvement in pay determination and administra 'on. Should the pay system be secret or open
£odal compaj JLs.q Caudal determinant of :pay satisfaction; When the pay system is secret,
social comparison, based on rumour and speculation, inevitably produces distortions with-
detrimental effects to pay satisfaction An.opeC; system, on the other hand, .allows for a more
realistic social comparison andto'trtat extent: enhances pay satisfaction — provided, however,
that the employee perceives fairness and equity in pay decisions. Employee involvement in pay
determination and administration contributes to the formation of relatively more accurate
employee perceptions of one's own and the relevant other's inputs and outcomes. 1 Employee
involvement in pay determination and administrab'on allows for a more realistic social
comparison and'generally promotes employee perceptions of fairness and equity, thus
enhancing pay satisfaction.
The guidelines briefly outlined here ensure that pay is perceived by the employee to be a
valued reward, contingent on the performance of the desired behaviours. The guidelines are
consistent with the dictates of expectancy theory. Hence, one can be confident that the
guidelines wUJ lead not only to greater pay satisfaction but also to increased employee
motivation to perform the organizationally desired behaviours.— the real objective of any
reward item.

SATISFACTION WITH NON-ECONOMIC OUTCOMES

The non-economic outcomes generated by all of the job content factors and some of (he
job context factors play a critical role in determining pay satisfaction, and also in moderating the
consequences of pay dissatisfaction. This chapter has touched on the potential of the non-
economic outcomes in the repertoire of the reward strategies that can be deployed by the
compensation specialist to motivate employees in performing the desired work behaviours. The
almost end Jess, variety of non-economic outcomes includes items from the job context
category/for example, jobf status, job security, congenial co-workers and supervisors, a
caring organizational climate; and items from the job content category for.- xt and job
content, :the non-monetaiy outcomes generated by job content factors, through the process of
jqb 'design, have been found to be significantly effective in employee motivation.'
Why does job design work in increasing employee motivation and improving job
performance? How does the process of job design operate to produce non-economic
outcomes? Answers to these questions provide the theoretical underpinnings of job design
and explore the process of job design that enables the job holder to experience the internal
rewards of an enriched'job. This treatment of the theory and the process of job
design will help the compensation specialist to integrate job design as an important
element of the compensation system.

