Section Sixapproach used in Japan. When profitability and demand
decline, compensation costs also decline, making it less
necessary to lay off employees.^64
Another critical issue in evaluating the effectiveness of
compensation systems is their flexibility. Unfortunately,
traditional compensation systems based on job evaluation and
determination of internal equity among jobs tend to be
inflexible. As noted, the process of job evaluation, commonly
performed according to the point system, assigns different
numbers of points for various levels of characteristics, such as
“know-how,” which refers to operational knowledge of different
jobs. Unfortunately, for some nonmanagerial jobs, there are no
“know-how” points in the evaluation system. Thus, the job
evaluation system places some employees in “nonthinking”
categories. One consequence of placing employees in such
pigeonholes is that some tend to stop thinking and maintain a
level of ignorance in order to conform to the job requirements.
Another consequence is that some employees who are
dissatisfied with the “nonthinking” requirements, proceed on
their own to develop other knowledge. As a result of these
employees’ initiatives, managers attempt to have their positions
upgraded, which introduces another source of distortion to the
wage structure.^65