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Six dangerous myths about pay.

J Pfeffer1

  • 1Stanford Graduate School of Business, CA, USA.

Harvard Business Review
|April 7, 1998
PubMed
Summary

Executives often misunderstand compensation strategies, falling prey to six dangerous myths about pay. These misconceptions lead to ineffective compensation practices and harm organizational performance.

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Area of Science:

  • Business Administration
  • Organizational Behavior
  • Human Resource Management

Background:

  • Executives face complex decisions regarding employee compensation in a dynamic business environment.
  • Conventional wisdom and public discourse on pay are often misleading, leading to flawed compensation strategies.
  • Many companies are shifting from traditional salaries to diverse financial incentives, increasing the need for accurate guidance.

Purpose of the Study:

  • To identify and debunk prevalent myths surrounding employee compensation.
  • To explain the origins and inaccuracies of common compensation misconceptions.
  • To provide executives with a more productive framework for developing compensation strategies.

Main Methods:

  • Analysis of common business practices and advice related to employee pay.
  • Deconstruction of six specific, widely held myths about labor costs, incentives, and motivation.
  • Explanation of the negative consequences of adhering to these pay myths.

Main Results:

  • Identified six dangerous myths about pay, including equating labor rates with labor costs and believing individual incentives always improve performance.
  • Demonstrated that these myths are pervasive and lead to incorrect compensation decisions.
  • Highlighted that low labor costs do not guarantee a sustainable competitive advantage.

Conclusions:

  • Executives acting on these pay myths often harm their organizations.
  • Misguided compensation strategies result in ineffective pay adjustments with significant costs.
  • A critical reassessment of compensation principles is necessary for effective organizational management.

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