THEORETICAL ArpROAQfES TO JOB DESIGN

The potential of job design to improve performance was formally recognized by
the scientific management movement, whose approach could be viewed as the classical
approach to job design. This approach regarded division of labor, work simplification, and
standardization as ethical imperatives for increased productivity. Through time and motion
study and related industrial engineering techniques; job tasks were designed to eliminate
unnecessary movements and exertion of effort. The resulting job content included a set of
simplified, specialized tasks that were to be performed according to the predetermined
"one best way" to attain the predetermined output. Management spelt out in great detaii
what was to be done in the job as well as how it was to be done. The job design did not allow
for the exercise of any initiative or resourcefulness by job incumbents.
The classical approach to job design led to relatively simple jobs requiring
unskilled workers who were easier to recruit and train. Simple jobs permitted considerable
flexibility in meeting staffing needs. Like standardized machine spare parts, workers were
easily interchangeable for different jobs, enabling management to overcome the adverse
effects of absenteeism and turnover on production. Management control was also
reinforced by the predetermined output for each job. The results were (1) low costs in
terms of starting wage rates, recruitment, and training; (2) increased output; (3) greater
management control over workers and the production process; (4) increased worker
income from incentive plans. These advantages, however, were far outweighed by
adverse consequences; (1) worker boredom and the monotony of a routinized job, which
led to a demand for higher wages in the job; (2) employee dissatisfaction manifested by
unusually high turnover and absenteeism, increased rate of grievances, and
psychological withdrawal; (3) increased worker replacement and training costs; (4) low
quality output. To summarize, the short-term output increase was soon followed by
employee dissatisfaction and long-term productivity deficiencies.
In the theoretical scheme underlying the classical approach, job design was not
intended to promote employee motivation. The sole objective'of job design was to
improve job performance through providing the worker with a dear description of the
job, its tasks and output goals, supported by adequate trainir.-g and the necessary tools and
material resources. Employee motivation, it was believed, would be taken care of by the
opportunity to earn relatively high incomes through fair incentive plans. The scientific
managemeht movementfitwill be retailed/"believed in the "economic rrT&i''roncept —
that the worker is primarily and solely motivated by monetary rewards contingent on
performance. Job design
was not therefore seen as a work reward that could motivate employees to improve
performance.
The growth theories of Herzberg and Maslow provided a different perspective
of the role of job design. As explained in Chapter 3, growth theories believed in the
"self-actualizing man" concept.'£ very worker? claimed Herzberg (1966), is a living and
growing organism, and can be motivated only by satisfying hlsTher growth needf. Job
design is the sole vehicle fhat creates the conditions for growth needs satisfaction.
Hence, job design is the only important motivational tool. Growth theories/ for the first
time, focused attention on job design as a work.rewaxd item, an item that constituted the
intrinsic reward element of the compensation,-system. The outcomes from job content
thus became the motivators that alone explained and therefore predicted the
employee's high levels of work performance. In the process, the growth theorists,
particularly Herzberg, de-emphasized the monetary and other outcomes from the job
context as being significant to motivate employees. These outcomes constituted the
extrinsic reward element of the compensation system.
The differences between the classical and the growth theories approaches to
job design are reflected in the approaches to compensation design and practice shown
by compensation theorists and practitioners on the one hand, and growth theorists and
organizational development advocates on the other hand. Compensation theorists and
practitioners, influenced by the classical approach, focused exclusively on pay as the
dominant element of the compensation system. Since job design was not intended to be
a motivational tool, they had difficulty in integrating it into the compensation system.
Growth theorists(notably Herzberg) and organizational development advocates, on the
other hand, saw pay and all forms of outcomes from the job context as of minimal
importance in employee'motivation. They focused exclusively on job design as the
dominant element of the compensation system.
The true role of job design in the compensation system lies between these two
extremes. Outcomes from both the job content and the job context constitute integral
parts of the total compensation system. This perspective is derived from the
contingency approach to job design, which is contained in expectancy theoryand (he
job characteristics mode! of Hackman and Oldham (1980),
From the expectancy model discussed in Chapter 4, it is clear that any outcome,
whether intrinsic or extrinsic to the job, has motivational / potential so long as the
outcoms ' contingent on'the desired work, behaviour and valued by the employee, In-
job design — whether it is in the form of 'job' enlargement, job rotation* or job enrichment —
the contingency requirement is automatically fulfilled. The outcomes a worker experiences in
performing a job — a sense of accomplishment, feeling good about one's performance — are the
job's pleasant, non-economic outcomes. These outcomes are experienced by the individual only
after he/she has performed. In other words, internal rewards, which flow from job design, are
conditional upon performance
However, not all employees might value these internal rewards; some might even find an
enriched job to be threatening. If employees do not value the internal rewards cf an enriched job,
