The problem with current structure of pay is that it brings insecurity among employees regarding their pay and benefits. With current pay system linked to job grades rather than employee’s performance, It makes it hard for employees to make extra effort for organization’s performance. (Heery, 1996)
The new pay theories have become popular in the last decade as academics have been criticizing the old pay systems due to many reasons. It is often argued that the old pay system is not directly related to organization performance and employees feel they are not being acknowledged for their contribution in organization’s performance. (Heneman, 2000) Schuster and Zinghiem criticized the old system and represented the approach of new pay. Their argument was that by linking the pay and rewards to organization strategy and performance will bring benefits. The new pay system will be strategic, business aligned, and performance driven.(Schuster and Zingheim, 1996) The reasons for emphasising this pay system are quite clear; the pay system needs to be aligned with organization strategy and needs rather than a standard bureaucratic system that has been followed for decades. Schuster and Zinghiem extensive research is the force behind the idea of making pay a positive tool for achieving excellence in organizations.
Although the new theory is well received and appreciated in academia, it is far from implementation in the industry. New pay system is likely to bring discrimination among the employees as people will be paid rather than the job. Another issue could be legal responsibilities that an organization has for its employees. (Sturman and Short, 2006)
Case Study: An extensive research into the banking sector regarding new pay system brought out some issues. The research was carried within Finbank reward strategy for managers. The idea behind the research was to align the rewards system with the