On-Line Human Resource Management Experiences
How Much to Pay: Finding the Right Balance at SuperFoods
Word of your consulting success is spreading rapidly, and SuperFoods has retained your services
to help management evaluate the company’s compensation strategy and practices. The basic
HR strategy of SuperFoods, a producer of dairy products, is to keep pay levels low but to ensure
fairness. As you talk with the top managers about their beliefs concerning pay, it becomes quite
clear to you how you can help them align the company’s compensation strategy with its overall
competitive strategy. The management team has asked for your input on various aspects of
compensation. What will you include in your recommendations that will allow the company to
retain its current HR strategy?
What Action Do You Take?
A.
Recommend that SuperFoods follow the Free Agent (Variable Transactional) HR
strategy.
B.
Recommend that SuperFoods follow the Bargain Laborer (Uniform Transactional) HR
strategy.
C.
Recommend that SuperFoods follow the Loyal Soldier (Uniform Relational) HR strategy.
Incorrect Responses
A. The Free Agent approach suggests high
pay levels and short-term incentives so that
does not align with SuperFoods’ goal of low
pay levels and consistent processes.
C. The Loyal Soldier approach suggests
similar pay levels for everyone and rewards for
employee loyalty so that does not align with
SuperFoods’ goal of low pay levels and
consistent processes.
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On-Line Human Resource Management Experiences
How Much to Pay: Finding the Right Balance at SuperFoods
Summary of Steps Taken:
1. Recommend that SuperFoods follow the Bargain Laborer (Uniform Transactional) HR
strategy.
The SuperFoods’ goal of low pay levels and fair, consistent processes aligns very well with the
Bargain Laborer (Uniform Transactional) HR strategy. Uniform compensation seeks to build a
sense of teamwork by paying employees similarly regardless of performance level. Transactional
commitments emphasize short-term pay and bonuses. Uniform transactional compensation fits
with a Bargain Laborer HR strategy by reducing labor costs. Because pay is lower than it
probably should be, an important aspect of compensation in these organizations is to develop fair
and uniform practices that increase perceptions of fairness.
The SuperFoods’ senior management team wants you to recommend any theories of motivation
that will work for them while still following their Bargain Laborer HR strategy.
What Action Do You Take?
A.
Recommend that SuperFoods can use the reinforcement theory to increase employee
motivation.
B.
Recommend that SuperFoods can use the expectancy theory to increase employee
motivation.
C.
Respond that while there are many theories of motivation, SuperFoods will likely not have
much luck getting any of them to significantly increase employee motivation because of
the low pay approach of the Bargain Laborer.
Incorrect Responses
A. Reinforcement theory suggests that people
engage in behavior when they receive
desirable consequents. These consequents
only motivate behavior though when they are
contingent. In terms of compensation, this
suggests that higher pay should be given if and
only if performance is high (i.e. pay for
performance plans). This theory will likely not
provide significant benefit to a Bargain Laborer.
B. Expectancy theory asserts that people are
motivated when they have three beliefs:
valence, instrumentality, and expectancy.
Valence is belief that a certain reward is
valuable. Instrumentality is the belief that the
reward will be given if the desired outcome is
met. Expectancy concerns people’s belief that
they can actually achieve the desired outcome.
This theory will likely not provide significant
benefit to a Bargain Laborer.
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On-Line Human Resource Management Experiences
How Much to Pay: Finding the Right Balance at SuperFoods
Summary of Steps Taken:
1. Recommend that SuperFoods follow the Bargain Laborer (Uniform Transactional) HR
strategy.
2. The SuperFoods’ senior management team wants you to recommend any theories of
motivation that will work for them while still following their Bargain Laborer HR strategy.
Unfortunately, you have to let them know that they will likely not have much luck getting any
of them to significantly increase employee motivation because of the low pay approach of the
Bargain Laborer.
While one or more of the theories of motivation (reinforcement, goal setting, justice, expectancy,
and agency) may provide some increased motivation to the SuperFoods’ employees, uniform
compensation practices are not nearly as effective as variable compensation practices for
encouraging high motivation. The goal with uniform practices is instead to create a culture of
fairness and cooperation. Incentives that encourage high individual performance can lead to
sabotage, which reduces the performance of the group as a whole. With a Bargain Laborer
strategy seeking to pay the lowest possible wages, employees are likely to move from
organization to organization depending on which organization is willing to pay the most.
The conversation next turns to pay level strategies and how the compensation structure is
determined. The SuperFoods’ management team is looking for more positive news with this set
of recommendations (but still wants to keep their current strategy).
What Action Do You Take?
A.
Recommend that they continue to focus on the lag-the-market pay strategy but strive to
reach the meet-the-market level. In terms of compensation structure, recommend a skillbased pay approach.
B.
Recommend that they continue to focus on the lag-the-market pay strategy but strive to
reach the meet-the-market level. In terms of compensation structure, recommend a jobbased pay approach.
C.