they will not be motivated by these non-economic outcomes. Furthermore, even if employees
value internal rewards, they may not have the ability to perform well in an enriched job. When
employees lack the ability to perform in a given task, they will fail to perform at the desired level.
Such failure to perform will eventually lead to a low (E—P) expectancy, which will lower their
motivation to put in the necessary effort to perform adequately on their job.
liackman and Oldham's job characteristics model provides a specific and more
comprehensive treatment of why job design works and how it can be used as a compensation
strategy to provide effective non-economic outcomes to employees. According to Hackman and
Oldham, a job can be structured in such a manner that its good performance gives employees a
sense of accomplishment that makes them feel good about themselves and their work. Poor
performance, on the other hand, produces the opposite effect — unhappy feelings about
themselves and their work, which they regard as unpleasant outcomes. Employees will strive to
perform well in order to experience good feelings and avoid unpleasant outcomes. Good
performance becomes "an occasion for self-reward, which serves as an incentive for continuing
to do well" (Hackman and Oldham 1980, 72). Hence, job design, through its potential for self-
reward for good performance, is an effective vehicle for creating internal work motivation.
What characteristics must be incorporated in the job design to ensure high internal work
motivation? According to the job characteristics model, the job should have five core
characteristics; skill variety, £ask identity, task significance/ autonomy, job feedback,
riackman and Oldham describe these characteristics as follows:
1. Skill variety; the degree to which e job requires a variety of different activities
in carrying out the work, involving the use of a number o( different skills and
talents of the person. (1980, 78)
2. Task identity; the degree to which' a job requires completion of ,1 "whole" and
identifiable piece of work, that is, doing a job from beginning to end with a
visible outcome. (1980, 78)
3. Task significance: the degree to which the job has substantial impact on the lives
of other people, whether those people are in the immediate organization or in
the world at large. (1980, 79}
4. Autonomy! the degree to which the job provides eubsUntiaJ freedom, indepen-
dence, and discretion to the individual in scheduling the work and in determining
the procedures to be used in carrying it out. (180, 79)
5. Job feedback; the degree to which carrying out the work activities required by the
job provides the individual with direct «nd dear fn/orrrution about the effective-
ness of his or her performance. (1980, 80).
An individual performing a job that is high in the first three characteristics (skill variety,
task identity, and task significance) will experience the work as meaningful. When the job is
high in autonomy, the job holder vviU experience responsibility for the outcomes of the work,
since these now flow from the exercise of his/her discretion and initiative. Finally, when the
job is high in job feedback, the job holder will have direct knowledge of the results of
his/her performance. The model postulates that when the job enables the employee to
experience the work as meaningful, to feel responsible for the work outcomes, and to have
knowledge of the work results, then the employee will have high internal work motivation.
I is necessary to recognize that an enriched job, that is; a job high in the core job
characteristics, will not by that very fact produce high internal work motivation in the job
holder, Rather, the enriched job only makes it possible for the individual who has performed
well to experience the internal work rewards that will then motivate the individuaLto continue
to perform well. In other words, merely placing the individual in an enriched job will not cause
internal motivation; theindividuaJmusr,".j perform well in order to experience the internal
rewards and thus be internally motivated The question therefore arises: Will all employees
perform well in an enriched job? This question requires that individual differences be taken
into account. The job characteristics model recogr nizes individual differences in three
areasy(l) knowledgeVridskill, (2) growth need strength, and (3) context satisfactions such as
satis faction with compensation, job security, co-workers, and superiors.
An individual who has neither the knowledge and skiD nor the competence demanded by
an enriched job will not be able to perform well.Likewise, an individual who does not have
strong growth needs will not recognize or fully appreciate the opportunities for the exerdse of
autonomy and discretion, and for the growth or mastery of varied skills presented by an
enriched job. In fact, such an individual might even feel threatened by the demands of such a
job. On the other hand, suppose an individual has the knowledge and skill, and even high
growth needs, but is dissatisfied with one or more aspects of the job context, for example, the
pay of the enriched job or the lack of job security. This individual will be much too preoccupied
with rectifying the perceived deficiencies in the jcb context to perform well on the job. Thus, the
job-relevant knowledge and skill, growth need strength, and context satisfaction of an individual
moderate his/her performance in an enriched job and, in rum, his/her intema! work
motivation. The more of these moderators (knowledppanH stall, growth needs strength,
context satisfaction) the individual has, the greater is the likelihood of high internal work
motivation in an enriched job.
From this review of the theoretical approaches to job design, it can be seen that the
job characteristics model provides a coherent and comprehensive approach to job design.
It fully explains the process of how job design leads to the intemaJ rewards that flow
from good performance. It also identifies the conditions that must exist if the job holder is
to experience the internal rewards of an enriched job. And the model goes further, by
prescribing a set of specific, practical guidelines for job design, which will be treated in the
next section.

