Do formal salary systems really matter?
Drawing on a single large U.S. corporation's personnel records for the years 1989-93, the authors analyze an example of the kind of formal salary system used by most large firms. The system was highly centralized, covering salary levels, salary ranges, raises, and bonuses. Supervisors had little discretion over pay other than through subjective performance ratings. The firm held fairly strictly to the salary rules, leading to observable constraints on pay for employees near the top of the salary range. These constraints, however, apparently did not impose important costs on the firm. The authors find that this firm's practices were consistent with most of the important conclusions of prior empirical research on internal labor markets. For example, the evidence suggests that promotions were more common at the bottom of the salary range than at other levels, there was a "fast promotion track," and nominal salary cuts were rare. (Free full-text download available at http://digitalcommons.ilr.cornell.edu/ilrreview/.)
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Volume (Year): 58 (2004)
Issue (Month): 1 (October)
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