Section Fourapproaches involving job evaluation are used to determine
internal equity or fairness in compensation among jobs in an
organization. Salary surveys are then used to determine exter-
nal equity with market rates. Managers then set rates of
compensation by balancing considerations of internal and
external equity.^17
Strategic Inadequacies of Traditional
Compensation Approaches
Unfortunately, traditional compensation systems leave much to
be desired from a strategic perspective. One of the strongest
criticisms involves the evaluation of jobs on compensable
factors such as problems solving or know-how. By assigning
differential points to various jobs on the basis of these factors,
the process tells job incumbents—whose jobs are evaluated low
on problem solving or knowhow—that they are not being paid
to solve problems or think. A further criticism is that because of
the job-based focus, each employee is compensated only for
the performance of a specific job. Thus, the compensation
system introduces constraints on managers’ flexibility in
utilizing the workforce. When a person is asked to perform
work outside of his or her job classification, there are problems
in assignment of a pay rate to such jobs. The presence of a
union complicates this further as the pay rates for the various
job classifications are the result of collective bargaining.