THE PROCESS OF JOB DESIGN

The process of job design answers the question: How are the core characteristics of
a job enhanced? In other words, how can skill variety, task identity, task significance,
autonomy, and job feedback beincreased? The job characteristics model proposes a set of
five implementing principles: combining tasks, forming natural work units, estab lishing
client relationships, vertically loading the job, and opening feedback channels. Each
principle will be discussed, as well as how that principle contributes to improving one or
more of the core characteristics of the job. A summary of the discussion as shown in Table
5.1.

Combining Tasks
This principle suggests the putting together of "existing, frac- tionalized, tasks
to form new and larger modules of work" (Hackman and Oldham 1980,135), This
principle can be applied, for example, in the assembly-line operation for a small appliance.
In such an operation, the entire task of assembling the appliance is broken down into
several smaller operations, which are performed as the appliance moves from one point
of the assembly line to the next. When the combining-tasks principle is implemented, the
entire assembling operation is done by one person. (If the combined task is too large for
one worker, it can be done by a team of workers who are responsible for the finished
product.) Restructuring the work in this manner enables the individual to identify with the
complete appliance. Hence, task identity is improved. As the individual now has to
perform many more tasks and activities than before, more of his/her skills, abilities, and
talents are being used, and skill variety is increased. Thus, redesigning the job by
combining tasks enhances the core job characteristics of task identity and skill variety,
Forming Natural Work Units According to this implementing principle, the items of
work are "arranged into logical or inherently meaningful groups".
Employees are now able (o see themselves contributing to more of the finished product.
forming Natural Work Units; Employees develop a sense of ownership'as they identify
with a customer group. Forming Natunl Work Units: Employees' dose association with
their customer group enables them to see the Impact of (heir work.) Vertically Loading the
Job; Control In areas such as developing work schedule, methods, procedures, etc.,
enables employees to experience autonomy and responsibility for thei work, Esublish
Client Relationships: The exercise of discretion and decision making in managing client
relationships inevitably Increases autonomy. Opening Feedback Channels: When
employees are given responsibility for quality control checks, for example, they are able
to see fairiy immediately the results of their work. EsUblish CJient Relationships: Direct
client contact Hows employees to receive information on the quality of the goods/services
they provide.

Oldham 1980, 136). The staff of a travel agency might be randomly assigned to
the customers, or the staff might be assigned to particular groups of customers, for
example, government, business, or individual accounts. The redesign to form natural
work units allows the staff to develop a sense of ownership as they identify with a
customer group, thereby increasing Usk identity. The close association of the staff with
their customer group will also enable them to see for themselves the impact of their
work on their customers, thus contributing to task significance. The task identify and
the task significance characteristics of the job are greatly enhanced when the job is
redesigned to form natural work units.

Establishing Client Relationships

• This principle prescribes that,.as far as possible, the employee deal directly with the
clients and be responsible for managing client relation ships. This prescription also
involves the establishment of the criteria that the client will use in providing feedback to
the employee. Suppose that the job of the travel agency staff in the previous example is
redesigned to form natural work units. This redesign could be taken a step further by
allowing the employees to establish relationships with their clients and to manage these
relationships. Such a redesign will increase the job's core characteristics of skill variety,
autonomy, and job feedback. The increase in skill variety comes about because client rela -
tionships call for a greater use of interpersonal and communication skills. The exercise of
discretion and decision making in the management of client relationships will increase
the degree of autonomy in the job. The increase in feedback comes from the fact that
dealing directly with the clients places the staff in a position to receive information on the
quality of service they provide.

