component of ‘high performance’ or ‘high involvement’ work organizations
(Lawler 2000 ).
Despite the strong interest and growth in the use of the person-based alternative
as a basis for pay, relatively few studies have empirically examined the conse-
quences of these plans. The exceptions include work by McNabb and WhitWeld
( 2001 ) who found that BritishWrms using more of a ‘high-performance’ approach
to management were less likely to utilize job evaluation and performed more
poorly if they did. Other research suggests that use of person-based pay systems
may reduce organization-level turnover (Guthrie 2000 ).
To date, the best evidence of the organizational-level performance impacts of
person-based pay plans is provided by Murray and Gerhart ( 1998 ). These authors
obtained thirty-seven months of time series data from a production facility’s
records to examine the impact of skill-based plan adoption on three fundamentally
important indicators of performance: product quality (scrap percentage), prod-
uctivity (labor hours per part), and labor cost (wages divided by number of good
parts produced). The time series data indicates that productivity increased dra-
matically following adoption of skill-based pay, with labor hours per part reduced
by 58 percent. Despite the fact that hourly wages increased during the study period,
the increased productivity resulted in a 16 percent reduction in labor costs. Also,
the skill-base pay facility’s scrap rate was 82 percent; better than a comparison
control facility.
Pay structure eVects: summary. Research results on pay dispersion eVects are
unequivocally equivocal. This may be logical since, in a general way, both overly
hierarchical and overly egalitarian pay structures are likely to violate equity theory
principles. Moreover, it is apparent that deWnitions of ‘egalitarian’ and ‘hierarchical’
will depend on a host of contingencies, including—but certainly not limited to—the
nature of the task (e.g. Bloom, 1999 ; Shaw et al. 2002 ), market pay position (Brown
et al. 2003 ), use of ‘legitimate’ bases for pay dispersion (Shaw et al. 2002 ) and
industry (Bloom and Michel 2002 ). Even though we are beginning to understand
these issues, much remains unexplored. For example, even in the case of baseball,
where a number of studies have shown negative eVects for pay dispersion on team
performance, it is still not clear why this occurs. This is especially true given that the
oppositeWnding has been reported in studies of other professional team sports
(DeBrock et al. 2004 ). Moreover, while much of the criticisms of hierarchical pay are
directed toward ratios of executive pay to ‘average’ workers, Shaw et al. ( 2002 ) make
the point that intra-class pay dispersion is probably more impactful than inter-class
dispersion. This seems intuitive, but requires empirical examination.
Research on the person-based pay alternative is fairly undeveloped at present.
The only tightly designed study of organizational consequences associated with this
approach to pay was quite promising (Murray and Gerhart 1998 ). Along with other
studies of ‘main eVects,’ more studies are needed on the contextual conditions that
make the person-based alternative a better ‘Wt.’
remuneration: pay effects at work 355