Recommend that they move to a lead-the-market pay strategy to attract top-quality
workers. In terms of compensation structure, recommend a job-based pay approach.
Incorrect Responses
A. The pay strategy in this choice is fine, but
skill-based pay does not make much sense as
it uses differences in employee skills as the
basis for determining pay. In that approach,
employees are given an opportunity to earn
more as they develop more skills (very
inconsistent with SuperFoods’ Bargain Laborer
strategy).
C. While a move to a lead-the-market pay
strategy would indeed attract better quality
applicants, this approach simply does not make
sense to a company focused on maintaining a
Bargain Laborer HR strategy. The job-based
pay approach in the second half of this answer
is correct though.
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How Much to Pay: Finding the Right Balance at SuperFoods
Summary of Steps Taken:
1. Recommend that SuperFoods follow the Bargain Laborer (Uniform Transactional) HR
strategy.
2. The SuperFoods’ senior management team wants you to recommend any theories of
motivation that will work for them while still following their Bargain Laborer HR strategy.
Unfortunately, you have to let them know that they will likely not have much luck getting any
of them to significantly increase employee motivation because of the low pay approach of the
Bargain Laborer.
3. The conversation next turns to pay level strategies and how the compensation structure is
determined. Recommend that they continue to focus on the lag-the-market pay strategy but
strive to reach the meet-the-market level. In terms of compensation structure, recommend a
job-based pay approach.
While a lag-the-market pay strategy probably makes the most sense for a company such as
SuperFoods, it is possible for Bargain Laborers to be at meet-the-market in terms of pay (average
level for other organizations). With job-based pay, each job is assigned a point value based on
various characteristics of the job, and people working in jobs worth more points receive a higher
pay. Since Bargain Laborers usually don’t seek to hire people who have developed specific
skills, this strategy can be an attractive option.
You are still meeting with the SuperFoods’ management team and start talking about the Fair
Labor Standards Act (FLSA). Knowing what you do about SuperFoods, which of the
compensation practices governed by FLSA is likely to be the biggest concern you need to make
sure they are aware of?
What Action Do You Take?
A.
Remind them of the FLSA regulations concerning minimum wage laws.
B.
Remind them of the FLSA regulations concerning exempt vs. non-exempt employees.
C.
Remind them of the FLSA regulations concerning overtime.
Incorrect Responses
B. This is a possibility with a company like
SuperFoods (Bargain Laborer) as they may try
to classify their hourly employees as exempt
just to avoid paying them overtime. We need
to assume they are not unethical though.
C. This is also a possibility with a company like
SuperFoods (Bargain Laborer) as they may try
to avoid paying the overtime rate of 1.5 times
the normal wage rate because of their
emphasis on reduced labor costs. More likely
though is them simply not allowing OT hours at
all.
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How Much to Pay: Finding the Right Balance at SuperFoods
Summary of Steps Taken:
1. Recommend that SuperFoods follow the Bargain Laborer (Uniform Transactional) HR
strategy.
2. The SuperFoods’ senior management team wants you to recommend any theories of
motivation that will work for them while still following their Bargain Laborer HR strategy.
Unfortunately, you have to let them know that they will likely not have much luck getting any
of them to significantly increase employee motivation because of the low pay approach of the
Bargain Laborer.
3. The conversation next turns to pay level strategies and how the compensation structure is
determined. Recommend that they continue to focus on the lag-the-market pay strategy but
strive to reach the meet-the-market level. In terms of compensation structure, recommend a
job-based pay approach.
4. You are still meeting with the SuperFoods’ management team and start talking about the Fair
Labor Standards Act (FLSA). Knowing what you do about SuperFoods, you remind them of
the FLSA regulations concerning minimum wage laws.
Great job! The relatively low skill level of the SuperFoods’ workforce suggests that the wage rate
for the employees will be very near the minimum wage that is allowed under the law because of
the emphasis on reducing labor costs. Keep in mind that effective organizations have
compensation practices that motivate employees to do things that help increase their firm’s
productivity. Strong compensation and benefits packages attract better employees who are more
likely to stay and are more highly motivated, which leads to higher levels of performance (as we
will discuss in the next chapter).
For More Information:_________________________________________________________
A number of Web sites are available for more information on compensation practices, theories of
motivation, pay level strategies, pay structures, and FLSA:






http://www.shrm.org/ - Society for Human Resource Management (SHRM) website that
provides information on a variety of HR disciplines.
http://www.workforce.com/section/02/ – Information on a variety of HR functional areas and
employment law topics.
www.hr-guide.com – Information on a variety of HR functional areas and employment law
topics.
http://www.hr-guide.com/compensation.htm - Website dedicated solely to compensation
issues.
http://humanresources.about.com/od/salaryandbenefits/Salary_Benefits_Variable_Pay_Bonu
ses_Profit_Sharing.htm - Website dedicated to compensation issues.
http://www.dol.gov/esa/whd/flsa/ - DOL website dedicated to the FLSA.
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