Does Pay Structure Matter? A Comparison of a Flat and Hierarchical Pay Structure

Posted: 7 Apr 1998  

Michelle Brown

The University of Melbourne - Department of Management

Abstract

This paper details the experiences of one manufacturing company in the Midwest that operates a flat rate pay structure in one division and a hierarchical pay structure in a second division that is located on the same site and operates in the same product and labor markets. In "Division F" all production employees receive $8.32 per hour irrespective of seniority, performance, skill or shift. In "Division H" there is a hierarchical system of pay: three pay grades and annual individual adjustments based on a supervisory assessment of performance.

The paper finds that employees working under a flat rate structure felt that they had less cooperative relationship with coworkers, were more concerned about supervisory favoritism and the lack of recognition for good performance, but indicated a greater level of overall job satisfaction than did their counterparts working under a hierarchical pay structure. The paper concludes that the choice between a flat and a hierarchical pay structure is not clear cut.

JEL Classification: J31

Suggested Citation

Brown, Michelle, Does Pay Structure Matter? A Comparison of a Flat and Hierarchical Pay Structure. Available at SSRN: https://ssrn.com/abstract=74303

Michelle Brown (Contact Author)

The University of Melbourne - Department of Management ( email )

200 Leicester Street
Melbourne, Victoria 3053
Australia
+61 3 9344 7872 (Phone)
+61 3 9349 4293 (Fax)

Register to save articles to
your library

Register

Paper statistics

Abstract Views
1,703
PlumX