Organizational Psychology and Compensation

Every well managed organization has to take a step back now and then, to assess what aspects of the organization has potential improvement, as well as how much they are willing to pay to attain the goals they have in mind. There are several ways to make a cost effective decision using Organizational Psychology in evaluating the position itself and how greatly it effects the organization.

The disadvantages to paying 30,000 dollars for the position is your employee is going to lose any sense of worth. What motivation would that give to stay with the organization long term? It would more than likely take years for their pay to reach that 40,000 other people in the same position made on Day 1. The advantage is you are taking a pretty big expense off of your budget every year, depending on the amount of employees are hired for that position. You could potentially take that money and even use it for a sign on bonus, offer some incentive to take the job even with less pay. And because they’d only get the sign on bonus one time, your company is still saving money. Some of the advantages of paying 40,000 dollars are you are going to more than likely get a more qualified, experienced candidate for the position. Someone with years of experience would normally not accept 10,000 dollars a year less than they are to be paid for their area of expertise. The disadvantage is that it makes it more difficult to offer pay raises or other costly incentives to motivate the employee to give 110%.

I would recommend paying the employee 40,000 for the position. In the end, having the most experienced person for the job is going to be your best investment. You may not be able to offer raises in pay as often, but 40,000 creates a much more comfortable standard of living for
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