Remuneration Issues of Wage Compression and Symbolic Egalitarianism

The goal of this essay is to discuss the importance of culture, the job, and organisational context in determining whether wage compression and symbolic egalitarianism are best. Pfeffer (2005) argues for wage compression and symbolic egalitarianism as two of thirteen management practices that lead to superior organisational performance, and the rationale and validity of his argument will be assessed in line with the work of Hofstede as applied to studies of multinational corporations.

Pfeiffer’s arguments will be shown to be of limited application contingent on the context they are being applied to. Symbolic egalitarianism is a conscious strategic decision within the organisation to remove symbols of hierarchy and the differential valuing of employees. This can include decisions such as moving managers from their offices to open plan areas, reducing or removing tiers of titular status, or status symbols attached to seniority or role.

Pfeffer argues symbolic egalitarianism signals equality and improves communications, it “diminishes ‘us’ versus ‘them’ thinking” [ (Pfeffer, 2005, p. 101) ] which he believes creates a more collaborative environment with better information flow and cooperation due to the hierarchical barriers between employees and managers being removed. Organisations make a strategic choice in their remuneration and reward programs to enforce either hierarchical or egalitarian culture. Egalitarian systems allow earnings to increase without employees having to move up to more senior roles.

This allows for a more flexible workforce that can be moved across jobs without moving up tiers, allowing for greater responsiveness to “new areas, projects or positions” [ (Gomez-Mejia & Balkin, 1992, p. 46) ]. This system can, however, lessen the longevity of the employment relationship. Organisations with a more mature and stable place in their market reject symbolic egalitarianism, as the baubles of status incentivise tenure in the workforce, reinforce organisational stability in a more “’clan’ type culture” [ (Gomez-Mejia & Balkin, 1992, pp. 6-47) ]. Hofstede’s theory can shed light on how and when symbolic egalitarianism may be effective, dependant on cultural context. A study of motivational theories argues that in societies with a traditionally high power distance, such as France and much of Asia, symbolic egalitarianism is often rejected by both managers and employees [ (Morden, 1995, p. 17) ]. Grenness (2011) agrees, arguing that “national cultural values that do not reinforce human resources … [strategic decisions]…. re more likely to yield unpredictable behaviour and poorer performance” [ (Grennes, 2011, p. 100) ] Multinational organisations, seeking to be successful in subsidiary countries, should therefore seek to design performance management and remuneration systems in a decentralised fashion, making allowances for best-fit at a business-unit level ( [ (Milkovich, Newman, & Gerhart, 2011) ] rather than immediately imposing the ‘home office’ approach to the application or non-application of symbolic egalitarianism.

As business units mature in their relationship with the influence of globalisation, this initial heterogeneous method of remuneration can be enhanced or adapted. In France, for example, there is a strong tradition of ascribed status, with elite groups of university-educated civil servants being referred to as “pantouflieurs – the wearers of golden slippers” [ (Morden, 1995, p. 6) ] Wage compression is a model for encouraging cooperation by distributing salary and rewards fairly between employees and shifting employee’s focus from their relative remuneration to their cooperation with their colleagues. Pfeffer argues that “when tasks are somewhat interdependent and cooperation is helpful for accomplishing work, pay compression, by reducing interpersonal competition and enhancing cooperation, can lead to efficiency gains” [ (Pfeffer, 2005, p. 102) ].

This can, however, make it difficult to attract and retain necessary talent to the organisation, particular in more specialised or senior roles. In the job context, wage compression may aid reinforcement of pay structures focussed on internal equity, though this would be contingent on there being either a workforce with low turnover and a strongly internal focus, or there being a readily available labour pool to draw on to replace turnover [ (Gomez-Mejia & Balkin, 1992, p. 5) ] such as in the fast food industry. This was demonstrated by Ben and Jerry’s Homemade, who under a company philosophy that the success of the company and rewards for this success should be shared fairly between the production workers and managers, attempted to maintain a salary ration of 7 to 1, yet had to abandon this focus on internal alignment through wage compression when recruiting for key senior roles, to make the company an attractive employment prospect [ (Milkovich, Newman, & Gerhart, 2011, p. 2) ]. Wage compression may be an effective tool for increasing organisational performance within job units with strong internal alignment focus, or a strong need for cooperation and team work between similarly skilled employees, but outside of this collectivist environment, it may be a hindrance to encouraging performance. The success of its application will relate to Hofstede’s collectivist/individualist dimension in the team, the organisation, and the culture within which the organisation operates.