Vertically Loading the Job

This principle gives workers "increased control over the work by 'pushing down'
responsibility and authority that were formerly reserved for higher levels of
management" (Hackman and Oldham 1980, 138). This control could be in a variety of
areas, for example, developing the work schedule, methods, and procedures; decision
making (even if it is limited) in budget and financial matters related to the job; involvement
in planning. Redesigning the job by vertical loading will increase the core job
characteristic of autonomy.

Opening Feedback Channels

This principle prescribes that job redesign enable employees to receive feedback
directly from the job, preferably immediately upon performance rather than later from
the supervisor. Establishing client relationships is one way of feedback from the job. Other
ways are giving workers responsibility for quality control checks; and performance
records such as production data and budget reports that are sent to both the employee and
the supervisor. With computerization, direct feedback from job performance tends to be
more feasible. Opening feedback channels increases the job feedback characteristics of a 1
job.
To summarize, the implementing principles or concepts proposed by the job
characteristics model provide practical prescriptions for job enrichment. These
prescriprions operate to specifically increase the core job characteristics of skill variety,
task identity, task significance, autonomy, and job feedback. As discussed in the
previous section, the greater the degree of these characteristics in a job, the more the job
holder who performs well will experience internal work rewards. The process is,
however, moderated by the individual's job-relevant knowledge and skill, growth needs
strength, and satisfaction with the context — all of which wili considerably influence his/her
job performance.

IMPLICATIONS FOR REWARD MANAGEMENT

The job diagnostics survey developed by Hackman and Olclham (1980) provides a job
profile that identifies the core characteristics needing improvement. The implementing
concepts can then be applied to improve these job characteristics. The job characteristics
model is a sound, empirically proven approach to job design, which now nwkes it possible for
job design to be integrated into the compensation system as a realistic and practical
compensation strategy for providing non-economic outcomes. Thus, as was discussed earlier,
the expectancy model establishes the rationale for including job design as an important
component of (he total compensation system, and the job characteristics model provides a
theory-based technology to put job design into pratice.

SUMMARY
The issue of satisfaction with a compensation item is critical to the effectiveness of a
compensation system. Combining notions from equity and discrepancy theories, this chapter
has discussed satisfaction in terms of the difference between an individual's perceptions of
what should be received and what is received. In dealing with the issue of satisfaction with
pay, the determinants of pay satisfaction model identified four factors — person-related, job-
related, referent-other-retated, and context-related — that contribute to the employee's
perceptions of the amount that should be received and the amount that is received- The
difference between these perceptions causes employees to be satisfied or dissatisfied with their
pay. These factors represent 1 the employee's inputs, which tend to increase the perception of
pay that should be received; the job outcomes, which are perceived as acceptable substitutes for
pay and therefore tend to decrease the perception of pay that should be received; the
significant and powerful effect of social comparison, which can serve to increase or decrease
both sets of perceptions — amount of pay that should be received and amount of pay that
is received.
The two major consequences of .pay dissatisfaction, according to the consequences of
pay dissatisfaction model, are the desire for more pay^ and the reduced attractiveness of the
job. Each consequence has its own set of employee reactions. The desire for more pay leads to a
higher level of job performance if pay is performance-based; otherwise, the non-fulfilment of
this desire leads to a variety of employee reactions anging from absenteeism and turnover, to
the filing of grievances and iinion pressures which might even include a strike. Employees
reactions to the red iced attractiveness of the job lutve been found to vary from absentee -
ism and turnover- to job dissatisfaction, which might result In poor mental health or
psychological withdrawal. It is, however, necessary to recognize that the very fact of
employees' pay dissatisfaction, whether it will occur and what its nature will be as well as
employees' reactions to it, are moderated not only by the content and the context of the job
but also by the external environmental factors in which employees find themselves.
Both models, the determinants of pay satisfaction and the con sequences of pay
dissatisfaction, provide a firm conceptual basis on which to develop a repertoire of
strategies for ensuring pay satisfaction and for coping with the consequences of pay
dissatisfaction. One such strategy is the use of job design to generate non-economic
outcomes. Of the several approaches to job design, the job characteristics model offers an
empirically proven technology that allows an organization to adopt job design as a
practical compensation strategy to provide non-economic outcomes for its employees.

