Costco Pay Structure

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Within any organisation an effective pay and reward system is crucial for individuals, employment relations and the performance of the organization. On the one hand, there is the view as expressed by Jim Sinegal, the CEO of Costco, that vast pay differences between individuals in a company is simply bad practice (Guthrie, 2007 in Boxall, Purcell and Wright, 2008). The pay structure that represents a less wide pay dispersion among employees is noted as compressed pay structure, or in other words egalitarian (Brown, 2003). On the other hand, others believe that pay should be more hierarchical, meaning that there should be employees differently paid within the same organization (Brown, 2003). These two mindsets are controversial and this essay…show more content…
Another argument against the effectiveness of the hierarchical pay structure is that according to Martin (1981) and Crosby (1984), the relative deprivation theory argues that low-paid and/or middle paid employees tend to compare their pay to that of highly paid people (Martin, 1981; Crosby, 1984). Such comparisons result in lower paid employees feeling at a disadvantage and that they have been unfairly treated .This in turn means that they develop competitive attitude towards others in the team and offer less support, effort and commitment to the goals of the team (Hatfield and Sprecher, 1984; Deutsch, 1985; Levine, 1991).One could conclude, that people’s perceptions about what is ’wrong’ regarding pay structures, more or less result from their own position, value and status in the organization, and in most cases justice is easier perceived in more compressed structures, where people feel equal to the person sitting next to…show more content…
The compressed pay structure is all about the equal pay among employees, which supports feelings of fairness, promotes a willingness to cooperate, to reach common goals and to display team oriented behaviour, since employees do not feel at a disadvantage compared to others within the same company (Cowherd & Levine, 1992). The key strength of the egalitarian structure is the enhancement of teamwork, team spirit and the reduction of interpersonal competition and the sabotaging of other’s efforts (Lazear, 1995), all of which leads to loyalty, common fate creation and higher organizational performance (Pfeffer, 1994). This kind of structure could be very effective, when output depends on collaboration and work interdependencies (Deutsch, 1985). An experiment conducted on a baseball team by Bloom (1999), found that pay differences among players resulted in poorer performance of the team. This would seem to support the argument for equal remuneration. However, people who have greater responsibilities and job levels as well as greater attributes and who tend to perform at higher levels, may feel again under-rewarded (Milkovich & Newman, 1996). In addition, the effect of the ’free rider’, a person who is contributing less than the others at the team’s expense, could hardly be avoided. (??i have to find the reference
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