Hofstede’s cultural map shows that strongly capitalist societies, with their more masculine characteristics and lower uncertainty avoidance, will accept internal alignment if it includes allowance for performance as a consideration in job analysis, but reject wage compression [ (Morden, 1995, p. 17) ]. For example, many American multinational firms will, in their Chinese subsidiaries, “provide benefits that recognise established practices in China” [ (Sanyal & Guvenli, 2001, p. 04) ] for their host-country employees, such as standardised housing subsidies and benefits regardless of seniority, and a lower variation between the wages of employees, in recognition the traditionally collectivist culture. Home-country employees posted to the Chinese subsidiaries continued to receive highly individualistic remuneration and incentives based on individual performance and productivity, with less standardised benefits and also less levels of titles [ (Sanyal & Guvenli, 2001, p. 04) ]. American workers accepted this as it supported their individualistic nature and traditionally lower power-distance. Whether the Chinese workers were wholly in agreement with there being wage compression between host-country employees but not between the host and home country employees depended on the length of operations, and this is an important organisational consideration.

As the subsidiary relationship matured, there was greater acceptance by Chinese workers to be moved to a remuneration system more homogenous with the ‘home office’, which included a move to less wage compression and more individualist remuneration as they became “more in tune with free market practices” and more accepting of the implanted organisational culture over their national cultural considerations [ (Sanyal & Guvenli, 2001, p. 11) ]. However, symbolic egalitarianism was rejected as the local culture still retained a deference to higher power-distance, making the awarding of titles and promotions, even if not accompanied by significant variations in wages, an important strategic component in job design and organisational structure for the American MNCs [ (Sanyal & Guvenli, 2001, pp. 103-104) ].

This indicates that here may be the ability to adapt some job factors by the implanting of organisational culture in a foreign subsidiary, but not if it poses significant challenge to ingrained cultural factors. The movement from protectionist communism to rudimentary free market in China has allowed for a gradual shift away from wage compression but not towards symbolic egalitarianism. This somewhat contradictory model is based on the long standing power-distance within China, which withstands capitalist influence to seek greater reward for individual effort.

In conclusion, Pfeffer’s rationale and causal logic may hold true in environments where there is a need for strong cooperation collaboration, or a dynamic and flexible workforce, but in the individualist performance-driven capitalist system, it will struggle to retain validity under the influence of competitiveness within and between organisations. Hofstede’s work on cultural factors can be applied to the national culture in which the organisation is operating, as well as to the culture within the organisation, and in work units within this.

McDonald’s staff working in each restaurant may be happy to accept wage compression and symbolic egalitarianism as the Fordist task separation model of the kitchens requires a highly cooperative work unit. However, moving into the head offices of the same company, the more skilled and senior staff working in the legal, marketing, and managerial roles are operating in work units where longer tenure is desirable, and a collectivist approach is neither required nor desired. As such, a different context applies and Pfeffer’s model is not as valid.

Similarly, in multinational corporations, subsidiaries in collectivist cultures will be more receptive to wage compression than those in individualist cultures, and those in countries with high power-distance will be less accepting of symbolic egalitarianism than those with a lower power-distance. Word Count: 1,388 plus Bibliography Bibliography Gomez-Mejia, L. , & Balkin, D. (1992). Strategic choices in compensation. In L. Gomez-Mejia, & D. Balkin, Compensation, organisational strategy, and firm performance (pp. 24-58). Cincinati: South-Western Publishing Co. Grennes, T. (2011).

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