KEY TERMS
classical approaches to job design
core job characteristics
discrepancy theory
growth theories approaches to job design
implementing principles of job desrgn
job characteristics model
job content factors
job context factors
job design
satisfaction

REVIEW AND DISCUSSION QUESTIONS

1. Consider the following cases of dissatisfaction with pay:
Case I
Robert is not satisfied with his pay as a bank teller, because it does not enable him to
maintain the standard of living he was accustomed to before he married a widow with
three children. He concedes that the pay fairly reflects the job's value relative to the other
jobs in the bank. He also concedes that the pay reflects his performance

Ca$e2
RicheUe is not satisfied with her pay as a bank teller, because she believes that, although her job
tide is the same as Robert's, her job has additional responsibilities. These responsibilities require
her to work extra hours for which she is not paid. She also believes that the pay does not
adequately reward her superior performance. RicheUe is single and lives with her parents. Her
only dependents are her pets, a cat named Huffy and a dog named Fido.
Which case corresponds with the notion of dissatisfaction in equity theory? Why?
'j&Identify and explain the factors that influence an individual's satisfaction with his/her pay.
3; It is not uncommon to find that individuals who are dissatisfied with their pay still
a) stay on with the organization;
b) maintain a high level of performance.
How would you explain these situations, which seem to be inconsistent with the predictions
of the consequences of pay dissatisfaction model?
4, Discuss some practice guidelines for increasing pay satisfaction.
5. Distinguish between the classical and growth theories approaches to job design, &Using
examples, discuss the potential of Hackman and Oidham's job characteristics model As an
effective compensation tool.

