Does loyalty pay-Rajababu

["rajababu" <>]

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Tip of the day:  "Euphoria is not a business strategy" -- Louis Rossetto
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> First written in NICMA, a group for Cost Accountants
> :"V. Sudarshan" <v.sudarshan@vsnl.net>
>
>  If a company has built its pay system to reflect its competitive
> environment and the way it does business, it should be able to defend it
to
> employees. But often they keep it secret because they know there are
> arrangements they could not justify - Matt Bloom, Management professor at
> Notre Dame's Mendonza College of Business
>
>                                       EMPLOYEE COMPENSATION - Soaring pay
> creates workplace friction
>
> ====================================================
>
> As new recruits command sky-high salaries, long-time workers are left
> feeling undervalued
>
> See that young person over there, at the desk by the window? Brand new
> employee, and he makes Rs. 10000 more than you do!
>
> Are you okay with that? If you are like many people, maybe not.
>
> The growing importance of the Internet to business has created a
superheated
> job market for certain kinds of people, especially those with management,
> legal and technology skills.
>
> Companies that feel compelled to bid in this talent auction are paying
what
> many consider scandalous prices in terms of pay, benefits and perquisites,
> to fill positions from chief executive officer to line worker.
>
> And some companies find they are paying a second, hidden price, in terms
of
> workplace friction, if existing employees are made to feel undervalued
> compared to new recruits.
>
> Matt Bloom, management professor at Notre Dame's Mendonza College of
> Business, hears about pay envy from managers when he speaks to industry
> groups. But he hears it even closer to home, in the halls of academics,
> where the high pay needed to attract young professors these days sparks
> resentment among older faculty members.
>
> "Universities, like businesses, are struggling to create a fair pay
system,"
> said Bloom, who researches the effects of pay inequalities on business
> performance. They are generally negative.
>
> There are two kinds of pay inequalities, which may be termed vertical and
> horizontal.
>
> Vertical disparities are the gaps between management and line workers or
> between the chief executive and the next tier of company officers.
>
> Horizontal inequalities are those among workers on the same level, say,
> between new recruits and veterans or between the sales force and
accounting
> staff.
>
> In either case, such disparities can be corrosive to employee morale and,
> ultimately, performance, experts say.
>
> Bloom found in a study of Baseball teams a few years ago that the bigger
the
> stars and other players, the worse that team tended to perform, both on
the
> field and financially. We know very well how much true this is of the
Indian
> cricket team.
>
> Bloom got similar results in a recent study of public corporations
comparing
> CEO's with those of their closest subordinates. Problems can multiply when
> the CEO is a new hire.
>
> "When you introduce a new person as the answer to the company's problems,
> you're saying to the people already there,'You're not the answer," said
> David Thomas, a professor of organisational behaviour at Harvard Business
> School.
>
> GESTURE INSPIRES LOYALTY
>  -------------------------------------
> Sometimes a dramatic gesture can inspire bottom-up loyalty. When Lee
Iacocca
> took over at foundering Chrysler Corporation 20 years ago, for example, he
> took a salary of $1, plus a lot of stock options that would be worthless
if
> he failed to turn the company around.
>
> Few Chrysler employees begrudged Iaccocca the fortune he reaped when the
> automaker's fortunes reversed.
>
> The situation is different at Conseco, the struggling insurance giant,
where
> incoming chairman and CEO Garry Wendt was lured from GE Capital Corp. with
a
> signing bonus of $45 million, plus a bonus of at least $8 million and up
to
> $50 million, depending on how the stock performs.
>
> Several compensation experts criticised the package for sending a message
> that the new boss is unwilling to share the same risks as those beneath
him.
>
> The issues are slightly different when pay or status related conflicts
arise
> among people in the non-managerial ranks.
>
> A classic current example is that of the offline company that wants to
> create an Internet presence quickly and then discovers what intense demand
> has done to the salaries for technology workers.
>
> "Bright programmers right out of college, who used to get $30000 or
$40000,
> are literally getting as high as $120000 a year", said Alexander Stein,
> cofounder of Internet research company Gomez Advisors in Lincoln, Mass.
"It'
> s like the spot market for fuels."
>
> REACT IN DIFFERENT WAYS
>  ----------------------------------
> Companies react in different ways, but the process often begins with
denial.
>
> "The company says, 'This is our pay scale. Take it or leave it,'" Stein
> said. "But they're so far off that they can't hire anyone. You see that
goes
> on until the company realises the Web is key to their future, then they go
> ahead and hire.""
>
> To keep new recruits with their fancy pay and perks from "infecting" the
> rest of the work force, some experts recommend a sort of quarantine, where
> the tech workers are kept in a separate physical location or even under a
> separate corporate structure. In India, Larsen & Toubro is a notable
> example.
>
> San Francisco based pay consultants recall a client, a Bay area
> biotechnology company that decided to create a new subsidiary based on a
> cutting edge technology it had developed. If the technology was as
promising
> as it seemed, the fledgling enterprise could have been a explosive initial
> public offering of stock within a few years.
>
> As a matter of convenience and thrift, the parent company planned to
locate
> the spin-off in some extra space in its headquarters. Bad idea, the
> consultant told them.
>
> "These people were parking in the same lot", he explained. Before long,
> Lamborghinis and BMW's could join Volkswagens belonging to the old
employees
> driven by the IPO-rich employees of the spin-off - a mixture hardly
> conducive to workplace harmony.
>
> Some companies recently have spun off divisions or issued "tracking
stocks"
> at least partly in order to create a non-cash currency to attract
> high-calibre employees. Tracking stocks are a class of shares meant to
> reflect the performance of a distinct part of the company, such as an
> Internet site.
>
> Some companies are also pushing stock options deeper down into the
> organisation as a way of defusing resentments, said Jonathan Leonard, a
> professor at the University of California Berkeley's Haas School of
> Business. Although studies show that options do little to increase effort
> among lower-level employees, Leonard said, companies feel they can at
least
> reduce tensions by blunting feelings of inequality.
>
> NEW JOB CATEGORIES
>  ----------------------------
> Companies also try to address the issue by creating new job categories. If
> the new hire has a slightly fancier title than you do, the hope is that
> might in some way blunt the impact of his making more money for the same
> work.
>
> Another time-honoured strategy for minimising pay envy is secrecy, but
Notre
> Dame's Bloom thinks it's a dead end.
>
> "If a company has built its pay system to reflect its competitive
> environment and the way it does business, it should be able to defend it
to
> the employees," he said. "But often they keep it secret because they know
> there are skeletons in the closet, arrangements they couldn't justify."
>
> In cases where the high salaried functions - be it an Internet operation
or
> a new research project - isn't part of the company's core mission,
companies
> can avoid pay-disparity issues by hiring outside contractors. A regional
> homebuilder, for instance, might want to reach customers via a web site
but
> preferably doesn't need its own information technology department.
>
> Conflicts rooted in status, culture and pay disparities hardly are
confined
> to the dot COM world. Freshly minted MBA's and lawyers from top schools,
> just like software people and electronics engineers, are commanding six
> figure starting salaries and such lavish perks as free meals, on-site
gyms,
> concert and sports tickets and favoured parking spots.
>
> Eileen Applebaum, an economist at the Economic Policy Institute, calls
such
> superheated competition for labour a "tournament market," where a few
> winners rake in most of the spoils.
>
> Tournaments work fairly well for hiring companies in times of high
> unemployment because they can bid for the stars they need without fearing
> that others will leave. But in a tight labour market, Applebaum said,
> tournaments teach workers that loyalty is a losing strategy.
>
>
>
>
>


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