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Ann - As I read your post, all three models focus upon base pay as the primary financial motivator of performance. Perhaps a fourth model - I'll call it the Results Model - should be considered. In this model base pay rates are pegged to market competitive rates by function, with adjustments reflecting cost of living increases only. Variable pay offers opportunities to receive additional compensation up to some significant percentage of base pay (50%?) as a result of achieving performance goals as determined by the company. This allows organizations to maintain internal equity while recognizing high levels of achievement.

One big quibble from me, John. Hate to see "cost of living" referenced in these discussions as a valid metric for competitive pay increases. Exactly WHOSE cost of living? Donald Trump's is quite different from mine. And COL measurement criteria vary widely, from various market baskets attributed to wage earners or white collar workers at different income levels in major cities to the Big Mac Index. Would I get a raise if I move from a trailer to a condo? Should pay drop when your kids graduate from college? See my "Of course they want cost of living pay..." article from June 2010 here. Please don't further muddy the already murky waters.

A better term might be "the pay floor," translated as "the minimum competitive market increase experienced by all positions." That usually reflects the typical periodic pay structure changes.

Interesting observations, Ann. Thank you. My two cents worth:

A de facto tournament model exists in any situation in which there are indivisible prizes (partnerships, C-level jobs,etc.) and for which there are only endogenous contestants. I'd be hard pressed to see where it could be used in any other situation.

An efficiency wage regime will be workable if you can establish an economic benefit from reduced turnover and increased engagement (or at least reduced propensity to shirk)exceeding the marginal cost of the efficiency wage. (And of course, this begs the question of whether the efficiency wage is in fact the cause of the reduced turnover, etc.) Sam's Club and Costco are running one of the all-time great natural experiments for us in that regard even as we speak. I'd like to think that a future Nobelist in economics is looking closely at this.

I'm dubious about the real-life relevance of the service model in most present-day private sector settings; for it to be workable, employees have to count on their employer's continuing presence in a marketplace in which their skills are valued. The essence of it is that you are under-rewarded (vis-a-vis some market reference point) early in your career, and over-rewarded at a later stage. Given the pace of change (and I see little evidence that it is decreasing), that's a bet that I wouldn't take without receiving some kind of risk premium, which more or less kills the reason for doing it in the first place. Of course, YMMV.

Point taken, Jim. I obviously didn't have my thinking hat on securely when I referenced COLA as a basis for pay adjustment. Thanks for correcting me.

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