When Ted Sharp joined the Space Age Technology Company (SATCO) as a design
engineer, he brought to the job ?n exceptionally strong academic record and three years of
related work experience, SATCO was a relatively small and unknown company in suburban
Montreal, but its association with Star Wars technology offered Ted an unusual opportunity for
professional growth.
Ted was pleased with his decision to join SATCO. It had certainly come up to his
expectations: challenging assignments and opportunities for creativity and innovation as well
as professional growth and development; and signals from top management that he was being
considered for a management position. Of course, Ted's career progress had had its costs —
hard work, long hours, and frequent travels. The last two were especially hard on his wife and
their teenage daughter. A tragic automobile accident had rendered his wife a paraplegic
requiring constant attention. The daughter had had to assume the responsibility of attending to
the mother, in addition to the household chores and school work. However, Ted's career
received strong encouragement from his wife and daughter. They loved Montreal and had
become very attached to their neighbours, who were very friendly and provided them with
support and assistance.
As Ted looked out of his office window, the bright sunshine, unusual for Montreal in
February, seemed to reflect his optimism about his future in SATCO. He had just finished talking
to his boss, Jeremy Harper, and was delighted to learn of his merit raise, the largest in the
design engineering department. Recognition was not new to Ted; he had received prizes and
honours in school and university, and in his previous job he had received above-average 'raises.
The fact that he had been awarded the highest raise for each of the last five years he had been at
SATCO made him look forward to a satisfying and productive association with the company.
His cheery, upbeat mood was cut short when George burst into his office with a printout
of the salaries and merit raises of the department. George was a competent engineer but in his
weaker moments he regressed to being a computer hacker, a bad habit he had picked up as an
undergraduate. In one of these moments he had come across the salary information that Ted
was staring at in disbelief. It confirmed that he had the highest merit raise, but he was totally
flabbergasted to see the almost negUgible difference between his salary and that of Ron Brown,
When Ron Brown was hired two years back, there was considerable opposition for two reasons.
First, he was hired in preference to several other applicants who were better qualified. The
major consideration seemed to be that he was the nephew of a senior vice-president of SATCO.
Second,
When Ted Sharp joined the Space Age Technology Company (SATCO) as a design
engineer, he brought to the job an exceptionally strong academic record and three years of
related work experience. SATCO was a relatively small and unknown company in suburban
Montreal, but its association with Star Wars technology offered Ted an unusual opportunity for
professional growth.
Ted was pleased with his decision to join SATCO. It had certainly come up to his
expectations: challenging assignments and opportunities for creativity and innovation as well
as professional growth and development; and signals from top management that he was being
considered for a management position. Of course, Ted's career progress Had had its costs —
hard work, long hours, and frequent travels. The last two were especially hard on his wife and
(heir teenage daughter. A tragic automobile accident had rendered his wife a paraplegic
requiring constant attention. The daughter had had to assume the responsibility of attending to
the mother, in addition to the household chores and school work. However, Ted's career
received strong encouragement from his wife and daughter. They loved Montreal and had
become very attached to their neighbours, who were very friendly and provided them with
support and assistance.
As Ted looked out of his office window, the bright sunshine, unusual for Montreal in
February, seemed to reflect his optimism about his future in SATCO. He had just finished talking
to his boss, Jeremy Harper, and was delighted to learn of his merit raise, the largest in the
design engineering department. Recognition was not new to Ted; he had received prizes and
honours in school and university, and in his previous job he had received above-average 'raises,
The fact that he had been awarded the highest raise for each of the last five years he had been at
SATCO made him look forward to a satisfying and productive association with the company.
His cheery, upbeat mood was cut short when George burst into his office with a printout of the
salaries and merit raises of the department. George was a competent engineer but in his weaker
moments he regressed to being a computer hacker, a bad habit he had picked up as an
undergraduate. In one of these moments he had come across the salary information that Ted was
staring at in disbelief. It confirmed that he had the highest merit raise, but he was totally
flabbergasted to see the almost negligible difference between his salary and that of Ron Brown.
When Ron Brown was hired two years back, there was considerable opposition for two reasons.
First, he was hired in preference to several other applicants who were better qualified. The
major consideration seemed to be that he was the nephew of a senior vice-president of SATCO.

Second
his starting salary was about $2,500 more than the salary of most engineers who were equally,
if not more, qualified and had been with SATCO for over two years.
 At that time, Ted had with difficulty reconciled himself to receiving almost the same
salary as Ron because he was hopeful that his merit raises would eventually remedy the
situation. To his utter disappointment/ he now found that his merit raises had not put him
very much ahead of Ron. At the first opportunity, he met Jeremy Harper and demanded an
explanation, saying: "I'm tired of working for just the joys oi engineering. My salary should
fairly reflect my competence and contribution to SATCO."Jeremy tried to explain the merit
system: "Our performance rating system consists of three categories: outstanding, acceptable,
unacceptable. Each year your performance was assessed as outstanding, which entitled you to
6.5 per cent increase, Ron's performance was assessed as acceptable, which entitled him to a
5.5 per cent increase. You must not forget that the merit increase includes a COLA of 5 per cent
for everyone." Expressing his disappointment that SATCO did not think very highly of him,
Ted stormed out of the office.

Discussion Questions
1. What are the reasons for the inequity that Ted experienced?
2. Explore all the possible actions that Ted can take. Which of these
actions do you think Ted might actually take? Why?
3. As a compensation specialist, what are your recommendations for
resolving this situation?
4. Assume that instead of Ron Brown, the person who was hired
belonged to one of the "protected groups" (i.e., women, visible
minorities, aboriginal peoples, persons with disabilities) and had
qualifications identical with Ron Brown's. Assume further that this
person was hired as part cf SATCO's affirmative action programme.
In this scenario, explore the possible impact of the programme on the
employees' perceptions of equity, and the strategy that SATCO might
adopt to address such an impact,